Northern Ireland Assembly Flax Flower Logo

Committee for Finance and Personnel

Report on
Error in the Penny Product Calculation and Review
of Rating Policy

Report on the Committee's Deliberations

Ordered by the Committee for Finance and Personnel to be printed on 2 May 2001 Report 5/00 to the Northern Ireland Assembly from the Committee for Finance and Personnel.



Committee for Finance and Personnel: Membership and Powers


Deliberations of the Committee


Appendix 1. Minutes of Proceedings of the Committee Relating to the Report

Appendix 2. Minutes of Evidence of the Committee

Appendix 3. Annexes to the Minutes of Evidence



The Committee for Finance and Personnel is a Statutory Departmental Committee established in accordance with paragraphs 8 and 9 of Strand One of the Belfast Agreement and under Standing Order No. 45 of the Northern Ireland Assembly. The Committee has a scrutiny, policy development and consultation role with respect to the Department of Finance and Personnel and has a role in the initiation of legislation.

The Committee has the power to:


The Committee was established on 29 November 1999 with eleven members, including a Chairperson and Deputy Chairperson and a quorum of five members.

The membership of the Committee is as follows:


1. General

1.1 The Committee for Finance and Personnel met on 20 March 2001 to consider two related matters - the error made by the Rates Collection Agency in calculating the Penny Product and the Review of Rating Policy in Northern Ireland that is due to be undertaken by the Department of Finance and Personnel.

1.2 The Committee agreed that evidence taken on the issues should be published and distributed to district councils for their information.

2. Errors in Penny Product and General Exchequer Grant

2.1 In January 2000, following an investigation into the General Exchequer Grant, the Department of Environment announced corrected allocations to councils for the year 2000/01. However, the Rates Collection Agency made an administrative error when calculating data used to determine the allocation to councils of the General Exchequer Grant for 2000/01. The error was corrected and additional checks to ensure the accuracy of future calculations were introduced by the Agency.

2.2 On 8 February 2000 the Minister of Finance and Personnel wrote to the Chairman of the Committee to explain that further examination of previous years' allocations had revealed that errors also occurred in the Agency's calculation of the General Exchequer Grant for 1997/98. This resulted in underpayments to nine councils of over £900,000 and overpayments to six councils of £700,000. The Minister explained that an internal review would be commissioned to examine the entire process for determining the allocation of the General Exchequer Grant and if any further remedial action would be required.

2.3 The Minister wrote further on 8 December 2000 and again on 15 January 2001 to explain that following the introduction of new checks to ensure the accuracy of future calculations the Agency had discovered that the total rates assessed for domestic and non-domestic properties were incorrect in previous years. This meant that rates assessed for Northern Ireland Housing Executive domestic properties were, since 1995, incorrectly included in the overall calculation of non-domestic rates assessed.

2.4 The error originated in 1995 when a new public category of data was created in the Agency's database. The appropriateness of the data was never checked with regard to penny product calculations until the new and more robust checking arrangements were recently introduced by the Agency. The inclusion of Domestic Rate Aid Grant as part of the previous calculations masked the affect of the erroneous data. The result was that the Penny Products for 1997/98 and 1998/99 had to be revised. The error caused underpayments totalling £364,000 to 14 councils and overpayments of some £430,000 to 12 councils.

2.5 The Chief Executive of the Agency wrote to councils to advise them of the problem and the impact of the error. Belfast City Council then wrote to the Committee in January 2001 to inform it of the Council's concern at the problems experienced in relation to the calculation of the Penny Product. Representatives of the Council subsequently met the Minister to discuss the problem and the level of increase in the Regional Rate.

2.6 The Committee invited Belfast City Council to send a delegation to speak to the Committee on the matter and requested that the Chief Executive of the Rates Collection Agency should attend to explain the action taken to ensure that the problem would not recur.

2.7 Review of Rating Policy

2.8 The Minister wrote to the Chairman on 5 March 2001 to inform the Committee of the Review of Rating Policy that the Department was undertaking and which would be completed by May 2002, with implementation planned for 2003/04. Details are given at Appendix 3.

2.9 Members of the Committee had, over a lengthy period, expressed concern at the proposed level of increase in the Regional Rate and in the arrangements for collection and notification of the Rate. Members have called for greater transparency to enable the public to distinguish between the regional and local components of the Rates.

2.10 In view of the general concerns being expressed about rates the Department of Finance and Personnel was asked to brief the Committee on the Review of Rating Policy, now being undertaken on behalf of the Executive Committee, at the time of the Committee's consideration of the error in the Penny Product.


3. Belfast City Council

3.1 The Committee met on Tuesday, 20 March 2001 and received a delegation from the Policy and Resources Committee of Belfast City Council that comprised Councillor Mr Jim Rodgers and Mr Trevor Salmon, Director of Corporate Services. A record of the meeting is given at Appendix 2.

3.2 The delegation explained Belfast City Council's concern about the history of problems encountered by the Council when dealing with the Rates Collection Agency's calculation of the Penny Product and the serious difficulties that this had caused the Council in striking the District Rate by 15 February each year. Mr Salmon illustrated the extent of the problem by referring to a similar error that had resulted in the Council having to repay an overpayment of £1 million in 1996/97.

3.3 The Council raised four key concerns that had emerged from the problems with the Penny Product. It was stated that: "First, Belfast City Council - and district councils in general - need to have confidence in the information provided by Government departments. Without that confidence the budgeting / rate making process is a lottery. No organisation could withstand such uncertainties" (Minutes of Evidence for Meeting held on 20 March 2001, page 31, paragraph 8.7).

3.4 Secondly, rating information was needed from the Agency in a timely manner. It was explained that late arrival put undue pressure on local government to finalise its budgetary plans.

3.5 Thirdly, the rates collection process must be finalised in a much more timely and efficient fashion. The Council informed the Committee that the cycle for the year ending March 2000 was not completed until the end of December 2000. This meant that the Council had to consider its budget for 2001/02 without full knowledge of the final position regarding rates for the year. Completion of the cycle by the end of September each year would allow sufficient time for consideration of the Council's budget requirements.

3.6 And fourthly, under and over payments resulted in councils either not being able to allocate and spend monies within the required timeframe, or, having to repay sizeable amounts of money that would have been received in good faith, allocated and spent. This caused unnecessary and avoidable problems for councils in planning and controlling their expenditure.

3.7 The Council also called for the rates bill sent to householders to be simplified, with a clear distinction between regional and district rates and for publicity material on this matter to be issued.

4. Rates Collection Agency

4.1 The Committee then called Mr Arthur Scott, Chief Executive of the Agency to speak to the Committee on the error in calculating the Penny Product and the actions taken to correct the problem. Mr B Hagan and Mr McAteer supported him. A record of the meeting is given at Appendix 2.

4.2 Mr Scott explained the nature of the problem and regretted the errors that had occurred and the problems they had created for councils. Members questioned him on the inadequacies in the management, training and control systems in the Agency that the errors had exposed and sought assurances that the measures taken to improve the performance of the Agency would be effective.

4.3 Mr Scott explained the measures taken to avoid a similar situation recurring. This included new measures for internal control and monitoring and a recommendation to the Minister that the Agency should be required to achieve a Ministerial target for the provision of accurate and timely penny product information as part of its business plan. He assured members that in future calculations would be accurate and timely and the information would be provided to councils at a time suitable for their business needs. The Agency was also seeking to improve its collaboration with councils. Mr Scott agreed to provide further information in writing on a number of matters raised by members.

4.4 The Committee was aware that the Department's regular five-yearly review of the Agency was due to be completed by June 2001. The Committee called on the Department to consult with the Committee on the draft findings and recommendations arising from the Review. The Committee would consider the findings and the options for undertaking the work of the Agency more efficiently and effectively in the future.

