by Brian Hill
The institution of a nationally determined non-domestic rate on April 1 1990 forms a significant and important part of the Government’s plans to reform, in a radical way, local government finance in this country. The main principles underlying the reform and the broad framework of the system as revealed in the legislation which is currently passing through Parliament were outlined in an article published in last week’s issue at p 24. The likely pattern of the detailed practice and procedure is now examined.
The Local Government Finance Bill has survived — although not without high drama and political turmoil — all the various stages in Parliament. It has now been closely scrutinised by both houses. Broadly speaking, the skeleton of the new system was set out in the primary legislation, with the detailed rules of operation left for later prescription in statutory orders and regulations. This tidy (but also politically convenient) procedure has meant that the volume of statute law has been reduced to the barest minimum. It would, however, have been unrealistic to expect that the Government would have been able to get its own way in all respects. Some trimming of the sails was therefore done, under pressure from both Parliament and outside organisations, on the important subject of exemptions.
Previously the exemptions from the rate were enshrined in primary legislation. The Bill as originally drafted relegated them to regulations made by the Secretary of State. However, it has now been conceded that they should be comprehensively set out in a specific schedule to the Bill. Thus the familiar reliefs for agricultural land and buildings, intensive livestock premises, places of religious worship, sewers, properties of drainage authorities, certain Trinity House property, parks, properties used for the disabled, air-raid protection works, moorings and property in the enterprise zones were covered. There was, however, a twist to the tail. Exemptions were in future to be conferred not by primary legislation but in regulations made by the Secretary of State.
A strong indication of the way in which the Government intends that non-domestic rates shall operate in the future was given in the yellow consultation paper which was published last summer. Significantly enough, these proposals have recently been amended in five important respects.
In the first place the Government has listened to representations made on the original suggestion that the power of local authorities to make proposals for the alteration of rateable values (except of course in the case of their own properties) should be abolished. Accordingly, amendments will be made to the Bill to ensure that the valuation officer will act on information supplied by the local authority about a material change in circumstances either by altering the list within a specified time or by informing the authority in cases where he considers an alteration is not justified. Further consideration will, however, be given to the prospect of providing that any failure to abide by this requirement will permit the authority to make a proposal. Furthermore, regulations will provide that the valuation officer will be required (as at present) to inform the authority of proposals made by occupiers. This will enable the authority to make written representations if it so wishes. It can thus be seen that the local authority will continue to have an interest in rateable values within its area, but there will not be complete restoration of its present powers.
Second, an important alteration has been made to the proposal in the yellow paper that the ratepayer should only have a right of appeal for six months after the coming into force of the list except in the case of a material change in circumstances or where the valuation officer had altered an entry in the list. While the intention to introduce this new arrangement, which is based on current Scottish practice, has been unequivocably restated, it has been conceded that Scottish experience should be followed in permitting a new occupier to exercise the right to make a proposal within six months of the change in occupation provided that an appeal on general grounds had not previously been made during the currency of the list.
The third modification was to the suggestion in the yellow paper that there should be a time-limit, possibly of three months, beyond which alterations to the list could not be backdated. Inevitably major difficulties would have arisen in giving practical effect to this proposal. It has accordingly been agreed to drop it. The fourth aspect on which the Government has responded to pressure concerns the previous suggestion that local authorities should lose their power of remitting rates on grounds of poverty and (in the case of empty property rates) hardship. As it has been shown that the temporary remission of rates can make the difference between survival or otherwise of an ailing business, it has been decided to leave well alone. Finally, particularly following pressure from the leading business organisations, it has been agreed to retain the existing duty on local authorities to consult representatives of business in their areas.
This ministerial statement of intent has left untouched a number of important matters of practice and procedure which were foreshadowed in the yellow paper. Included in this category is the proposal that all valuations made between the dates of general revaluations shall be determined according to the level of rents prevailing when the list was compiled (ie on the “tone of the list”) and that this should not be restricted, as at present, to where that level was lower in cash terms. Similarly, special rules will be made to ensure that properties within the enterprise zones are not overvalued when the zones themselves are terminated. This will be achieved by permitting valuation officers to offset any element in the rents which reflect the benefits of the rates holiday.
It was suggested in the yellow paper that the right of third parties other than local authorities to make proposals to alter rateable value should be removed. This intention has now been confirmed. Similarly, endorsement has been given to the proposal that, where a valuation officer perceives a need to alter the list, his alteration will take immediate effect and the ratepayer will be liable to pay rates on the basis of the new value. The latter will of course retain his right to appeal against this alteration and, if he is successful, he will be entitled to a refund together with interest. It was also suggested that the new valuation and community charge tribunals will have, in the case of ratepayer appeals, the power to increase, as well as reduce, rateable value, where this would be justified by the evidence adduced at the hearing.
In line with the general approach adopted by the Government, the detailed methods of collecting and recovering rates will be left for later prescription in statutory regulations. They will include such matters as payment by instalments, service of rate demands and recovery of rate debt both by way of distress and, where appropriate, other methods. In addition, certain relevant matters foreshadowed in the yellow paper have now received the seal of approval. Local authorities will thereby be given the power to take a charge on property as a security for unpaid rates. This may be an appropriate step to take in the case of certain vulnerable businesses.
Again, where a ratepayer has paid more rates than he should on account of an error in the list or because a relief should have been allowed, the local authority will be placed under a duty to repay the whole overpayment with interest. On the other hand a ratepayer making an appeal against an increase in rateable value at a revaluation will lose his existing right to withhold part of the increase resulting from that revaluation. Finally, the general power to rate owners rather than occupiers will be removed except in the case of caravan sites and multiple moorings.
The varying pressure of events while the Bill was going through the Parliamentary gestation stage has also had a marked effect. It has for some time been the Government’s objective to harmonise valuation practice and procedure north and south of the border. By all accounts satisfactory progress is being made in the discussions to this end between representatives of the Inland Revenue Valuation Office and the Scottish Assessors Association. The particular problem of the differences in the application of the contractor’s basis in England and Wales and the contractor’s principle in Scotland has led to values being much higher north of the border. Investigations have shown that the decapitalisation rates adopted or approved in the various countries have had a major effect. It has therefore been indicated that the power currently in the Bill to prescribe the decapitalisation rate will be used, if necessary, to achieve the desired degree of harmonisation.
Finally, the Secretary of State for the Environment informed the Commons that the Bill would be used to overturn court decisions on two leading rating cases. The House of Lords accepted the arguments put forward by the ratepayers in the historic case of Clement (VO) v Addis Ltd [8] 10 EG 129 that the artificial distortion in the rental market caused by the rate-free holidays in the enterprise zones should be a factor to be taken into consideration in a “tone of the list” valuation. In so holding it rejected the Valuation Office view that the circumstances in question should be strictly confined to physical factors, leaving the economic considerations to be reflected at the next revaluation. The Secretary of State’s announcement will accordingly enshrine in rating law the position “as it was understood” prior to the House of Lords judgment. The second case involved a decision of the Court of Appeal in the case of certain water hereditaments. But the major point of difficulty revolved around the level of refunds to the water authorities affected, and is not of general application.
On the assumption that the Bill receives the royal assent this summer, the spotlight will then be turned on the mass of regulations which will subsequently be made to put the flesh on the bones. The drafts will have to be scrutinised with care.