by Brian Hill
The most publicised and controversial of the proposals by the Government for the radical reform of local government finance in this country is the substitution of community charge for domestic rates. But no less significant, and just as controversial in its own way, is the intention to institute a nationally determined non-domestic rate with effect from April 1 1990.
On the one hand the new rate can be viewed as a response to the actions of a number of left-wing councils which have mercilessly increased the rate burden on individuals and businesses by relying on the electoral support of persons who make little or no direct contribution to the cost of local services, or who do not perceive that they make such payments. The survival of businesses in certain areas can be put in jeopardy, while vital decisions on location are seriously distorted. It is thus argued that the effect of rates on businesses can be neutralised by imposing a standard or uniform poundage throughout the country (or at least separately for England, Scotland and for Wales).
On the other hand the substitution of the powers of local elected representative institutions to determine the rate of local taxation by the unilateral decision of the respective Secretaries of State raises constitutional issues of the first magnitude, while it cuts across the arguments of accountability on which the Government has relied so heavily in designing this pattern of radical reform. Additionally, it has served to put in question the link which has been formed in recent years between local businesses and the local councils.
But the time for argument on general principles has long since passed. The legislation has been passed through the Commons and it is now being closely scrutinised by the Lords.
The parts in the Local Government Finance Bill which relate to the national non-domestic rate have a number of noteworthy characteristics. In the first place the disruption which would have been caused to rating law as a whole by the extraction of the provisions dealing with domestic rates and the knock-on effect on non-domestic rating would have been so great that it was decided to repeal the General Rate Act 1967 and the subsequent amending legislation in their entirety.
It is not perhaps too irreverent to describe this process as wiping the slate clean and starting afresh. But this is not the Government’s intention since it is proposed to continue, where appropriate and suitable, existing practices and procedures. It would have been folly to have ignored centuries of experience and expertise.
As a consequence the legislation has been honed down to the barest minimum. This tendency has been made even more startling by the deliberate decision to leave the greater part of the detail to statutory orders and regulations which are to be made at a later date. (Incidentally it also serves to minimise the points of dispute while the measure is passing through Parliament.) This secondary legislation will apply to most of the changes in practice and procedure foreshadowed in the yellow paper on non-domestic rates which was published in the summer of last year.
One cannot help detecting a strong feeling that the Government wishes to emphasise the radical break with the past which its proposals seek to achieve. Thus many of the time-honoured terms used by rating practitioners over the centuries have been abandoned in favour of more clinical and featureless language.
Thus the “rate poundage” will become the “multiplier”, “rating authorities” will be “charging authorities”, the “valuation list” the “rating list”, the “mixed hereditament” a “composite hereditament”, and “net annual value” the “rateable value”.
Debates during the Commons standing committee revealed a strong determination by the Government to defend the new terminology to the last.
In broad principle the non-domestic rate multiplier will be determined by the relevant Secretary of State in the first year of the new regime (1990-91) on the basis, so it is claimed, of the average rise in non-domestic rates during the previous year. Thereafter the change in the multiplier, year by year, will be related to movements in the retail price index. In a revaluation year (such as 1995) the multiplier will be fixed in the usual way, but it will be adjusted downwards to take account of the overall increase in rateable values.
The relationship of the year-by-year increases in rates to the retail price index has a significance in the transitional arrangements which the Government intends to make so as to smooth the introduction of this reform. Ministers have recognised for some considerable time that the combined effect of the introduction of the nationally determined non-domestic rate and the 1990 revaluation of non-domestic property will cause a significantly increased rate burden to some businesses.
The impact will be cushioned not only by the restrictions on the growth in “poundages” as mentioned above but also by placing a ceiling on increases in rateable value at a certain level and by gradually phasing-in the payments so that the full amount is paid at the end of the transitional period.
Backbench pressure, particularly from his own supporters, during the Commons standing committee has led to promises being made by the Secretary of State to give further relief to the non-domestic sector. Thus he hinted that businesses in general should not be expected to pay increases of more than 20% a year, while small businesses could look forward to a restriction of not more than 15%. Perhaps understandably it was indicated that the concessions would have to be paid for by businesses which gained from the reforms. In addition Nicholas Ridley said that powers would be taken to institute, by way of statutory regulations, a second transitional period after the 1995 revaluation if this was needed.
A radical change in the practical operation of the non-domestic rate forms a central plank in the Government’s overall plan. While tradition is followed in that the multiplier (the old “poundage”) is applied to the rateable value of the property in question, the total yield will be paid by the charging authorities into a non-domestic pool which will be operated centrally, although there will be separate pools for England and Wales. The money in the pools will then be redistributed to charging authorities on the basis of adult population in their areas.
Ministers have long recognised that the new system will cause severe complications to the City of London. Although an enormous income is traditionally derived from non-domestic property in the Square Mile, the payment from the pool will be derisory because of the minimal residential population in the City. But the dilemma has been resolved by the device of creating certain “special authorities” which have a population of less than 10,000 and a rateable value per head of population of more than £10,000. In this way the City of London will be permitted to levy its own non-domestic “poundage” within certain prescribed limits.
So far as practice and procedure are concerned, the broad structure of the previous legislation is reproduced, but in a condensed form. The valuation officer for an area will be appointed by the Inland Revenue. He will be responsible for determining the rateable value of any property. He will prepare the local non-domestic rating list (the former valuation list) and will alter it between revaluations as necessary. Other persons will be permitted to make proposals for altering that list. A central rating list will be prepared but this will cover only properties occupied by certain national networks or statutory undertakers which are valued on a formula basis. The local list will contain details of each non-domestic hereditament in the area except those which are exempt from rates or are included in the central list.
The most significant provision in the Bill, so far as the rating surveyor is concerned, is undoubtedly that which prescribes that a revaluation of non-domestic property is to take place on April 1 1990 and that the exercise is to be repeated every five years thereafter. In the light of previous experience since the second world war and that of many overseas countries, this assurance is doubly welcome.
The definition of value, which forms the basis of the assessment and the nub of any appeals against it, has been altered. The difference, however, is mainly cosmetic, since the former idea of net annual value is virtually reproduced in its entirety. The Bill also sets out the broad parameters whereby valuation officers assess non-domestic property in the future. An antecedent valuation date, by reference to which rental evidence is analysed, is provided for, as well as the application of tone of the list valuations between revaluations shorn of the restrictions currently imposed by section 19 of the 1967 Act. Although many matters in this field are reserved for later prescription in statutory orders and regulations, the Secretary of State is, interestingly enough, given power to “include provision for the preservation of such principles, privileges and provisions for the making of valuations on exceptional principles, as apply or applied for purposes of the 1967 Act”.
Appeals against rating assessments will be allowed according to traditional practice. The local valuation courts will, however, be renamed “the valuation and community charge tribunals” so as to recognise the additional jurisdiction which will be given to them following the substitution of community charge for domestic rates. In the case of charities, the rate bill will be mandatorily reduced to 50% of the full charge. So far as composite hereditaments (the former mixed properties) are concerned, the rate will be charged only on the non-domestic part. The empty rate will be continued, but it will be levied at the mandatory level of 50% of the full charge, subject to the existing exemptions in favour of industrial premises and warehouses.
Many of the proposed changes in the practice and procedure of assessing, collecting and recovering non-domestic rates will be prescribed later in statutory regulations. Much was foreshadowed in the yellow paper published in the summer of last year. But the Government has altered its earlier proposals in a number of respects. The implications of the latest pronouncements will be analysed in a second article, to be published in next week’s issue.