Local Government (Rates) Bill 2018 – Minister Phelan's Second Stage Speech in The Dáil
I move: “That the Bill be now read a second time”.
Introduction and Overview
A Cheann Comhairle, the purpose of this Bill is to modernise various enactments governing the powers of local authorities to levy and collect commercial rates. Commercial rates make up approximately one-third of local government current income every year and are the single largest income source for local authorities, providing income to the sector of almost €1.5bn per annum. This income provides between 16% and 53% of total funding for local services at individual local authority level and makes a vital contribution to the delivery of local services.
Local government is often the main interaction with the State for many people and it is important that all aspects of local government operate effectively, including the collection of the funds used to provide the services that people rely on. This government is implementing the next stage of local government reform, building on the wide-ranging changes introduced in recent years. In order to help support the efficient implementation of local authority functions, this Bill seeks to modernise the collection of rates.
The legislation governing the levying and collection of commercial rates is spread across numerous enactments, many of which date from the 19th century. The primary legislation relating to rates is the Poor Relief (Ireland) Act 1838. With the exception of the Local Government (Financial Provisions) Act 1978 which removed domestic dwellings from rates liability, and the Supreme Court decision in 1984 which exempted agricultural land from rates, only minor changes and adjustments have been made since 1838 to the operation of the rating system.
The drafting of the Bill has been informed by extensive consultation with rating experts in the local government sector and the Valuation Office. My Department has also met a number of business representative groups to brief them on the legislative proposals. In general, business groups have welcomed the intent of the proposals. They recognise that further improvements to rates collection levels are necessary, both to ensure that local authorities are equipped to provide services to the local community and to also ensure that compliant ratepayers are not subsidising those who do not pay.
A large body of case law is well established and local authorities and ratepayers are, in the main, very familiar with, and generally accepting of, the operation and practice of the rating system. Notwithstanding that however, some changes to the system are necessary, both to ensure that rates collection mechanisms keep pace with other changes to the business and commercial world, and to facilitate more effective and streamlined enforcement procedures. This is crucial to ensuring that the responsibility of paying rates is spread evenly across the commercial and business community.
One intention is that this legislation will encourage ratepayers to engage with their local authority and will mean that the annual rates bill is not low on the priority list for payment by individual businesses; this approach to rates often forces local authorities to rely on the courts to help collect monies owed, with the additional resources that requires, not just for local authorities but also for the non-compliant ratepayer.
That leads me to the reasons that this Bill is considered necessary. In 2015, the Department of Public Expenditure and Reform established the Debt Management Project Board. Both my Department and the local government sector were represented on the Board. Early in the Board’s work, it became apparent that one of the most significant areas to be addressed was the high level of debts relating to commercial rates levied by local authorities. The Board also identified that the lack of enforcement powers available to local authorities was a barrier in reaching the level of compliance being achieved by the Revenue Commissioners in relation to tax collection. A business case for greater enforcement powers was prepared by the local government sector and endorsed by the Project Board. Among the key proposals identified in the business case were recommendations that additional powers be made available in the following areas:
• The ability to use the “Revenue Sheriff” to collect unpaid rates; and
• The introduction of a “Rates Compliance Certificate”, which would become a requirement when applying for statutory licences, State Grants, and public contracts.
In the period to 2014 percentage collection levels of rates declined, impacting on the financial position of local authorities and their capacity to deliver services to their local communities. At that time, the collection of rates amounted to 77% nationally. In response to this, the local government sector established a Debt Management Group to address debt collection by local authorities nationally. A project was put in place to address collection performance, with increased targets set for each local authority. Every authority was required to adopt policies on debt management and a training programme was developed for staff working in this area.