4.5 Members sought clarification on a number of points concerning the problems with the rating system on which the Department responded in writing on 24 April 2001. The response is given at Appendix 3.

5. Review of Rating Policy

5.1 Dr A McCormick, Mr S Pearson and Mr B Delaney, Department of Finance and Personnel were called to brief the Committee on the Review of Rating Policy. Members welcomed the scope of the Review. They considered that it should be innovative in its approach to raising revenues through the rating system. And wide-ranging in its analysis and consideration of the role of rates and the options that were available to the Executive and the Assembly for raising regional revenues to meet the needs of the Programme for Government.

5.2 With regard to the involvement of the Assembly in the Review, the Committee considered that the Review would benefit from a more interactive involvement of relevant committees whenever cross-cutting issues are being considered by the relevant departments. This should include each department seeking the early advice of its committee on any options that would impact on their area of responsibility.

6. Findings

6.1 Penny Product

6.1.1 The Committee agreed to:

6.2 Rates Collection Agency

6.2.1 The Committee agreed to:

7. Review of Rating Policy

7.1 The Committee agreed that the Review:



Minutes of Proceedings of the Committee that relate to the Report on Error in the Penny Product Calculation and Review of Rating Policy are given below:

Date: Subject/Witnesses:

12 December 2000 The Minister of Finance and Personnel outlined the Penny Product Calculation for Rate Review and General Grant 1997/98 and subsequent years.

16 January 2001 Committee considered a letter dated 15 January from Minister of Finance and Personnel. Members agreed to invite the Chief Executive, Rates Collection Agency and a delegation from Belfast City Council to appear before the Committee.

20 March 2001 Representatives from Belfast City Council and the Rates Collection Agency appeared before the Committee. The Committee received a briefing from Department Officials on Review of Rating Policy.

03 April 2001 Committee considers its draft report.

01 May 2001 Committee approves the printing of the report.




Present: Mr Francie Molloy (Chairman)
Mr James Leslie. (Deputy Chairman)
Mr Alex Attwood
Mr Billy Bell
Mr Seamus Close
Mr Nigel Dodds
Mr Alex Maskey
Mr Peter Robinson
Mr Peter Weir

Apologies: none.

In attendence: Mr Martin Wilson (Committee Clerk)
Mr Peter Hughes (Assistant Clerk)
Ms Edel Gillen (Executive Support)
Ms Sharon Bowman (Administrative Support)

The Chairman declared the meeting open at 2.35 p.m. The meeting was held in public session.

Penny Product Calculation

The Committee questioned the Minister on his letter dated 7 December to the Committee. This outlined the penny product calculation for rate revenue and general grant 1997/98 and subsequent years.

Resolved: That the Department would provide the Committee with a more detailed written explanation of the nature and resolution of the problem.

The Chairman declared the meeting closed at 4.45 p.m.





Present: Mr Francie Molloy (Chairman)
Mr Alex Attwood Mr Billy Bell
Mr Seamus Close
Mr Nigel Dodds
Mr Derek Hussey
Ms Patricia Lewsley
Mr Alex Maskey
Mr Peter Robinson MP
Mr Peter Weir

Apologies: Mr James Leslie (Deputy Chairman)

In attendence: Mr Martin Wilson (Principal Clerk)
Mr Peter Hughes (Clerk)
Ms Edel Gillen (Executive Support)
Ms Sharon Bowman (Administrative Support)

The Chairman declared the meeting open at 2.35 p.m. The meeting was held in public session.

Error in Calculating Penny Product and Belfast City Council

The Committee deliberated on a letter dated 15 January from the Minister of Finance and Personnel on errors made by the Rates Collection Agency when calculating the penny product for 1997/98 and 1998/99. The Committee also deliberated on the draft reply to a letter dated 4 January from Belfast City Council asking to meet the Committee to discuss the Penny Product.

Resolved: That the Chief Executive, Belfast City Council be invited to send a delegation to meet the Committee. And that the Chief Executive, Rates Collection Agency be asked to appear before the Committee on the matter.

The Chairman declared the meeting closed at 5.00 p.m.





Present: Mr Francie Molloy (Chairperson)
Mr James Leslie (Deputy Chairperson)
Mr Alex Attwood
Mr Billy Bell
Mr Seamus Close
Mr Nigel Dodds
Mr Derek Hussey
Ms Patricia Lewsley
Mr Alex Maskey
Mr Peter Robinson MP
Mr Peter Weir

Apologies: none.

In attendance: Mr Martin Wilson (Principal Clerk)
Mr Peter Hughes (Clerk)
Mr Joe Sloan (Assistant Clerk)
Ms Edel Gillen (Executive Support)
Ms Sharon Bowman (Administrative Support)

The Chairman declared the meeting open at 2.38 p.m. This session was held in private.

Rates - Penny Product Calculation Errors

The Committee deliberated on correspondence from the Minister of Finance and Personnel and Belfast City Council relating to errors by the Rates Collection Agency in calculating the Penny Product.

The Chairman declared the meeting open to the public at 2.47 p.m.

Representatives of Belfast City Council (Councillor Jim Rodgers and Mr Trevor Salmon, Director of Policy and Resources) briefed the Committee on the Council's discussions with the Minister of Finance and Personnel.

Mr Attwood attended at 3.00 p.m, Mr Dodds attended at 3.02 p.m, Mr P Robinson attended at 3.05 p.m.

The Rates Collection Agency Chief Executive, Mr Arthur Scott, accompanied by Mr Bill Hagan and Mr Ronnie Mc Ateer appeared before the Committee to present evidence on how the errors occurred and to provide assurances about the future performance of the Agency. The Chief Executive agreed to provide further details of the breakdown of procedures within RCA.

Mr Bell attended the meeting at 3.16 p.m. Mr Hussey attended the meeting at 3.20 p.m. Mr Weir attended the meeting at 3.35 p.m. Mr Robinson left the meeting at 3.36 p.m. Mr Attwood left the meeting at 3.40 p.m. Mr Dodds and Mr Maskey left the meeting at 3.52 p.m.

Rates - Review of Rating Policy

The Committee received a briefing and questioned Department of Finance and Personnel officials, Dr Andrew Mc Cormick, Mr Stephen Pearson and Mr Brian Delaney.

The Chairman declared the final session of the meeting private at 5.02 p.m.
The Chairman declared the meeting closed at 5.15 p.m.





Present: Mr Francie Molloy (Chairperson)
Mr James Leslie (Deputy Chairperson)
Mr Billy Bell
Mr Seamus Close
Mr Derek Hussey
Mr Alex Maskey
Mr Peter Weir

Apologies: Ms Patricia Lewsley

In attendance: Mr Martin Wilson (Principal Clerk)
Mr Peter Hughes (Clerk)
Mr Joe Sloan (Assistant Clerk)
Ms Edel Gillen (Executive Support)
Ms Sharon Bowman (Administrative Support)

The Chairman declared the meeting open at 2.45 p.m. This session was held in public.

Penny Product Calculation Errors

The Committee considered its draft report.

The Committee deliberated.

Resolved: That the Committee includes a recommendation in its report that the remit of the Rating Review should include investigation of alternative finance raising arrangements.




TUESDAY, 01 MAY 2001

Present: Mr Francie Molloy (Chairman)
Mr James Leslie (Deputy Chairman)
Mr Alex Attwood
Mr Nigel Dodds
Ms Patricia Lewsley
Mr Alex Maskey
Mr Peter Weir

Apologies: Mr Billy Bell
Mr Seamus Close
Mr Peter Robinson

In attendance: Mr Martin Wilson (Principal Clerk)
Mr Peter Hughes (Clerk)
Mrs Margaret Miskelly (Clerk)
Ms Edel Gillen (Executive Support)
Mr Jonathan Briggs (Administrative Support)

The Chairman declared the meeting open at 2.41 p.m. The meeting was held in public session

Mr Nigel Dodds attended from 3.14p.m. Mr Peter Weir attended from 3.05p.m.

