by Brian L Hill
The primary concept underlying the Government’s proposals to effect a radical reform of the financing of local authorities in this country is the replacement of a property tax on dwellings by a flat rate personal tax. The community charge (or, as it is more generally known, the poll tax) will be introduced on April 1 1990, at which date domestic rates which have operated for centuries will pass into oblivion. Practitioners in the estates profession will be interested in this new impost not only as individuals but also (and more importantly) as managers of many different types of residential property.
A convincing case can be made for retaining the present property-based system, provided that it is suitably reformed and modernised and that it is regularly kept up to date. This is because it has a greater relationship to ability to pay than the new charge by virtue of the fact that the person with a higher income will tend to occupy a more expensive home, while the person on a lower income will tend to live in cheaper accommodation. The flat-rate nature of the community charge (save for those exempt or benefiting from rebates) will inevitably mean that the tycoon pays in local taxation the same as a lowly paid hospital worker if they both live in the same area.
It should be clearly recognised, however, that the time for debate on general principles has passed. The Government, in the teeth of determined opposition — not least from its own supporters — has been able to steer the Local Government Finance Bill through Parliament, even though there were many moments of tension and high drama. The legislation was amended in many important respects both by the Commons and the Lords and has now received the Royal Assent. As with most controversial legislation of this kind, the provisions reveal only the bare bones: the meat will be added later in the form of statutory orders and regulations which are much easier to manoeuvre through Parliament. This will particularly apply to the detailed operational issues of practice and procedure.
None the less, practitioners should appreciate the broad nature of the community charge and the method in which it will operate. It is, in the first place, important to recognise that there are in fact three different types of charge. The personal community charge will be paid broadly by those over the age of 18 who are solely and mainly resident in the area. The standard charge will be paid by the owner of a house or the lessee for a term in excess of six months where no one is solely or mainly resident in the property: this is intended to cover second homes and empty houses. Finally, there is the collective charge which is payable by the owners or managers of residential buildings which are used as residences for short periods of time. Broadly the intention is to bring within this category certain multi-occupied buildings.
Personal charge
The personal community charge will obviously be the norm since it will affect all adults at their sole or main residence. One must recognise that the traditional rating idea of beneficial occupation will be replaced by the criterion of “use as a residence”. Consequently, a whole new branch of law will arise where no reliance can be placed on decisions in historic rating cases.
There will, however, be a limited number of exemptions from the personal charge. They will cover severely mentally handicapped persons, long-term patients in hospitals and residential hostels, prisoners, those in night shelters and short-stay hostels, school children up to the age of 19 (on the test of whether child benefit is payable), monks and nuns, voluntary community carers and those sleeping rough. Technically, exemption will also apply to foreign diplomats and visiting servicemen, although it has been intimated that the contributions in lieu of the charge will be made.
Liability will depend on an entry in the register which will be compiled by the Community Charge Registration Officer (CCRO). The latter official will be the chief financial officer of the charging authority, which will be the district and borough council in England and Wales (including the Isles of Scilly Council and the City of London). The register will contain the names and addresses of those liable and the effective dates of commencement and termination of residence. Provision will of course be made for adjustments to the register to take account of changes in circumstances and for interpreting the relevant dates. The CCROs will have the power to require others to supply them with relevant information and a system of civil penalties will be established on refusal to do so.
The amount of the personal charge will be fixed for each financial year by the charging authority on a residual basis, whereby the yield will be sufficient to provide for any precepts and the requirements of the charging authority itself, after due account has been taken of central government grants and receipts from non-domestic rates.
The full impact of the charge will not, however, be felt until the end of a transitional period of four years from April 1 1990. The phasing-in provisions will be achieved by “safety nets” which have been built into the new grant system.
The charge will be expressed as a flat-rate amount payable by each payer except in the case of parish precepts and the like, where the amount will be different within the area of the parish or other area in question. As with rates, the Secretary of State reserves to himself the right to “cap” a charging or precepting authority if it fixes a charge or precept which is judged to be excessive.
The charge is payable only for the period during which a person is shown on the register. Thus the payers will pay a proportionate amount, calculated on a daily basis, for any such period. Rebates will be allowed in the case of qualifying charge payers. It has been made clear that those on low incomes for housing benefit purposes will receive an 80% rebate. Consequently they will have to make a minimum contribution of 20% although the sums so payable will be taken into account in computing the income support payable to such persons for the year in question. In order to permit accountability, however, this support will be based on the average level of community charge throughout the country. This will mean that rebate recipients in the areas of the “high-spending” councils will have to make a contribution for which they will not be reimbursed, whereas those in areas where the charge is less than the average will benefit financially.
