A rates rethink
NICVA welcomed Brian McClure (Department of Finance) to provide a presentation to attendees on the proposals.
- The policy proposals are very broad in scope and covers both the domestic and non-domestic sectors.
- The proposals are the result of a culmination of consultations and reviews conducted over the last three years in the Department of Finance under various Ministers.
- These are the current Minister’s proposals. Proposals will still require Executive agreement.
- Legislation: all changes in the paper require changes to the legislation. Both the lifting of the domestic rates cap on properties of over £400,000 and a change to the charity shop exemption will require the introduction of primary legislation. Any legislation
- Timeframe: with the current political hiatus, an introduction in April 2019 is looking likely.
- Scope: There are two issues that aren’t part of the ‘Rates Rethink’: the rate of revaluations and the district rate separation. The former is a departmental commitment to ensure revaluations are carried out every 3-4 years. The latter is a commitment to separate the non-domestic and domestic rate base in a council area for local council’s use.
- There are a number of measures proposed that include domestic property caps, rates relief for small businesses, vacant property incentives etc. They are covered in detail in the consultation paper but will not be focused on in these notes.
- Charities as a whole: It was stated there was no appetite to introduce a rate for organisations that occupy properties for charitable purposes. However, there is greater consensus when charities are occupying premises for trading purposes.
- The primary political argument for this is that ‘everyone should pay something’ and that charity shops are competing with commercial interests. Another argument cited is that charity shops are ‘crowding out the high street’. However, it was stressed that this increase in charity shop rates were not with the intention to address the issues on the high street.
- A contribution of 10-20% was being proposed on charity shops.
- A valuation cap for charity shops was also proposed. This would mean that charities occupying more expensive and bigger properties would only avail of a rates cap of up to £25,000 NAV.
- Landlords were to remain liable for rates for short term lettings to charities to avoid landlords evading rates on empty properties.
- It was stated that charity shops Northern Ireland enjoyed the most generous exemptions in UK and Ireland.
- The overall cost of the relief to charity shops currently is estimated at around £3m per year.
- A 10% liability for existing charity shops would raise £300,000 a year. A 20% liability would raised around £600,000.
- The average bill would be £11 a week for 10% and £22 for 20% per shop. For a 10% increase, its £572 a year and for a 20% increase its £1144.
- The Minister stated in his Ministerial Statement in the Assembly that the money would be used to fund a social enterprise fund. (NOTE: it does not state this in the consultation paper. Instead it states that the money would be used to raise revenue for the department or to increase the share across the rates base.)
Charity Retail argument
Robin Osterley, Chief Executive of Charity Retail Association, provided a counter argument to Brian.
Robin argued that there is a key difference between everyone paying something and everyone contributing something. Although charity retailers do not pay rates, they contribute to society and save the government money in the following ways:
1) Reuse and recycling: The charity retail sector is able to sell or recycle over 90% of donated clothing, over 90% of donated books and 85% of donated electrical goods. This diverts waste away from landfill, improves recycling and re-use rates and saves the public purse significant disposal costs.
2) High Streets: Charity shops help to reduce vacancy rates and therefore keep the high street populated and busy, even during the recent severe economic downturn. This has a clear advantage to local economies.
3) Employability: Volunteering in charity shops can help equip young people and the long term unemployed with the skills they need to find full time work in the retail sector. 80% of charity shop volunteers believe that volunteering has helped to learn new skills and valued this process.
4) Mental Health: Volunteering can also help to combat social isolation and loneliness amongst older volunteers. 61% of charity shop volunteers believe that volunteering has a positive impact on their physical and mental health and over 80% think it improves their self-esteem and confidence. This is why Community Service Volunteers (CSV) for every £1 spent on volunteers,
- Fiscal contribution: Charity shops comprise 3% of the total charitable rate relief = £2.8million. There are 336 charity shops in Northern Ireland that raise four times that amount for good causes. This is within a context of reducing funding to voluntary and community sector organisations.
- Diversification of income: There is frustration felt by many organisations where government have encouraged the sector to diversify income and become more commercial in their operations and are now being penalised for doing so.
- UK comparison: The Rates Rethink paper states that Northern Ireland has the most generous allowances for charity shops in the UK and Ireland. Robin countered this argument stating that in England, Scotland and Wales, all charity shops received a mandatory 80% relief on their Business Rates bill. This is not tapered according to the ratio of donated/new goods they sell, as in Northern Ireland, but granted to any shop raising funds for charities if the majority of their trade is in donated goods. Northern Ireland arguably has the fairest system in the UK currently as all charity shops pay full rates on the new goods that they sell. So when charity shops are directly competing commercially with businesses in the sale of the same goods, they pay the same rates and all of the profits still go to fund their charitable purposes.
- Postcode lottery: some councils in England and Wales top up this 80% with a discretionary 20%. However, charity shops find the additional 20% can fluctuate greatly between (and even within) Councils. Furthermore, the postcode lottery can lead to a lot of unnecessary costs for charities as they apply to many different local authorities for further relief under many different policy frameworks.
- Contribution to the high street: Robin argued that the consultation paper is setting up unhelpful competition between charity shops and high street businesses. Charity shops contribute to footfall on the high street and help to keep vacancy rates low (at 14.5%, NI is the highest in the UK). The donated stock that charity shops sell is not available to other retailers.
- Landlord rents: charity shops have to negotiate their rents like every other business on the high street. There is no evidence to suggest that landlords are giving properties at lower rental values to evade rates. If there are examples of fraudulent activity, enforcement must be used to tackle this.
CRA estimates the impact of a 20% introduction:
- Shop closures: 16% of charity shops could close.
- Job losses: 130 jobs in charity retail (20% of the total) would be lost.
- Volunteer opportunities: 15% of local volunteering opportunities would be lost if the 20%
- Environmental impact: CRA estimates that Northern Ireland charities diverted 21,000 tonnes of textile from landfill. If the estimated 16% of charity shops closed, an extra 3360 tonnes would end up in landfill.
For more information and for details of how to respond, please see the Department of Finance consultation page. Please do not hestiate to contact Jenny McEneaney ([email protected]) if you have any questions about the rates rethink or NICVA's position.