Monday, 9 January 2012


Northern Ireland's Councils are going through the final stages of the rating process with the decisions to be finalised.  With household budgets and business cash flows under pressure I thought I write a backgrounder to it from the perspective of the issues Belfast City Council is wrestling with.

The rates is made up of two elements the regional rate (55% of your bill) and the district rate (45% of your bill).  The regional rate has been frozen for the previous three years but the new budget settlement has meant this situation cannot continue.  Therefore what happens to the district rate becomes of more significance.  If ratepayers are to get some relief it will have to come from the district rate. 

In Belfast in 8 of the last 10 years the district rate has been raised above the rate of inflation.  This was during a period were the rates base of the city was increasing in 9 of those 10 years.  This year the rates base has remained stable in the city due to the work of BCC's Building Control section.  The upward pressures on the district rate are somewhat abated this year because of the pay freeze.  Wages account for about half of Council spending.  Therefore for the Council to do what it does next year that it did this year it will require little growth in the district rate.

However, this is were you run into the concept of prudential financial planning for Councils.  It argues strongly against the spiking of the rates so when setting it you have to consider future pressures.  Insetad of a 6% increase in one year better to have two years of 3%.  For example, future requirements around waste could have a significant impact on budgets but this has been planned for so  when they are introduced they will not force a large jump in the rates.  The most obvious known known on future expenditure pushing the district rate in an upward trajectory is wage costs.  The wage freeze will end with the strong possibility it will be above the inflation rate.   The counter to this is this is not an 'ordinary' year and should not be treated as such.

There is also what can be described as the hung for a sheep than a lamb argument.  People don't understand the distinction between the regional and district elements of the rates.  As Stormont will be raising their element Councillors will be getting complaints about rates rises. So they might as well increase their bit and get some revenue for the abuse as opposed to get the abuse with no revenue. This is a somewhat self-centred even selfish position, what people are going through is simply ignored by this logic.

The next argument for increasing the rate is to support a 'stimulus' or 'investment' package for Belfast, what one councillor called a 'Marshall Plan' for Belfast.  Leaving aside the incomprehension of what the Marshall plan was, a stimulus package is usually of two elements - tax cuts and increased borrowing.  However, a rates rise would be the opposite of the former.  Therefore, it has to be asked will the money raised by increasing taxes be better spent by council than our citizens in the next few years? 

There is the secondary question of when will the money be spent?  Rates rises could go into capital funds which may not be spent for a number of years, essentially lying in a bank account.  The Council has two capital funds, a Local fund and a City Investment fund.  The local fund is targetted at smaller scale projects at a community level (and much needed with DSD and NIHE budgets under significant pressure).  Quick spend should be more achiveable under the local fund.  The City Investment fund is to top up major capital projects for Belfast being developed by other organisations or public bodies.  The most recent examples of what this fund has contributed to are the Titanic signature project and the Lyric.  The Council cannot borrow for captial expenditure on properties it does not own so the only way it can raise money for this is through the rates.  Presently £3m a year is put into this Fund every year direct from the rates.   

In terms of its own capital expenditure the Council is not proposing cutting back on its pre-recession spending plans.  This will involve a doubling of the Council's debt levels to over £70m at a time that central government has increased the cost of local government borrowing.  Another project could potentially push this borrowing to over £80m.  In comparison central government is making double digit cuts to its capital programme.  Therefore, to claim the Council is being 'inert' without increasing expenditure is simply not true.
In a broader context all parties have supported rates relief for small businesses.  Will increases not negate some of the benefit of that scheme?  If parties accept small businesses then the logic leads you to the conclusion that families need relief as well? 

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