Students undertaking full-time courses will pay the personal charge at their term-time addresses, but they will make only a 20% contribution. Husbands and wives who are living together, and also couples who are living together as man and wife, will be jointly and severally liable for each other’s personal charge. When they have separated, however, the joint and several liability will cease.
Standard charge
The standard community charge will be payable by owners and lessees for more than six months where no one is registered as solely or mainly resident in the dwelling. The register will show not only the person liable for the standard charge but also the address of the property in question. The amount for any area will be determined by the charging authority as a multiple of the personal charge. Such a multiplier will be restricted to the proportions of 0, 1/2, 1, 1 1/2 or 2. The Secretary of State is, however, given the power to specify certain classes of house to which different multipliers may be applied. It has been intimated that this will in particular allow houses to remain vacant for a period of three months without attracting liability to the standard charge. The same principle of joint and several liability as applies to husbands and wives will apply to those liable for the charge and the managers of the charge properties in question. The latter will have the right to recover sums paid to the authority from the owners.
Collective charge
The collective community charge will be payable by the owners of certain multi-occupied residential buildings with the exception of students’ halls of residence and the like. It has been made clear by ministers that the collective charge will be strictly restricted in its operation to houses where the collection of the personal charge from the occupants will be impracticable. The CCRO will designate such houses in the register. He will record both the name of the person liable and the address of the designated property.
The occupants will pay the collective charge contributions to the “landlord” who will pay over the proceeds to the charging authority after deducting a 5% administrative fee which is deemed to cover such items as notional bad debts. The amount payable will be calculated on a daily basis by multiplying the number of people living in the property by the personal charge for the area. Owners and managing agents will be well advised to keep as accurate a record as possible of the persons residing in the building and the relevant period of residence, so that the correct amount of charge can be paid over to the charging authority. Joint and several liability will apply to the landlord and the managing agents of charge properties. Where the managing agents pay over the contributions to the charging authority, they will have the right to recover them from the landlord. This will be particularly relevant where the owner lives outside the jurisdiction of the British courts.
Appeals
There will be certain rights of appeal arising from the operation of the community charge. It has been decided to extend the jurisdiction of the local valuation courts, which have historically dealt with rating appeals, to deal with them. In recognition of this fact, the courts are to be renamed “Valuation and Community Charge Tribunals”. Much of the detail of the appeals procedure and related matters has, not surprisingly, been left to the Secretary of State to prescribe in regulations. It is clear, however, that the new tribunals will, inter alia, hear appeals about the contents of the register, a decision to refuse student relief, liability for the charge, the imposition of civil penalties for various offences and the designation or continued designation of a collective charge property. It should, however, be recognised that appeals against the amount of the personal community charge for the area, the standard charge multiplier and the specification of classes of house on which a different standard charge multiplier can be imposed can only be challenged by way of judicial review.
The detailed arrangements for the collection and enforcement of all three community charges have been left for prescription in statutory regulations. The latter cover, in particular, the payment of community charge on account, the service of demand notices and the keeping of collection charge records. So far as instalment payments are concerned, ministers have already made it clear that there will be a basic minimum of 10 payments per year but that, as opposed to the present rating practice of “opting in”, payers will have to opt out of the scheme if they so wish. The regulations will also cover recovery of unpaid community charge by way of distraint and sale of goods and/or attachment of earnings. The historic — but extremely effective — remedy of committal to prison was originally left out of the Bill, but it has now been restored.
Practitioners will recognise the problems which will occur at the margin between the new personal tax (community charge) and the property tax (rates) which will be retained for non-domestic premises. In line with the change of terminology instituted by the Bill, the old mixed hereditament has been renamed a “composite” hereditament. The intention is clearly to include in the local rating list (the old valuation list) the rateable value of the non-domestic part of such composite hereditaments. Whereas this will cause little difficulty in the case of the flat over a shop or a caretaker’s flat in an office building, the problems could be horrific in dealing, for example, with public houses where it will be difficult to disentangle the residential from the business part and where a judgment will have to be made on the value of the house in question on the assumption that the residential part did not exist. Many other cases where these difficult situations will arise come flooding to the mind. But as a general proposition it must be clearly recognised that, while the businessman will continue to pay non-domestic rates, the shopkeeper, the caretaker and the landlord or manager at the pub will all have to pay the community charge as individuals.
The brave new world of the community charge will soon become a reality. The profession should prepare itself in the limited number of months which are left.