Draft Report on Error in Penny Product Calculation

The Committee Clerk briefed the Committee on changes and the inclusion of the Minutes of Evidence in the Draft Report.

Resolved: The Committee noted the changes and agreed the Minutes of Evidence for the Draft Report and the printing of the Report should go ahead.




Tuesday 20 March 2001

Members present:
Mr Molloy (Chairperson)
Mr Leslie (Deputy Chairperson)
Mr Attwood
Mr B Bell
Mr Close
Mr Dodds
Mr Hussey
Mr Maskey
Mr P Robinson


Mr B Hagan

Mr Scott ) Rate Collection Agency
Mr McAteer


The Chairperson (Mr Molloy): You are very welcome. Perhaps you would make a presentation first, and then members will have the opportunity to ask questions.


Mr Scott: Thank you. As chief executive of the Rate Collection Agency I regret very much the errors which occurred in relation to the penny product calculations and the impact those errors had on colleagues in the district councils.


There were two errors, the initial one in January 2000 affected the years 1997-98 and 1998-99. The errors had no impact on Rate Revenue Grant, but did impact on the General Exchequer Grant, which is administered by colleagues in the local government division of the Department of the Environment.


Following the identification of those errors, internal audit carried out an independent review of the process for calculating the estimated and revised penny product information. That review identified a number of mitigating factors, including the complexity involved in the calculations. The Northern Ireland Audit Office (NIAO) has since acknowledged that. There was an absence of formal written procedures for staff carrying out the calculations. Staff turnover in the agency had resulted in a loss of experience in actually knowing how to carry out the calculations and the agency had no formal staff training.


Internal audit also acknowledged, as part of that review, that the agency had taken steps to address the issues, and since that time all of the additional recommendations made by internal audit have been implemented. This has resulted in a more robust checking procedure for the whole process within the agency. The checking that was introduced at my instigation actually identified the second error.


The second error had gone undetected from 1995 and involved the misclassification of Northern Ireland Housing Executive properties. These were domestic properties which, because of an error in the database, had actually been counted in with non-domestic properties. That led to the second error in which rate revenue for 1997-98 and 1998-99 was calculated incorrectly. As a result, 14 councils were underpaid and 12 were overpaid.


The inclusion of domestic rate aid grant until 1 April 2000 had actually masked the error. It was a rather small amount; 0·03% of the rate revenue payable to district councils. Because of the work done in relation to the internal audit review and the detailed checking, which we had introduced, we uncovered this error that had gone unnoticed for some time.


We are conscious that colleagues in district councils now question the agency's credibility. We seek to assure them that we are committed to continuous improvement and providing a quality service. In this respect, we have recommended to the Minister that the agency now include a ministerial target regarding the provision of accurate and timely penny product information as part of its business plan. The agency's performance against this accuracy and timeliness target will be reported in its annual report, which is available to Assembly Members. It is also available to those in the wider policy environment who use the information we produce.


Prior to the second error, we had been reaching out to councils in an attempt to develop a collaborative partnership, recognising that they have financial processes that depend on ours. In relation to rate revenue increases there are other areas where collaboration would be beneficial for both of us. This collaboration has been warmly welcomed by many of the councils with whom we have spoken. We hope that it will lead to improved financial planning by sharing information and introducing a council perspective into the checking of the agency's information.


As regards the management and internal control of the agency, I have overall operational responsibility for the day-to-day management. I have established a system of internal control to provide assurance to me on the efficient, effective and economic operation of the agency's business activities. This system of internal control is based on a framework of regular management information, certain administrative procedures including the segregation of duties and a system of delegation and accountability.


The system and its operation is reviewed independently by the Department's internal audit, which conducts an independent assessment of the agency's analysis of risk of the procedures and systems it uses to carry out its business. The head of internal audit provides regular reports on their activity within the agency, including a professional opinion on the adequacy and effectiveness of the system of internal control operated by me as accounting officer.


The NIAO also conduct annual audits of the agency's financial statements and I have just learned that they have issued a memorandum to the Public Accounts Committee (PAC). The memorandum indicates that they will in future review the systems that I have put in place to ensure the accuracy of the penny product calculations.


I have taken a pro-active role in ensuring that the effective systems of control are in place and are being used. In future, the calculations will be accurate and timely. They will be provided to the councils at a time more suitable to their business needs.


I have also introduced a team to look at the scope for introducing an in-year monitoring system whereby we would intend to share changes to the estimate with councils. The estimate of the penny product is done some time in advance and changes occur during the year. The system would relay information to the councils advising them if the estimate has increased or decreased. Hopefully, colleagues in councils could then adjust their spending plans in line with the estimates. More work needs to be done on that and we are seeking the views of councils on the best way of providing that information to them. It is hoped that that would help them in monitoring their own finances and spend.


Mr Leslie: Thank you, Mr Scott, for that detailed exposition. One would expect the audit procedures to be there anyway - however they are all post facto. The key thing is clarity and confidence at the moment the calculations are finalised that they are authenticated and correct. To what extent do you attribute the problems to the complexity of the formula? Can there be scope for a slight difference of interpretation, which would lead to two people, quite justifiably, coming up with a slightly different answer?


Mr Scott: As regards the first error, there was a misunderstanding in how the formula was applied. It went undetected because it was not checked and that was an administrative failure as regards the control systems employed in the agency. Because of the lack of documentation identified by the internal audit review there was no adequate check of the work carried out.


Mr Leslie: Is that the only occasion when it was not checked - for example, five years ago? Are you confident that there has not been an error that has swept through the system and has not been noticed?


Mr Scott: I have only been in position since June 1999. If we take account of the mitigating factors - and I can only judge by what the internal audit review found - there had been a system of a more adequate check, which had broken down because of people leaving and not being replaced, and because their knowledge had not been written down.


Mr P Robinson: I will not dwell on the issue of the error; errors will always be made. It is preferable that they are not, but we are all human and no matter how good a Department or agency is, errors can occur.


I want to deal with the consequences of the error, particularly for those councils where you decided to take money - without their permission - from their present revenue stream to fund your error. This is totally unacceptable. You raided the coffers of councils and took money without their permission; that is a definition of "theft" incidentally. You took money that you had overpaid on a previous year from their present funding. That is unacceptable, and it is the kind of behaviour that puts councils in a difficult position.


I notice that the Rate Collection Agency took £184,000 from Banbridge Council - one of the smaller councils. That is an awful lot of money to a council of that size. Yet the agency took that money. I understand that legal action has been taken against you. What legal authority does the agency have to take money back from councils in a different financial year when it has been given it to them and has been accepted in good faith?


Mr Scott: There are two issues. I think that the figure quoted by Mr Robinson refers to a general grant, which is a matter for the Department of the Environment. In rate revenue, there is always an adjusting figure because of the variance in the estimate I outlined in my opening remarks. There is always an adjustment made by the Rate Collection Agency. I accept that the figure was perhaps made worse this year because of the errors. However we wrote to each council and explained the situation we were in and what we proposed to do. Where councils who had difficulty with it approached us, we made arrangements with them as to when would be best to recover the money.


We took legal advice on whether we had authority to recover the money, and we were advised that we had. The figure I have for the Banbridge Council is that they were overpaid by £22,000.


Mr P Robinson: How much was Castlereagh Borough Council overpaid by?


Mr Scott: Castlereagh Borough Council was overpaid by £13,910.


Mr P Robinson: Castlereagh Borough Council is legally challenging an overpayment of about £180,000.


