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FINANCE SUPPLEMENT - COMMENT

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While Sir Michael Lyons deliberates over the future of local government, a fascinating experiment in local taxation...
While Sir Michael Lyons deliberates over the future of local government, a fascinating experiment in local taxation reform is already taking place in the UK - in Northern Ireland. 'Experiment' is perhaps not the word, as it is a carefully thought-out project, drawing on research by the University of Ulster.

Northern Ireland never had the poll tax, nor its replacement. For the rest of the UK, council tax was a quick-fix solution to a crisis. In contrast, the Department of Finance & Personnel in Northern Ireland has been able to spend time and effort turning old fashioned domestic rates into a modern tax.

Knowing that any local taxation would have to be, above all, acceptable to the public, it has addressed the notion of ability to pay head on. Ulster University tested out whether a banded property tax, like council tax, would work for the province and concluded it was too regressive to be acceptable.

The only way to make the system more progressive was to have more bands, but this increases the complexity and makes the task of valuation far more arduous. In the end you might as well go for individual valuations, which is what the authorities in Northern Ireland have opted for. They have also devised a relief scheme linking the bills people receive even more closely with their ability to pay.

Could this be done in the rest of the UK? No doubt the Lyons review is looking at it. Individual valuation sounds like a huge challenge but it is one the Valuation Office Agency would relish. After all, such a valuation was done under rates and the technology has advanced hugely since then.

So it may be that all is not lost for local property taxes - in property- obsessed Britain they may never be loved, but they will be understood. They also remain the tax most likely to give local authorities a stable, buoyant source of income and one which they can keep under their control.

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