IT would be better if all the political attention on water charges, higher tuition fees and devolving more taxes to Northern Ireland was focused on a fairer system for collecting rates.
While new charges, fees and taxes are very unlikely to happen, Stormont has effectively limitless control over domestic and business rates, its only serious revenue-raising power.
The financial package offered this week by Chris Heaton-Harris, the secretary of state, appears to concede this point. A new budget settlement is conditional on a 15% rise in the regional rate – the roughly half of rates revenue that goes to Stormont, with the other half going to councils.
Heaton-Harris wants a restored executive to publish a wider revenue-raising plan by next Spring but it is impossible to see the DUP or Sinn Féin bringing in water charges or withdrawing the so-called ‘super-parity’ giveaways, such as lower tuition fees. If the purpose of the financial package is to restore Stormont, then in reality it is ruling out anything significant apart from a rates increase.
Although Sinn Fein is interested in devolving more taxes, including income tax, it sees this as more of a republican exercise in ‘repatriating’ powers from Britain than as a means of raising money. Besides, arranging the transfer of these powers takes years.
A 15% rise in the regional rate would put the average £1,000 domestic rates bill in Northern Ireland up by around £80 a year, which a majority of households could comfortably afford. However, fully funding water and the super-parity measures through the rates would double domestic bills. This would cause many households to struggle and it would be hugely unpopular. Our politicians consider it inconceivable, although it would only take bills up to the average combined council tax and water bill in Wales, a region with similar household income.
What most seems to antagonise people about rate rises is that the charge is not linked to income and hence ability to pay. Proposals for a separate water charge have the same problem, as most are also based on property values. Rates relief is available for people on benefits but not every struggling household would be claiming benefits. A system seen to be fairer would make revenue-raising easier.
In theory, the executive could turn what is a de facto wealth tax into a de facto income tax by linking domestic rates to declared earnings
Stormont’s Department of Finance launched a public consultation last month on rates reliefs, at the instruction of Heaton-Harris. It is examining familiar proposals, such as removing the maximum rateable value cap of £400,000, which affects 8,000 properties. This idea is often criticised for having no link with ability but that is really only an issue in the south east of England. There are no poor pensioners in million-pound houses in Northern Ireland.
The review is also looking at the 4% early payment discount, claimed by 160,000 households. It saves the department’s rate collection agency a modest amount on administration by offering much larger savings to people who are not struggling with their bills, by definition.
Much of this feels like fiddling around the edges when Stormont can do whatever it wants with the rates. Legislation allows reductions of any size under any conditions to reduce “hardship”, or simply for anything “the department considers necessary or expedient”. Stormont can also rewrite the legislation, as rates are fully devolved.
In theory, the executive could turn what is a de facto wealth tax into a de facto income tax by linking domestic rates to declared earnings. HMRC could supply income data to check declarations, as it does for council tax investigations in Britain.
Today, @CHHCalling will lead a roundtable discussion with the Northern Ireland political parties to agree the basis upon which the Northern Ireland Executive can return on a stable footing and discuss the swift restoration of power-sharing in Northern Ireland.#NorthernIreland pic.twitter.com/2hHWhcHHtb
— Northern Ireland Office (@NIOgov) December 11, 2023
Business rates should not be forgotten – they make up over half the rates revenue collected by Stormont and councils. Northern Ireland has the UK’s lowest property taxes because our voter-pleasing MLAs and councillors have transferred the burden to businesses, who pay the UK’s highest rates, with particularly disastrous effects on town centres.
There are still self-defeating giveaways within the business rates system. Unlike in Britain, empty premises receive 50% relief after three months. The review proposes ending this but does not address the exemption available for derelict properties, which obviously encourages dereliction. Sinn Féin proposed ending both reliefs in 2016, then collapsed Stormont before anything was done.
If Stormont returns, it should try again.