Local authorities are fully aware of the difficulties that many businesses faced in recent years and have worked with those businesses to agree flexible and realistic payment plans. I want to also note that in recent years, up to and including this year, my Department has requested local authorities to exercise restraint in setting the Annual Rate on Valuation, in recognition of the difficult circumstances facing many businesses. Notwithstanding the pressures on their own finances, local authorities adhered to these requests. The national average ARV has not changed significantly in recent years. The national average ARV decreased slightly each year from 2010 to 2015 and has increased slightly each year from 2016 to 2018.
The focus of the new legislation is, in part, to address those who will not engage with the local authorities. This Bill is not about increasing rates or punishing those who engage with their local authority and endeavour to pay their rates. I intend that enforcement proceedings will not be taken unnecessarily by local authorities and will be reserved for those who refuse to engage with the local authority on determining a payment plan.
The current legislative proposals support the payment of rates by removing the requirement for businesses to pay their rates in two moieties and allows for payment plans to be agreed with local authorities to make payments in instalments.
As I outlined a moment ago, commercial rates are worth roughly €1.5bn annually to the local government sector. Given the structure of Ireland’s local government funding model and its reliance on commercial rates, the determination of the Annual Rate on Valuation (ARV) is one of the key responsibilities of the elected members of local authorities. These authorities have a statutory obligation to levy rates on property used for commercial purposes, in accordance with the details in the valuation lists prepared by the Commissioner of Valuation. The ARV, decided by local authority members annually, is applied to the valuation determined by the Valuation Office, to calculate the amount payable. Rates are generally payable by the occupier of a commercial or industrial property. Income from rates makes an important contribution to the cost of day-to-day services provided by local authorities such as roads, public lighting, development control, local enterprise support, parks and open spaces; all essential elements to help maintain create and maintain the environment in which businesses can prosper.
The amount of rates a ratepayer is levied is determined by two factors, the ARV adopted by the Council at its annual budget and the rateable valuation of the commercial property the ratepayer occupies. The legislation providing for the valuation of properties which had dated back to the 1850s has been streamlined and modernised under the Valuation Acts 2001 to 2015. No complementary modernising of rating law has been enacted to date, and this is very much the focus of the bill that is before us.
While rates and valuation matters are connected, they are also distinct functions and the Commissioner for Valuation is entirely independent in the exercise of his functions. Notwithstanding that, I see the Local Government (Rates) Bill as one aspect of a broader consideration of this general area. The Valuation Office is currently engaged in a national programme to revalue all commercial and industrial properties in Ireland. The purpose of these revaluations is to bring more equity, fairness and transparency into the local authority rating system for non-domestic property. Completing the first revaluation since the mid-nineteenth century, and getting properties in every local authority area onto the subsequent 5-10 year rolling cycle of revaluations, which is provided for in the legislation, represents a sea-change and fundamental modernisation of the rateable valuation system. The purpose of a revaluation is to redistribute commercial rates liabilities among ratepayers based on up-to-date market rental values; following revaluation, there will be a much closer relationship between contemporary rental value and commercial rates liability.
My Department is also conducting a Periodic Critical Review of the Valuation Tribunal. The tribunal was established in 1988, to consider revision appeals. Between 1998 and 2013 the average number of appeals received was 224 per year. However, the national revaluation programme has had significant consequences for the workload of the Tribunal, which received 1,375 appeals in 2017. Such an upswing in the number of appeals has inevitably led to delays.
The review includes evaluation of the organisational capacity and performance of the Tribunal. This will assist in streamlining and creating efficiencies throughout the appeals process, which in turn will lead to a faster, more robust process.
It is not the purpose of a revaluation to increase the total amount of commercial rates collected by local authorities. Section 8 of the Local Government (Business Improvement Districts) Act 2006 provides that a Ministerial Order must be made directing a rating authority to limit the overall amount of income it can raise through rates in the year following a revaluation to the total amount of rates liable to be paid to it in the previous year, plus buoyancy (i.e. arising from valuations determined in the year of a revaluation of newly constructed property), and adjusted for inflation as measured by the CPI. Further orders will be made later this year in respect of the local authorities currently undergoing revaluations.
