03 March 2003 Pearson Sets Out The Case For A New Domestic Property Tax
Finance Minister, Ian Pearson MP, spelt out today why Northern Ireland needs a new local revenue system to replace the domestic rates.
Mr Pearson was speaking during a visit to the headquarters of the Valuation & Lands Agency in Belfast to see the preparations being made for the capital valuation of the 680,000 domestic properties in Northern Ireland. Homes were last re-valued in 1976 and plans have been announced to introduce a new system of capital valuation by 2006. Explaining the thinking behind the new system, the Minister said:
"I announced in December that the existing rating system will be replaced by a tax based on the capital value of domestic property. This is a fairer way of raising local revenue. Householders will have a system that is transparent and easily understood.
"When this is in place, the Executive and the Assembly will be in a much better position to take reasonable choices, year by year, on how much additional revenue to raise to finance public services and develop infrastructure through the Reinvestment and Reform Initiative.
"Most people agree that the existing system is unfair, which is why I have asked for work to begin on a new system, to be based on what a house would fetch on the open market, rather than historical rental levels which few understand.
"Decisions still have to be made on the form such a system should take: it could be banded like the Council Tax in GB, or based on individual property assessment. We will need to consider these choices very carefully. We will also need to look at the issue of specific reliefs for particular circumstances.
"We need good data on capital values and the work on revaluing residential property in Northern Ireland has begun. VLA have set themselves the goal of producing house values that will achieve credibility with householders and from what I have seen here today of the preparations being made I am confident that they will succeed.
"Systems are being developed that can produce accurate valuations using the Agency's unique database that already holds the details of all houses and apartments in Northern Ireland. The market analysis tools the Agency are developing are among the best available globally, and far ahead of anything else in the British Isles at this time."
Mr Pearson underlined the importance of the rating system to the Northern Ireland economy, particularly now that local revenues can be used to fund major investment in the province's infrastructure.
He re-affirmed that a major programme of investment has begun to address the glaring deficiencies in the Water Service infrastructure, adding that some additional contribution would be needed from people here to help make that happen. Without it, he said, the massive investment needed could only come at the expense of other public services such as health, education, or housing:
"Whatever anyone may say about the Barnett Formula, it is just not realistic to expect that more money for investment will come from the Treasury while they can see that people here are paying less than half the amounts, on average, in England. Electricity costs are higher here, but that only offsets a small proportion of the lower costs of local taxation. When all factors are taken into account, the cost of living here is lower.
"The rating and water issues will continue to be looked at together, to promote a fairer outcome, with protection for those on low incomes, but we need to target any relief carefully as we need to look at the effects on all who will be paying more.
"The benefits of providing additional investment in Northern Ireland's infrastructure are clear, necessary and worthwhile and will range across a broad spectrum, including:
1. work needed to solve the problems of waste water treatment;
2. the schools PPP cluster presented by the Belfast Education and Library Board;
3. the upgrading of the Westlink and the MI approaching Belfast;
4. the new hospital in the west of the region; and
5. preparatory work on the development of a Pilot Rapid Light Transit system.
"A £1 a week increase in domestic rates for the average household would pay for an extra regional hospital, 10 more schools and 20 new miles of motorway.
"In this context it is at least worth contemplating some 'above trend' increases in domestic rates ahead of reform. I do not believe that the sort of amounts needed are unreasonable and it is very clear that, at present, a disproportionate share of the revenue burden is carried by the business sector excluding manufacturing industry."
Mr Pearson responded to the claim that people here already pay for water through the rates:
"Whatever way you look at the figures, there can be no dispute that the average payments by households here towards public services are lower than elsewhere in the UK. For a period in the 1990s, a proportion of the rates was used to part-finance the Water Service, but that was changed in 1998 (before devolution), and there is now no direct link.
"In addressing this issue, we need to be fair and realistic about how to finance public services here, knowing that people want and need high quality services. In that context, a greater contribution from households here is a necessary option.
"The work on the capital value of houses is a key step to establishing a fair and manageable system but it will be up to the Executive and the Assembly to decide, in future, how much to raise from these sources, and how the money is used."
