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Serious questions remain over current rates system

By John Simpson

Published 19/04/2016

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The rates bills for business and households in 2016-17 have been issued. In total, these bills will raise £1.17bn for both Stormont and the local councils.

There are several serious questions about the way Stormont operates the present rating system.

First, following the recent decision by Chancellor George Osborne to scrap business rates for smaller businesses in England by introducing a tapered exemption for businesses with a NAV (net annual valuation) of under £15,000, there has been a plea in Northern Ireland for a comparable change. This will be a question high on the agenda of the incoming Northern Ireland Executive.

Second, does the Executive levy a fair and equitable rates bill to households and business? If the total rates bill is too low relative to Great Britain, then this will strain the overall finances of the Executive in a way that is not compensated by the Barnett formula. Low rates mean a reduced ability to fund services on a comparable level with other regions.

Third, do the administrative rules of the rating system create an acceptable balance in granting concessions where there is a case for exemptions and rebates from a simple formula where everyone pays, based on the valuation of property (the NAV).

Most household rates bills in NI are low relative to averages in England and Wales. Average charges in England, when water and sewerage charges are included, are estimated to be over 40% higher than in Northern Ireland. This is an indirect transfer of spending power within the Stormont framework to favour lower household charges, but denying those extra funds to services such as health or education.

The new NI Executive already has an agenda emerging from a recent consultation on the operation of the non-domestic rating system. That consultation report, issued in February, has not yet been followed by ministerial decisions on possible changes.

Any changes on rating charges or rating exemptions now fall to the incoming Executive.

The forthcoming changes in Great Britain pose immediate and difficult questions. The planned changes in England have brought nearly £23m to the Stormont budget through the Barnett formula but, if Northern Ireland was to make the same changes to increase the number of businesses that become exempt from rates, one reliable local estimate is that this might cost Stormont, in lost revenue, nearly £80m.

Stormont will need to make extra savings in some forms of spending if Northern Ireland introduces these changes. The groups representing small businesses, which are looking for these changes, will face possible political hostility - particularly since some of the other local rates exemptions are under scrutiny.

In advance of the local debate, ministers have made an assumption that regional rates will increase annually by no more than inflation.

This sits uncomfortably alongside the specific provision that in England councils are free each to increase by a smallish extra amount to help local government give financial aid to rising bills for the care of the elderly.

Apparently, Stormont does not intend to ease that difficult and growing problem in comparable local changes.

Company report: Sangers (NI) Ltd

The share capital of Sangers (Northern Ireland) is owned by Alchem which, in turn, is owned by Irish registered United Drug plc, trading within UDG Healthcare. Sangers (NI) is the largest local wholesale supplier of drugs and pharmaceutical supplies in Northern Ireland.

In October 2015, the parent company proposed the sale of its supply chain services businesses, including Sangers (NI), to the American McKesson Corporation. The deal is now complete.

In 2013-14 the firm recorded a large special credit of £65.7m on a business sale which was reported as an addition to operating and pre-tax profits. To allow year to year comparisons, this credit has been deducted in the table. That year the business also made a dividend payment of £76.2m to the parent company.

The NI business is organised in four divisions: wholesale, distribution, commercial (which exports ethical drugs to European countries) and Pemberton (selling health and beauty products to commercial outlets). The wholesale division deals with the drugs and over-the-counter products for pharmacies and hospitals.

Turnover in the year to September 2015 was 11% lower than in the previous year after a further 2% fall in the previous year. In the most recent year on a corrected basis the operating profit also fell by 9%. Pre-tax profits in 2014-15 were well down on the previous year but this was partly a consequence of large net interest earnings in 2013-14.

Employment in the last year averaged 216 people which is a small fall from the previous year average of 223 people.

The defined benefit pension scheme shows an assessed actuarial deficit of £2.4m with that deficit reducing the value of shareholders’ funds in the balance sheet by £1.9m.

The balance sheet value of shareholders’ funds rose late year by £2.4m to reach £15.5m.

Belfast Telegraph

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