Mr Scott: I believe that that is the general Exchequer grant administered by the Department of the Environment. It is not a matter for the Rate Collection Agency.


Mr P Robinson: So even though it is in a different financial year, the agency has the power to take money?


Mr Scott: Every financial year is settled following the end of the financial year, when the actual figures are known. There is an adjustment made every year. They are perhaps different this year because of the two years' errors as regards the mistakes that had to be rectified. There is always an adjusting figure because the estimate and the actual outturn are always different. It may be more, and the agency will owe the council more money, or it may be less and the agency will have to deduct money. That situation was made worse this year in some cases because of the errors in 1997-98 and 1998-99 for rate revenue.


Mr P Robinson: Councils need to know the amount of money that they can spend in each financial year. That is the purpose of their budgeting programme. The Rate Collection Agency's errors or adjustments, whatever you want to call them, seriously impact upon their spending programmes, and make life difficult for councils to carry out forward planning.


Mr Scott: I accept that the error affected councils, but there will always be an adjusting figure. That is why the agency has offered this collaborative approach to try and develop an in-year monitoring system to inform councils earlier about what we think the revised out-turn position will be, so that councils will be able to adjust their financial plans accordingly.


Mr P Robinson: If people in a council area do not pay their rates, does the agency withhold money from the council and make adjustments according to the failure to pay?


Mr Scott: Payments to councils are made according to the performance of the rate collection. Ultimately, rate collection will affect councils. However, they are paid on a formula, so it would take a number of years for it to affect them.


There will be people that will have arrears, and those arrears are carried over a number of years as the agency tries to recover them through its various recovery mechanisms. Therefore, councils would not immediately suffer financially, but eventually they would suffer if those debts were written off.


Mr P Robinson: Do councils get the money back if the arrears are eventually paid?


Mr Scott: Yes.


Ms Lewsley: You raised the issue of staff training. What has been put in place now, and what will be ongoing? You talked about putting a team together for end of year monitoring. What monitoring procedures has the agency put in place to ensure that it does not go five years before it finds the next error, and to make sure that the measures that it put in place are working?


Mr Scott: The training procedure has been documented, so there is a permanent record for everyone to read. New colleagues have been trained in how to do it and the team has been set up. It is not to do end-of-year monitoring, it is to do in-year monitoring, to check the basis of our own estimate, so that there will an early warning system. We intend to share that with colleagues in the councils and discuss with them how best to respond to what comes out of that.


Normally we would estimate the rate revenue due to the council and then simply divide it by twelve and make the payments. The adjusting payment I have referred to would be made at the end of the year to correct the difference between the actual outturn and the estimate.


The improvement we are proposing will give us the flexibility to monitor what is happening in-year and discuss with the various councils how best they want to respond to that. Because it is being done on a regular basis, the trained staff will become more familiar and expert in what they are doing. The agency will have a ready supply of people who will be able to do the task correctly and in a timely way, to meet the needs of our customers in the district councils.


Mr Close: How long has the Rate Collection Agency been in existence?


Mr Scott: The Rate Collection Agency has been in existence since 1991.


Mr Close: You told us today that the system had broken down?


Mr Scott: Yes.


Mr Close: When did it break down?


Mr Scott: I inherited the system in June 1999, so I assume it was before that.


Mr Close: So it was before 1999. Can you say if the system was ever operating? If there was no documentation and no monitoring, I am left wondering what was the system doing from its inception in 1991 until it broke down. Normally, you would assume that a machine is operating before it breaks down. From the information available today, I do not know what this machine was doing. If it was not monitoring, or documenting, and was not liaising with the councils - maybe it is unfair to ask you -can you hazard a guess at what it was doing?


Mr Scott: In 1997, when revaluation came in, the calculations became more complex. That introduced a different rate, and so until 1997 the calculation would probably have been easier. The problem crept in when we had the split between domestic and non-domestic rates. Up to that point, the agency had been carrying them out correctly, but I cannot categorically state that, because I was not the accounting officer at the time.


Mr Close: For the record, will you look into that and come back to us on it, because it is a vital point. It is also important because there is another revaluation about to get under way. We would hate to think that we would find the system breaking down again. Even though new systems are in place, are they durable enough to withstand another revaluation? This revaluation is going to be on top of the last revaluation, and you are still going to have domestic property operating at 1976 values.


Mr Scott: I am satisfied that the systems we have put in place can produce this information accurately and timely. We are already engaged with colleagues from the Valuation & Lands Agency to take early account of the revaluation exercise. Unfortunately, the outcome of the revaluation exercise will not be known until nearer the end, when the fieldwork has been done. We are now looking at what we need to do to the computer system in order to transmit that information into the rateable values for the rates bills.


Mr Close: Considering you accept that you made these mistakes, that you regret them and are sorry for the difficulties they have created for district councils, a demonstration of that sorrow and that regret would not have been to say, "Come on, give it back", it would have been to say "Mea culpa, we accept responsibility, and we accept the financial consequences of it, and we will find those moneys". That would have been preferable than going back to those local authorities and putting a number of them in an even worse position for exactly the reasons you have stated.


It has totally screwed up their financial planning for this year and potentially for subsequent years. It would be a lot better if the Rate Collection Agency really means what it says and says what it means. You would not have been sending out these demands or readjusting to such an extent that it has created financial difficulties for local authorities.


Mr Scott: The advice we took was that we had a legal right to do this. It was reported to the Department of Finance and Personnel and was the line that was taken. The agency simply implemented it.


Mr Close: And you would defend any legal actions taken against you that would add further expense?


Mr Scott: Yes, because there is an equity principle involved. The councils who were underpaid had to be addressed. The agency does not have any money other than the rate revenue it collects. We do not have any other budget.


Mr B Bell: I feel the same as Mr P Robinson and Mr Close. This has huge implications for councils,


I am sorry that I could not hear all of the presentation. I am involved in local Government. The finance and general purposes committee of Lisburn Council, as it was then, discussed with your predecessor the penny product calculation and how it was going to be administered during the revaluation. The advice we got then was that if we decided to wait until the agency actually produced a penny product figure and there was an error, then we were not responsible for it. If we decided to pre-empt it and produce our own penny product figure in advance of the agency then we were responsible for it. On this occasion, we waited until the Department actually produced a figure, and now we are being penalised for it. Could you comment on that?


Mr Scott: There appears to be some vagueness in that the agency produces estimates of the penny product to guide councils but they are free to use it or ignore it.


Mr B Bell: There was specific advice given at the time.


Mr Scott: I am not aware of that. I would have to check it.


Mr B Bell: I realise you were not involved in that. Perhaps you would check. I do not want to put you off your answer but I need to point out that that is the advice we were given.


Mr Scott: All I can say in regard to the more general point is that we are attempting to develop more collaborative working methods with councils. We see it as a partnership approach because we are all interested in this area of activity. The aim is not only to improve our financial planning process but to try and assist councils in any way we can to improve their financial planning process in the monitoring and controlling of their own expenditure. We will certainly not be bound by what has gone before in terms of how we can seek to do anything additional to assist the councils with this task.


Mr Maskey: I would like to acknowledge that your introduction contained an impressive list of measures that you are taking. In saying that, it seems to me those things should have been there in the first place. Notwithstanding, that there are some very serious complexities as regards the different formulae, which have caused a lot of problems for members here, it seems that measures and systems were clearly absent. I do not know how so many things could have gone wrong over a period of time. Again, I am acknowledging the measures you have already introduced to redress it.


The Rate Collection Agency has to make the calculation and be at the coalface as far as councils are concerned. What measures have been taken to ensure that the Department of the Environment or the Valuation & Lands Agency, for example, have got their acts together before you advise the councils of what they are getting?


What confidence do you have that ordinary people who do not have the might of a council's legal department and experts at their disposal are having their rates calculated properly?