It is notable that there has been very little empirical evidence of an increase in the overall amount of rates paid by businesses in recent years. The total amount of rates accrued to local authorities, as reported in local authority annual financial statements, has remained stable at or just below €1.5 billion per year since 2010. Analysis on the impact of rates on business costs is limited. What analysis is available concludes that commercial rates represent a small portion of overall business overheads compared to energy, rents, payroll and other inputs. By way of example, local authority data in 2016, indicated nationally that 70% of businesses are paying less than €5,000 per annum.
Returning now to the provisions of the Bill. Rates legislation is currently spread over more than 20 separate enactments, dating back to the Poor Relief (Ireland) Act 1838. A modern enactment will simplify the legislation, will be more efficient to implement and more easily understood by ratepayers. Other measures include:
- Simplifying the process by which rates are levied and collected;
- strengthening the power of local authorities to collect rates;
- providing powers for the local authorities to introduce targeted rates alleviation schemes.
The General Scheme was referred to the Joint Committee on Housing, Planning and Local Government for pre-legislative consideration in November 2017. Following a briefing by the Department, the Committee decided to forego pre-legislative scrutiny of the Bill.
Main Provisions of the Bill
Section 1 provides for the interpretation of terms used in the Bill.
Section 2 provides clarification in relation to the local authority’s role in the adoption of the annual rate on valuation.
Section 3 provides that a local authority shall consider the local authority’s budgetary needs in determining the applicable annual rate on valuation.
Section 4 provides the power for local authorities to levy rates on the occupiers of relevant property, as identified in schedule 3 of the Valuation Acts 2001-2015. It restates the longstanding provisions that the commercial rates liability is calculated by multiplying the valuation determined by the Commissioner of Valuation by the ARV adopted by the local authority at its budget meeting.
Section 5 provides a power for the Minister for Housing, Planning and Local Government to limit the level of ARV that can be adopted by the local authority.
Section 6 provides that local authorities may offset any rates owing to them against an amount that the local authority owes to that party.
Section 7 provides that the collection of rates, and interest due on unpaid rates pursuant to this Bill, are under the care and management of the local authority.
Section 8 provides that a local authority may provide a temporary abatement for vacant properties, subject to any maximum relief which may be specified by the Minister, to ensure that all property owners (other than those whose rates liability would be below a de minimis threshold) make some level of payment to the local authority.
At present, the legislation governing rates provides that a local authority may provide up to 100% relief on rates where a premises is vacant, either due to renovation and repairs, or because the owner is unable to find a tenant. Outside of the city councils of Dublin, Cork and Limerick, (which historically had separate legal provision enabling a refund of 50% of rates on vacant properties) the practice has generally been for the elected members to agree a 100% relief. However, since the introduction of the Local Government Reform Act 2014, a number of local authorities have introduced less generous reliefs.
The lack of any charge on vacant premises may act as a disincentive for the property to be put to its best use. Vacancy refunds also introduce a level of uncertainty regarding the revenue the local authority can collect. The provisions contained in the Bill allow the Minister to prescribe, by order, a maximum level of refunds to be provided, with provision that this amount can be further reduced by individual local authorities. To incentivise the elected members, it is proposed that the revenue accruing from any further reduction in the vacancy refund, beyond this level, would be added to the General Municipal Allocations of the Municipal Districts in the Local Authorities.
Section 9 provides local authorities with the power to establish a database of relevant property and with the power to delegate this function to the Local Government Management Agency.
Section 10 provides an obligation on the owners and occupiers of relevant properties to provide, to the local authorities, information that the authorities may require to discharge their functions under the legislation.
Section 11 provides local authorities with the powers to apply interest to unpaid rates. The provisions are based on the provisions in the Taxes Consolidation Act, which provide for the addition of interest to unpaid taxes to the Revenue Commissioners, and in this respect aim to see rates treated on a similar basis. The interest would accrue from the 1 January of the following year and only apply where a ratepayer refuses to enter into an agreed payment plan with the local authority. As such, the provision is focussed on incentivising engagement with the local authority rather than increasing revenues.
