Payment of Rates in the UK

Mauritius Times – 60 Years

By Peter Ibbotson

Recently there was an outcry against house taxation in Port Louis. In as article, ‘Property Taxation in Port Louis’, on February 7, we expressed doubts regarding the methods used by the Municipality of Port Louis to compute house rates. Here Peter Ibbotson discusses the methods resorted to
in Britain — Ed.

In England and Wales, government expenditure is paid for out of money which the Government raises in taxes of kinds. But there is also a great deal of local government expenditure incurred by local government areas (counties, county boroughs, non-county boroughs, urban districts, rural districts and parishes) which has also to be paid for. Much local government expenditure is paid for by grants from a central government, i.e., out of general taxation; and some is paid for out of a local authority’s trading profits e.g. profits from a town’s municipal undertakings — town bus services, for example). But the largest share of a local government authority’s income is arrived from a form of local taxation called rates.

Rates are paid by occupiers of proper houses, shops, factories, etc. A house-owner pays rates on his house if he lives in it, but not if he lets it to a tenant. In that case, the tenant has to pay the rates; either direct to the local authority, or to the landlord for frequent transmission to the local authority.

The question is, how does the local authority know how much to charge the property-occupier as rates?

All houses (I intend to deal with residential property only) and flats have an annual rateable value.  At present this rateable value is related to prewar conditions and prewar values. But in 1961 the basis of the rateable value will be changed to current values and conditions.

The rateable value of a house is considered to be the amount which would be paid for that house in rent by a willing tenant to a willing landlord. Even if the house is owner-occupied, the basis of assessment for rates remains the same: the annual rent that would be paid, supposing the house were let, by the willing tenant to the willing landlord. That is to say, the rent that would be agreed between two persons, a potential tenant and the potential landlord, after bargaining as to what the amount of rent should be.

Many considerations affect what this fictitious rent should be. One is the size of the house. Another is its age. Another is whether it is detached (i.e., stands on its own), semi-detached (joined on to one more house), or in a terrace (row) of houses all joined together. Some parts of England are more desirable to live in than others; this being so, there is a bigger demand for houses there and the rent that would be paid is bigger — hence in residential towns along the south coast of England, rateable values tend to be higher (for identical houses) than rateable values in industrial towns and cities in the north or in Wales. The material of which the house is built affects the desirability of the house and hence its rateable value. So does its possession of a garage; and whether the garage (if any) is attached to the house or detached. And residential convenience is important: Is the house close to shops and public transport?

All these factors help to determine the rent which our friend – the “willing tenant” – would be prepared to pay to our other friend – the “willing landlord” — though these gentlemen are as abstract as the “economic man” so beloved of economic theorists!

But note this. The rateable value is the annual rent which would have been paid in 1939. Even for houses built since then, it is the 1939 rent which is the basis on which the present rateable value is determined. For a house built since 1939, it is assumed that the house had been in existence in 1939, and the rateable value is assessed accordingly.
This sounds difficult and complicated. Believe me, it is. But I can tell you that this basis of assessment, based on abstractions though it may be, works. Its working is helped, of course, by the fact that everywhere in England and Wales there is a great deal of local authority house property built by local councils for letting and not for sale. The councils have fixed rents for their properties, and these rents afford a criterion of comparison for owners or tenants of private houses.

I have referred to assessment of rateable value. But who are the actual assessors? They are civil servants, not local government officers, known as Valuation Officers, and they are members of the Inland Revenue Department. Anyone who thinks his house has been too highly assessed can appeal to an independent Valuation Panel.

Every local authority thus knows what is the rateable value of every bit of property in its area. By doing a piece of simple addition, the total rateable value of any authority’s area is known. Each year the local authority draws up its budget for the forthcoming year; just as the Legislative Council draws up its budget. The local authority, if it be a county borough, budgets for its own expenditure only.

If, however, it be a non-county borough or an urban or a rural district, it has to add to its own expenditure a proportion of the estimated expenditure of the county in which it is situated. In this way the authority knows how much its gross expenditure in the year will be. From this it deducts the amount of grants which will be receivable from the central government, and its estimates of any other income, e.g., trading profits, interest on investments, etc., which thus obviously leaves an estimate of net expenditure.

Suppose the net expenditure is £500,000 in a particular area. This must be paid by the ratepayers, each of whom will pay in proportion to the annual rateable value of his house. He will pay a poundage on this value — so much per pound of rateable value, in other words. This poundage is discovered by a simple piece of division. The net amount to be raised is divided by the total rateable value of the area; and the answer is the rate poundage, the amount per pound of rateable value which every ratepayer will be asked to pay.

If the amount to be raised is £ 500,000, then the division sum shows that the rate levied will be £1 per £ of rateable value; and a man whose house is assessed for rates at £ 34 a year will have to pay 34 times £1, or £34 in all. But if the rateable value of the area were only £400,000; then the rate poundage in our supposed case would be £500,000 divided by $400,000; that is £1 ¼ for each £ of rateable value, and our ratepayer with the house rated at £34 a year would have to pay 34 times £1¼, or £42½ in all. But if the total rateable value were £800,000 in our supposed
ease, the rate poundage would work out at £500,000 divided by £800,000 — that is, £5/8; and our ratepayer whose house was valued at £34 a year would have to pay 34 times £5/8, that is to say, £21¼ only.

Rates thus depend not at all on income, but on rateable value, which in its turn depends on an abstraction: the rent payable by the willing tenant to the willing landlord. And the exact amount paid in rates depends on the expenditure of the local authority. But once the annual rateable value of a house has been fixed, and the occupier knows the expenditure of his local authority, he can judge his liability for rates. He has to pay them either two or four times a year, in instalments: April, July, October and January; or April and October, or January and July.

In a future article I will analyse, if interest is shown, a typical local authority’s expenditure and its rate demand to its rate-payers.

Mauritius Times ePaper Friday 29 April 2022