Mr Scott: Each agency operates its own systems of control. I have outlined some of those, and again they are independently reviewed. The Department of the Environment draws information from other agencies on the payments of general grants. I can only comment on the information we give them and ensure it is correct. I assume other agencies do likewise.


As regards the assessment of rate accounts for individual ratepayers, these calculations are separate from the calculations of the rates, and I have assured the Minister that the rate bills that were issued during this period were accurate.


Mr Dodds: Although you said you took office in 1999, and the period since then is all that you can account for in your official capacity, what has happened, or what will happen, regarding the breakdown of the system as you characterise it? Will there be any investigation as to when and how that breakdown happened? Has anyone been called to account over it?


Mr Scott: I assume you are referring to disciplinary action. The Department's internal audit carried out a detailed investigation involving the Department of the Environment and the Rate Collection Agency, and a report was produced. That report was submitted to, and considered by, the Department of Finance and Personnel, and in view of the mitigating factors that I outlined, the Department considered that on this occasion no disciplinary action was necessary.


The robust checking that I introduced in response to the review detected the second hidden error in the data. Therefore, in a sense it was not an error - our checking detected it and disciplinary action was not considered.


Mr Dodds: Concerns have been expressed about the nature of the errors made, particularly as they impacted on local authorities. Do you accept that it is strange that no disciplinary action has been taken?


Mr Scott: I have been accounting officer since June 1999, and as one of the calculations was made since I have been in office I could be a party to such action, so I do not think it is appropriate for me to comment on it. All I know is that the facts of the matter were reported to the permanent secretary in the Department of Finance and Personnel and it was decided that no action was appropriate.


The Chairperson: Belfast City Council said that very often it received its final information from the Rate Collection Agency in December. Is it not possible to present councils with that information earlier?


Mr Scott: Yes. There has been a history of the calculations being done later and later in the year due to other work pressures in the agency and complexities in the calculations. In setting the new target that we have proposed to the Minister to include the agency's corporate and business plan, we have responded to the need that has been expressed - particularly by Belfast City Council - to have the information early to assist district councils. The new team I referred to represents additional resources that have now been put into that area. They will focus on this area in an effort to meet this earlier timetable to fit in with the district councils' financial planning processes.


The Chairperson: Did the Rate Collection Agency seek external advice on the system that is being used? Mr Maskey raised the point that householders may not be paying the correct money and may be overcharged or undercharged.


Mr Scott: Our internal audit and the NIAO have independently checked our systems. In a sense, that constituted external scrutiny of what was being done by the agency to correct the errors.


The Rate Collection Agency is satisfied - and I am satisfied as accounting officer - that the rate bills have been accurately assessed and issued, as the calculations of district council rates are separate from the arrangements for working out the individual ratepayer bill and issuing a rate demand to the ratepayer.


The Chairperson: The issues of the lack of training, no follow-on from previous experience, and the collapse of the system have been raised. Is it a fair to say that the Rate Collection Agency failed completely in its task of accurately calculating resourcing for district councils?


Mr Scott: I would not say that it failed completely. It is more a question of the adequacy of the control arrangements that were in place. The staff carried out the calculations. However, the calculations were not subjected to the detailed level of checking by senior management that they are now subjected to. In that sense, that part of the system failed. However, I would not say there was a completed failure or breakdown. There were a number of contributory factors in allowing people with the knowledge and skills to leave, and not capturing the benefit of their experience, which was gained over the years they had been carrying out the task. Those factors combined to produce this overall failure.


The Chairperson: As regards the system that was in place, would it be possible to assess whether there was actual fraud taking place at the same time as these errors appeared?


Mr Scott: One would have to look at the overall system of internal control, and each year the NIAO signs off the agency's accounts. There has been no indication from internal audit, the systems of control operated by management, or the reports of the NIAO, that there is any indication of fraud. The internal audit review showed that staff did what they considered to be right. It was error, rather than any malicious attempt to do anything deceptive, or to do anything wrong.


The Chairperson: Thank you very much for your attendance and information.


Tuesday 20 March 2001

Members present:
Mr Molloy (Chairperson)
Mr Leslie (Deputy Chairperson)
Mr Attwood
Mr Close
Ms Lewsley
Mr Maskey
Mr P Robinson

Councillor, Mr J Rodgers ) Policy and Resources Committee
Mr T Salmon ) Director of Corporate Services


The Chairperson: We will go straight into the meeting. Some Members may have to leave, and we must have a quorum. I would like you to present your submission, after which Members will have the opportunity to ask questions.


Mr Rodgers: I must apologise. I am the only elected member of the council here. I think that there has been some misunderstanding or, perhaps the St Patrick's Day holiday has caused confusion. Mr Salmon is our director of corporate services, and he deals with the issue. I will let him speak first.


Mr Salmon: Thank you for receiving us and listening to our views. I will keep my presentation brief but I must put the matter into context. I recognise one or two Members. Not all Members will be familiar with the rate-making process or, indeed, the tight statutory timetables. Members of the Committee need to be aware that district councils are required to strike the rate by 15 February each year. In order to do that, we must receive two pieces of vital information from Government: one relates to the penny product, and the second relates to the general grant. The council's spending priorities and plans are a matter for the council itself.


In normal circumstances, the information would come via the Department of the Environment just before Christmas each year. There is a tight time window between Christmas and 15 February to finalise plans, get our budget in order and strike the rate. Superimposed upon that are the problems that we met in the current year, for example, errors coming through from the Rate Collection Agency. If the problem applied to only one year, perhaps we would not have come to the Committee. However, there has been a series of errors. Not all of them have been the fault of the Rate Collection Agency; on another occasion it, was the policy division of the finance and personnel directorate. Over a period of four or five years, we have had a succession of difficulties.


We do not intend to go into the detail of past problems, but there are three points that we wish to make. First, Belfast City Council - and district councils in general - need to have confidence in the information provided by Government Departments. Without that confidence, the budgeting/rate-making process is a lottery. No organisation could withstand such uncertainties.


Secondly, we need the information in a timely manner. When information arrives on 11 January - as it did this year - it puts enormous pressure on local politicians to finalise their budgetary plans. That pressure is especially great if those figures provide bad news, and if hard decisions have to be taken. Often, deciding of priorities requires a lot of time and effort from members and officers: there may be industrial relation issues or political and community sensitivities. Three to four weeks is a very short time in which to make such hard decisions.


Thirdly, the rates collection process should be finalised in a much more timely and efficient fashion. For the year ending March 2000, the process was completed at Christmas 2000, meaning that we are trying to fix budgets for 2001-02, without having full knowledge of the final position for the year ending March 2000. Such uncertainty creates enormous difficulties for district councils, and would be unacceptable in a commercial environment.


We must persuade the Rate Collection Agency to realign their cycle of work so that the process is completed not later than 30 September each year. That way, we could finish off the previous year and have the information needed to start planning for the ensuing year.


I do not want to get into the detail of the errors. There have been different errors over the past three or four years. This year, the amount at issue was £136,000, but, on a previous occasion, over £1 million had to be repaid to the Rate Collection Agency, simply because the estimate that they provided was, in fact, incorrect. Compounding that particular problem was the fact that the year in question was over and the council had spent the money. We were then asked to pay back the money.


It is not fair on district councils and it is a difficult scenario for them. It does not apply only to Belfast, but also to many other councils. In fact, Carrickfergus Council had to pay back a considerable sum at the same time as we did, and they had to make an arrangement to pay it back in instalments. That is not an efficient way to conduct business.


The Chairperson: You had a meeting with the Minister about the penny product calculation errors. Were you happy with his response and his assurances about the review of the Rate Collection Agency?


