The rating system in Northern Ireland has remained largely unchanged since it was introduced in the 19th century, and has not been reviewed at a broad level since. The community charge was not introduced in the previous period of direct rule, nor was council tax. So our starting point for local taxation reform has been fundamentally different from that in the rest of the UK.
District councils' primary source of finance has remained the rates, both domestic and non domestic, which raise approximately 65% of a district council's income requirement.
Despite this healthy balance of funding position, there are serious problems with the current domestic rating system, and so in 2000 the Northern Ireland Executive initiated a review of rating policy. The main goal was to secure a rating system that distributed the local tax burden in a fairer way. Key considerations included the need to ensure all executive policies and procedures contributed towards targeting social need objectives.
Views were canvassed on alternatives to local property based taxes during the public consultation exercise in 2002. However, very few considered that rates should be abandoned.
The domestic sector was last revalued in 1976 based on late 1960s rental evidence. Consequently, the current valuation list in relation to the domestic sector is seriously out of date. In short, there is no correlation between values and the level of relative prosperity or deprivation in any area.
Domestic rates were also based on rental values, which have little meaning in today's property world.
Following the consultation exercise in 2002, it was announced that domestic rate bills should be based on capital values. The options for capital values are confined to variations of a banded system or an individual assessment approach.
Analysis has confirmed that importing a council tax banded system to Northern Ireland would have some negative social and economic effects. The introduction of council tax was an acceptable solution in the rest of the UK simply because it emerged from the poll tax/community charge experience.
The other form of capital value system is to assess each property individually. Research by the University of Ulster has shown the adoption of individual capital values would provide a system that is fairer and more progressive than either the current system or the alternative banded approach.
Nevertheless, changing to an individual capital value system will cause turbulence as the rating burden is redistributed for the first time in almost 30 years. On a purely redistributive basis, 61% of households would be winners, 39% losers.
Decisions will be made on whether there should be a maximum payment, to reflect the use of services argument and also recognising that many of those at the top end of the housing market will face substantial increases in liability.
Transitional arrangements are to be provided over three years for those likely to experience significant shifts in their rates liability as a result of reform.
One of the concerns with a property tax is that there is only ever an indirect
relationship between capital value and ability to pay. So well-targeted relief is an essential ingredient in the reform package. In the rest of the UK, there are around 40 different council tax reliefs. In Northern Ireland, no significant domestic rate reliefs are provided beyond the housing benefit system.
The main proposal is to introduce a rate relief scheme for those on low incomes, who are just beyond the reach of the housing benefit system. It will sit above, but be separate from, the existing housing benefit system and will be funded from the tax base, with other ratepayers contributing a little more.
The focus is upon ability to pay and ensuring that assistance is directed towards those most in need. In order to ensure the relief scheme is both accountable and transparent, a restored devolved executive could decide upon its level and remit.
Additional help for pensioners has also been considered, in the form of a deferment scheme, allowing full or partial deferment of a rate bill for those of pension age.
In the absence of a devolved administration, the government has taken forward a reform process begun by the NI Executive and will be introducing these reforms from April 2007, when rate bills on the new capital value system will be issued for the first time. The government's plans contain a number of 'legislative levers' that will allow a future assembly to take decisions about the shape of the new system. These levers relate to:
>> The targeting of the rates relief scheme
>> Whether a deferment scheme should be introduced for people of pension age
>> Whether or not rates liability is subject to a maximum or minimum payment
>> The frequency of revaluations
>> Whether vacant domestic rating should be introduced.
The government intends these reforms will provide a sustainable way of raising local revenues and that the new system will be better understood, fairer and more acceptable to the Northern Ireland public.
Brian McClure Head, rating policy division, Department for Finance & Personnel,
Functions and fundings
The current local government system in Northern Ireland has been in operation since October 1973. It consists of a single tier of 26 district councils. The total number of staff employed by district councils is approximately 9,300.
Councillors are elected for a four-year term of office, under proportional representation. The next local council elections are due in 2009.
A major review of local government has recently concluded and from April 2009 there will be seven new councils to replace the 26, with enhanced powers.
Direct functions give councils responsibility for areas such as the provision and management of recreational, social, community and cultural facilities; environmental health; and refuse collection.
Representative functions permit councils to nominate representatives to sit as members of various statutory bodies established to administer regional services.
Consultative functions allow councils to represent the views of their population on the way in which regional services are operated throughout each district such as planning, roads, water and conservation.