Section 12 provides for obligations on the owners of a relevant property, before the sale of that property, to pay any rates payable by the owner to the local authority, including any interest on unpaid rates. This provision only applies to rates liabilities accrued by the owner when the owner is also the occupier of the property.
Section 13 provides that any unpaid rates and any interest accruing on unpaid rates shall be and remain a charge on the relevant property where the owner of the property is the person liable for the rates.
Section 14 provides for local authorities to introduce rates alleviation schemes to support specific national and local authority policy objectives. This could include Realising Our Rural Potential: The Action Plan for Rural Development; local economic and community plans developed by local authorities; and planning objectives set out in Development Plans and Local Area Plans.
The legislative proposals provide that it would be a function of local authorities to develop and introduce schemes, appropriate to the priorities in individual local authorities, and in line with any regulations made by the Minister governing the parameters and operation of such schemes. The approval of schemes would be a reserved function of the elected members.
Section 15 provides for the appointment of local authority staff as authorised officers by the Chief Executive for the purposes of the Act.
Section 16 provides those local authority staff appointed as authorised officers by the Chief Executive with the power to enter relevant property in certain circumstances.
Section 17 provides that the Minister may make regulations under the Bill, when enacted, where relevant.
Section 18 is a standard provision relating to expenses in the administration of the legislation.
Sections 19 to 22 are technical amendments to various enactments on foot of this Bill.
Section 23 provides for the repeal and revocations of various provisions of rating law to be replaced by the new provisions.
Section 24 is a standard provision in respect of the title of the Bill and for the commencement of the various provisions contained in the Bill.
Potential amendments for Committee Stage
Additionally, I would like to signal to the House that I will be bringing forward a number of amendments at Committee Stage of the Bill. These measures could not be finalised for inclusion in the Bill as published but they are currently being examined with a view to their possible introduction at Committee Stage. These include:
- recourse for local authorities to have the power to issue a certificate for collection to the Court Appointed Sheriffs, in a similar manner to the Revenue Commissioners;
- issue, by a local authority, of a Rates Compliance Certificate where a ratepayer has discharged its rates liability or has entered into a payment plan, and for the introduction of a requirement to have a Rates Compliance Certificate in order to obtain certain statutory licences;
- to address the powers for local authorities to take legal action through the Courts to pursue unpaid rates; and
- to amend the provisions of section 56 of the Valuation Acts 2001-2015 relating to a Rates Limitation Order in the year following a revaluation of a local authority, in order to maintain the same level of rates income for the local authority in question.
As I mentioned earlier, with the exception of the removal of domestic dwellings and agricultural land from rates liability in 1978 and 1984 respectively, only minor changes and adjustments have been made since 1838 to the operation of the rating system. This Bill is the first significant piece of rates legislation to be proposed in many years and given the importance of rates income to the funding of local government it is sensible to modernise the fundamentals of rates.
I’d like to thank the staff of local authorities for their input into the work supporting the development of the Bill. I believe that this Bill, in conjunction with the amendments I’ve signalled here for Committee Stage, we will greatly improve the levying and payment of rates for all stakeholders.
This Bill will
- modernise key aspects of the legislative code to make rates and the legislative basis of rates more transparent for ratepayers;
- streamline the process of the making of the rate within local authorities to improve efficiency and remove some of the archaic processes which do not fit with modern administrative practices;
- improve local government’s suite of collection tools to enable local authorities to build on recent improvements in rates compliance thus ensuring the levying of rates is fairer for all ratepayers and that those who pay on time are not subsidising those who delay or seek to avoid payment;
- and, protect an important source of revenue for local authorities to ensure their capacity to continue to deliver vital local services for our citizens and businesses alike.
I look forward to engaging with my colleagues as the Bill progresses through the Oireachtas.
A Cheann Comhairle, I commend the Bill to the House.