Mr Rodgers: As an ex-councillor, the Minister fully understood the problems. We stressed that the errors are not just a one-off problem and have been happening since the 1996-97 financial year. If it were happening in councils, elected Members would certainly want to know what was going on. That is what we are saying. The Minister put forward a good case on behalf of the Department, but we feel that the Committee should be investigating this. There are at least three Committee members here today who are councillors and one who is a former councillor. Will the problems continue into next year and the following year? I know that we all make mistakes, but we have never had a satisfactory answer, and the problem must be sorted out. There is a lack of confidence in the Department because, each year, they find an error that changes our estimates.


Mr Leslie: We were as horrified as the council. We felt that we were to some extent, impotent, in so far as we depend on the Department to fix the problem. We had to examine the procedure for calculation, and I gave up trying to understand it. Perhaps, in the consultation paper, they could come up with a better formula. Did the council contribute to the consultation paper and make proposals on how to simplify the formula?


Mr Salmon: We have not contributed to that process yet ,but we know about it and will contribute to it.


Mr Leslie: Have you been invited to contribute?


Mr Salmon: Yes. We mentioned it to the Minister last week. We agree that the process is far from transparent; it is complex. The reasons for some of the errors are not immediately apparent to district councils. The Rate Collection Agency is only one part; there is also the Valuation and Lands Agency, who do the valuation work, and the Department of the Environment, who co-ordinate the various agencies. Communication is not always what it should be.


A couple of weeks ago, I rang the Department asking for the press release on the regional rate. I was told that that office had not yet been told what the regional rate was to be. However, everybody else knew; it was in the papers at Christmas. That is not efficient and it creates uncertainties.


Mr Close: I agree entirely with you about the complexities of the rate and the fact that the process is split up between different divisions. At times, one gets the impression that one hand does not know what the other hand is doing or how advanced the other hand is.


I would like more information about what you managed to get from the Minister regarding the finalisation process in particular the timing aspect. The council is looking for September. It is necessary to have the time to do the proper calculations and assess priorities. Did the Minister take your concerns on board? Did you get any suggestion that they could achieve a target for commencement in September?


Mr Rodgers: He gave us no assurances. He said that he would get his officials to consider what we had put forward. He was sympathetic to our proposal for September, but nothing was settled there and then. He also said that he would discuss it with the Committee.


Mr Close: Sympathy is all very well but it does not make the problems any easier. Did you pursue the legal aspect of repayment?


Mr Salmon: No. The repayment happened in 1996-97, and the impact of that error was greater than those in this year. On that occasion, we had to pay back £1 million, which was money that we had received but to which we were not entitled. That was not the issue; the issue was that we had been given money, formulated spending plans on the basis of that money and then been told, after the year was over, that we had to pay the money back. The Member will probably remember that problem in Carrick, which was affected in the same way. It posed very serious difficulties. It was a double blow, we had to pay £1 million back, and we had already spent it.


We considered some revolutionary ways of clawing back that money: should we simply levy it onto the poor ratepayer, who always has to pick up the tab for these things, or should people have to endure spending cuts? In truth, we probably did all those things on that occasion. We examined our spending plans, the rate-setting procedure and timing. Setting the matter to rights was a complex exercise. This year has not been so bad, as the figure was only about £130,000 - not a huge sum of money for us - but it could have been.


Mr Close: Let us concentrate on the £1 million. Did you take legal advice at the time? I know that Treasury rules apply to the Department with regard to getting the money back. Belfast being what it is, did the council question whether there was the legal authority to demand the return of the money? Did the council contemplate a challenge?


Mr Salmon: We considered a challenge, but rejected the idea quickly.


Mr Close: Why?


Mr Salmon: We did not feel that there would be any mileage in fighting the Government.


Mr Maskey: I recall that debate, and it is true that there would probably not have been much mileage in it.


I am curious about the response that you got from the Minister, not only with regard to Treasury rules. Is there a statutory obligation on any part of the Government to give you the information at an early stage? Ultimately, there must be a regime that works.


Mr Salmon: As far as I know, the only statutory date is 15 February, which is imposed on us. Obviously, everything must flow from that. If we cannot obtain the necessary information in good time, we cannot produce the budget in accordance with the statutory timetable. Indeed, there was some debate in the council chamber about whether we should even attempt to meet the timetable or simply take whatever time was necessary to make the proper decisions.


Last year, for example, members arranged a full programme of special council and committee meetings to consider the estimates in isolation. Had we not done so, we would not have met the statutory timetable. The knock-on effect would have been that rate bills would have gone out somewhat later than was the case. That is the only timetable that I know of.


Mr Maskey: There will be a number of reviews over the coming year arising from the Programme for Government. It is most important that the council examine the rates issue - how they are collected and the different formulae used - for the Assembly will also be looking for information of that sort. Members of the Committee have been bogged down with the Budget over the past year. You are aware of all the impositions on us. People have simply not been able to get their heads round the intricacies with which you have had to deal at the coalface. We are consciously trying to get our act together regarding the coming months' reviews to allow us to make a positive and sensible input.


Mr Salmon mentioned three things, the first being confidence. I thought that he was going to say "conference" and I was about to suggest that it might not be a bad idea if the different agencies came together by a certain date to pool information. Then you would not be waiting for the policy division or the Rates Collection Agency to come along a month or two later. I am simply looking for ideas to bring the system together at the right time.


Mr Salmon: Under the present system, the Department of the Environment co-ordinates the information.


Mr Maskey: It is not happening.


Mr Salmon: The legacy of that process is that information has been arriving with district councils ever later. There comes a time when you physically cannot complete the process within the statutory timescale.


Some fundamental things can be done. I cannot understand why the finalisation process cannot be completed by 30 September. District councils are required to complete the final accounts relating to a previous year by 30 June - that was the former timescale. It was relaxed in one year, but generally it is 30 June. That gives us a three-month period after the end of the financial year. Why can the Rate Collection Agency not complete the finalisation of the rate collection process within the same timescale? There may be bad debts, write-offs or other difficulties, but if it is not completed by that time we can simply fall into the next year. At least that would give us a basis on which to work.


Similarly, the database for the information needed for the budget should be well established by that time. It is not rocket science, just a database of property. Some new properties come on, some properties drop off, but it is not rocket science per se. It should be possible to have a database robust enough to provide the proper information by the autumn. Again, it does not matter whether the line is drawn at October or December - the later it is left, the more difficult it is for district councils.


Mr Rodgers: It is totally unsatisfactory that we are given the figures three to four weeks before the 15 February. Our staff have to work night and day to get everything compiled. If the shoe were on the other foot and we refused to set the rate on 15 February, we would find ourselves in big trouble.


We also told the Minister that the rates bill sent to householders in Northern Ireland should be simplified. We would like to see the district and regional rate quite clearly separated. We also suggested that the Assembly should seriously consider sending out a leaflet to every household explaining the rates system. Belfast City Council does that, simply because we get the blame for the large increase in rates when, with all due respect, it is perhaps the responsibility of the Assembly and not the council. We have asked the Minister to consider that and ask the Committee to do the same.


The Chairperson: That point has been raised with the Minister in Committee. He assured us that the two would be separated. We have not seen the new format, but there may be one bill with the domestic and regional rate separated, which is the important aspect. Are you saying that the regional rate should be further itemised?


Mr Rodgers: Yes. We are not asking for two separate notices, but one notice with the rates separated on the bill. The average person will admit that he does not really understand the bill, and that is why it needs to be set out much more clearly.


The Chairperson: I want to take you back to the original point about the length of time that the Rates Collection Agency takes to deliver. Are you saying that, basically, one year's cycle is nearly overlapping the next?


Mr Salmon: The information that we receive to strike the rate for the next year normally arrives just before Christmas. If the finalisation does not arrive until the same time, or indeed later, we are not working in the current year. It is the previous year's information, and affects our ability to be prudent for the following year. Normal commercial practice would suggest that the previous year should be cleared off within a reasonable time, and I would think that 30 September was quite reasonable.


The Chairperson: The chief executive of the Rate Collection Agency is coming before the Committee now. If you want to wait for that, you are welcome to do so. This session has been important, as it has given us information for the questions that we want to ask him. Thank you.


Mr Rodgers: I thank you, Mr Chairman, and the Members for giving up valuable time to see us today. For the benefit of the Members who arrived late, I apologise again that only two of us were able to come.

Session concluded at 3.09 pm.


Monday 20 March 2001

Members present:
Mr Molloy (Chairperson)
Mr Leslie (Deputy Chairperson)
Mr B Bell
Mr Close
Mr Hussey
Ms Lewsley
Mr Weir

Dr A McCormick ) Department of
Mr S Pearson ) Finance and
Mr B Delaney ) Personnel


The Chairperson: Welcome to the meeting. We will let you make your presentation and then Committee members will ask questions.


Dr McCormick: Thank you. From every point of view, the review of the regional rate is a major exercise for all concerned. There are genuine difficulties with the existing system, which is not satisfactory. That is clear. The Executive are committed to examining the problems root and branch, considering the alternatives and agreeing on how to move forward. Devolution changes the whole context.


Many of the functions that are the responsibility of central Departments here are in England, Scotland and Wales, the responsibility of local authorities. Those functions include schools and local roads, and have been, since the early 1970s, departmental functions rather than local authority functions -[Interruption].


The Chairperson: Somebody may have a mobile phone switched on and it is interfering with the recording system. It should be switched off.


Dr McCormick: Under the existing funding system, the regional rate is a contribution to a range of services, including local authority services.


The Northern Ireland Act 1998 has changed the situation. The devolved administration has the competence to look at means of raising revenue, as long as they are not the same as, or similar to, taxes that apply in all parts of the UK, such as income tax, VAT and other UK-wide taxes. The Assembly and the Executive may consider a range of options. At the moment, we have a property-based system, but we are not completely tied to that. There is room to consider the issues more widely. The best way to approach it is to see what the issues are, what the impact of different options would be and what is practical and sensible. Those areas are set out in the review paper.


The lessons learnt elsewhere in the 1980s and 1990s must be carefully noted. We must identify what is acceptable and deliverable. Property is quite helpful because it is static and possible to identify. Also, it is possible to use property as a basis for calculation. However, the ability to pay is a core issue, as is equity of effect. Those things need to be carefully considered, and that is why the Minister is determined to engage fully with the Committee in exploring those options.


Equality and new TSN lie at the core of the issues. We need to consider the effects on different aspects of society and different components of the economy. The existing system is quite complicated. The reliefs are extensive and therefore, the effects need to be more fully considered. The team in the Department has started to work with other Departments on the existing system. We are trying to analyse and understand it more fully as a basis of examining what changes might be possible. Obviously, no one likes paying more - no one likes paying at all. People will defend existing reliefs. The role of the Executive and of the Assembly is to find the best solution. We need to raise sufficient revenue to contribute to the expenditure plans in a way that is equitable and supportive of other strategies and policies. For example, the issue of industrial rating is likely to come up. It could be argued that that acts as a blanket relief, but it has an effect and is particularly relevant to attracting the investment that IDB is looking for.


The effects of each option need to be carefully analysed. The Minister has repeatedly emphasised that the amounts that are being raised locally are relatively low compared to other regions. However, it is a matter of local political judgement as to what should be done about that. We can give advice only about how the Treasury will treat this region. That is bound to be relevant and will have some effect.


The stages set out in the paper are quite extensive. That is because there is much detailed work to be done. For example, there is the analysis of the effects of the current system. We are engaged in that now, and there will be further analytical papers for consideration as we go forward. We will need to draw up policy options. That is the heart of the issue: what realistic, acceptable options exist that will raise money and command a degree of public confidence?


The subsequent consultative process will need to cover the impact of equality considerations. Obviously, this Committee and the district councils will be consulted, because, although the review relates to the regional rate, the district rate is currently collected along with it. It is easy to say, "Let us keep the link between regional and district revenue-raising", but the argument in favour is not self-evident. It must be thought about, and it will be important to consult district councils about that. There is also the link to the public administration review, which is looking at structures in the public sector. All those things will take time and must be dealt with carefully and thoughtfully. There is evidence of the difficulties that the issue has caused in other contexts, and I am thinking of poll tax, for example.


Those are the broad stages as set out in the paper. There is a wide range of issues. The issue of funding for the Water Service also needs to be borne in mind. Under existing legislation, there is a link between the regional rate and funding for the Water Service (Financial Provisions (Northern Ireland) (Order 1991) but that does not need to be the way forward. The Executive and Assembly have to look at the range of options, in the context of new institutions, and decide what is the best way to proceed.


The Chairperson: We could not see terms of reference as such, but there is reference to the scope of the review.


Dr McCormick: Yes, it is really a scoping paper. There is no single paragraph containing the terms of reference. The Executive have agreed that the approach and scope as described in the long paper is what this review is about.


Mr Weir: You said that there were certain legislative restrictions on the solutions that you could come up with, and that there were certain taxes that you can not opt for. I presume that there will still be a thorough examination of the options. The review should not be too restricted and should not be based purely on how we reform the rating system - for example, a local income tax. If we rule those options out are we not restricting ourselves to options for which, even if we do not have the legislative power, we could at least argue the case with the Government for such legislative powers, if a particular option turned out to be the best solution?


Dr McCormick: The scope of the review does not extend that far. It accepts the restrictions applied by the Northern Ireland Act 1998, which says that local variation of income tax or value added tax is not being considered at this stage. The review accepts the scope determined by the Act. However, that still leaves a wide range of possibilities; there is room to look at what is not being done anywhere by way of revenue raising.


Mr Weir: You also mentioned the review of public administration. Could you say what co-ordination, particularly as regards timing, will there be between the two reviews? If, for example, the review of public administration decided that particular functions should be given to local government, there would be a knock-on effect as regards the amount of money that would have to be raised. That would have an impact on what the rating policy review would recommend. Could you expand on the mechanisms that are in place to ensure that the two things are co-ordinated?


Dr McCormick: There is a close relationship between the steering groups, although the Executive are still defining the mechanism for the review of public administration. However, there is a close relationship. People involved in co-ordinating the review of public administration within the Office of the First Minister and the Deputy First Minister are either on the steering group for the rating exercise or are in close dialogue with it.


It is worth saying that if the total revenue raised is to be something similar to the status quo, the process of deciding how the functions will be distributed between different structures does not necessarily prevent us from proceeding with decisions on how to raise the revenue; it is possible to detach the issues. I agree that it is better to take the issues together and in parallel, but there is scope for them to diverge a bit.


Mr Weir: If local government functions were increased or decreased, would other ways be found of diverting funds to local government?


Dr McCormick: Yes.


Mr Close: First, Mr Chairman, with your indulgence, I would like to digress slightly for the first question.


Earlier, we spoke to representatives from the Rate Collection Agency. The chief executive referred to the fact - and Hansard will show whether I am exaggerating - that the system had broken down. I think those were the words used. The chief executive said that he had taken up the post relatively recently, but, obviously, the Department continued to exist during the change from one chief executive to another. How is it that the Department's accounting officer did not notice that the system had broken down?


Dr McCormick: Is this in relation to the penny product?


Mr Close: Yes. I accept that it is a bit of a googly, and that you have not prepared for the question. I am prepared to accept a written response, but as it is now on record that the system had broken down, and as you gentlemen are here now, I draw attention to it. Can you comment on that?


Mr Pearson: I am not sure that you could say that the system had broken down. It changed as a result of the non-domestic revaluation that took place in 1997, when different ways of calculating the penny product had to be brought in. That may have caused the difficulty that the chief executive was referring to.


Mr Close: I am raising the issue, and I would like to have a reply from you.


Dr McCormick: We will do that. We will examine Hansard to see exactly what was said and talk to Mr Scott. We will then give you a more considered analysis of the issue.


Mr Close: That was just by way of a wee preamble. This is a review of the rating system, not solely a review of the regional rate, is it not?


Dr McCormick: Yes.


Mr Close: It is the rating system.


Dr McCormick: It is widely based.


Mr Close: Could there be a situation in which the district rate as struck by local authorities would continue, but there would be a different method for raising the money that is now called the regional rate? Could that happen?


Dr McCormick: Yes.


Mr Close: We run the risk of tying our hands behind our back if we approach this from the point of view that other options such as local income tax or variations of VAT or methods of paying for water and rates are closed off. The Assembly could decide that it wanted to have tax-varying powers, and that could happen while this review is going on. That would be a short-sighted approach. It has to be all-encompassing. We should start off on that basis, rather than shutting off options at this stage. Things could change while the review is taking place. There could also be changes in the functions of local government.


Are we starting out with the view that at present we are looking at other alternatives for raising £500 million, or should we look at all systems immaterial of the goal? The goal may only be to raise £200 million or it may be to raise £1 billion, but that is not a function of the review. In other words, the goal is not to decide how we get £500 million, it is to decide how we raise money.


Dr McCormick: It is important that a new system could raise amounts that are consistent with current levels. If we were to explore options and find that the emerging option was one which, in practical terms, could only deliver £100 million, we would have a major problem. We are not tied to specific levels or figures. It needs to be something which allows discussion and accountability. The basis for raising revenue must be geared towards raising the necessary amount. That has to be at the discretion of the Executive and the Assembly. It could be argued that that needs to be as transparent as possible to promote accountability to the payer and voter. That is a consideration. The system must be capable of raising amounts congruent with the existing amounts, but that is not a predetermined factor.


Mr Close: Can we take it as read that all other revenue raising systems in operation in the rest of the world will be examined? I deliberately use the words "the rest of the world" - will we be innovative?


Dr McCormick: The papers that are being worked on internally consider a wide range of regions. The Executive have agreed that the work should be within the terms of the Act. If there is a mood to challenge the Act's constraints as to revenue raising, that would be a different matter.


If there is a strong desire to look for a more acceptable system, that probably means working within the Act in the short term. If the ambition is greater than that, it would be difficult to deliver on it. It also has to be judged on a political level. Does the Assembly want to follow the Scottish option?


Mr Close: Where would you look for that swell of opinion? Would you expect the Executive to be saying this or would you look for views from the political parties?


Dr McCormick: The Executive have initiated this on the basis set out in the papers that if the mood from the Assembly or the Committee is to go wider, then that is something the Executive will need to consider.


Ms Lewsley: You talked about reviewing the stages. How confident are you that you will be able to keep to the timetable for May 2002? Will Ministers consult with this Committee during each stage? If so, will they do so before or after they have been to the Executive?


Dr McCormick: The Minister's intention is to involve the Committee extensively and openly at the various stages. We do not have precise sequencing at this stage as to what will go to the Executive and when. This will need to be thought through, as and when the stages are reached. We have to get through all of it within a very tight timetable. There is a lot to be thought about and dealt with. There is a need to brainstorm some of these issues, ideally with members here if that were possible, because there is a lot to be considered by the steering group. Quite a few Departments have a very distinct locus on this: for example the Department for Social Development in terms of the effects on the benefits system; and the Department of Enterprise, Trade and Investment in terms of the effects of the economy. There are also the aspects of local Government to consider. There is a whole range of Departments which have a distinct interest, so there is a lot to be thought about.


The timetable is tight and, of course, a lot of responses on issues are required from the team in the Department. There has been a large upswing in correspondence on rating issues over past months, as expected. The pressure is on. The timetable has been thought about as carefully as possible. We think that it is deliverable, and we will certainly aim to stick to it.


Mr B Bell: In you last answer, were you talking about the review of raising revenue or the review of administration?


Dr McCormick: It was about raising revenue.


Mr B Bell: The Minister has often said to the Committee that the regional rate is necessary because if we do not raise it, it will be taken out of the block grant through the Barnett formula. Presumably what we are looking for is an alternative to it, and you did say that you were looking at different ways of raising revenue. Has motor tax been considered? Millions of pounds are paid here by motorists on motor tax. In some other parts of the world that could be used. It is perhaps used by the Treasury to provide us with our block grant.


Dr McCormick: I suspect that motor tax is caught by the Act. The Act refers to anything which is, or is akin to, a tax which exists on a UK basis - and motor tax does.


Mr Delaney: It is a Customs & Excise duty. It is a UK tax in the same way that fuel is a leviable charge. Things such as duties on wine, spirits and cigarettes are caught within the Act. Clearly income tax is caught because it is a UK-wide tax, as are corporation tax and capital gains tax. Those sorts of taxes are caught but not other types.


Mr B Bell: So that is not going to be an option in the review?


Mr Delaney: Not unless there is some way that you could approach the UK Government and get them to agree to change the Act first of all. Then you would have to set up a system to raise local motor taxes, fuel duties and so on.


Mr B Bell: The reason I am asking is because the Treasury is insisting that we raise funds here to match some of the funds that it is providing in the block grant. I feel that it would be just as desirable to apply revenue from motor tax as it would be to have the power to raise our own income tax element. I am simply asking the question for information. I listen to the Minister who is very helpful, but sometimes I am confused by the complexity of it all.


Dr McCormick: As Mr Delaney said, scope for change is limited on a range of issues. However, even given the constraints within the Northern Ireland Act 1998 regarding what is currently within the Assembly's competence, a range of issues could be examined. We have seen the English experience and what our counterparts went through when rates revaluations gave rise to great controversy in the 1980s. Rates were seen as inequitable and unhelpful, and someone thought up the poll tax as the solution. They moved on to solving that problem with the council tax, so options were limited. We are not so constrained and are looking more widely - at other countries and continents - for options to consider. However, it is perhaps also worth saying that, if there were easy and straightforward alternatives, someone might have found them. No one likes paying taxes, and so there are no easy options.


The Chairperson: Will you not accept that, owing to housing benefit, the rates system is also a form of poll tax? When children reach 18 years of age and are no longer dependent, they cease to be registered as living at home. Rates become a form of poll tax, since parents can then be entitled to a rebate. You lose by not collecting any rates for the household in question and by having to pay housing benefit.


Dr McCormick: That is part of what needs to be investigated. The first stage of the review is a matter of examining what desirable and perverse effects there are as a result of the interaction of the present ratings and benefits systems. While that is domestic, some of the complex interactions on the non-domestic side must also be investigated to draw out the social and economic consequences. That would provide a foundation on which examination of the positive options for change could be based.


Mr Hussey: Thank you for the presentation. I had a little difficulty in picking up some of the comments since, like my Colleague, Mr Leslie, I am deaf in one ear. However, I hope I have heard enough. I am looking at the section on the scope of the review, with its three sections: tax base; relief and exemptions; and (the system. I notice that the system for striking, collecting and distributing rates is included, while the system for calculation is not. Is it included under "striking"? Not too long ago we heard of the difficulties of calculation.


I do not know who prepared the document, but it suggests to me that a particular direction is being forced on those undertaking the review. I regard terms such as "erosion of the tax base" as emotive to the extent of being directional. Phrases such as "potential source of additional revenue" also point those carrying out the review towards a particular course of action. I note that the rating of agricultural land is a possibility. The introduction of water-rating or water-charging is included. There seems to be a thrust in one direction. Who produced the document? Do you agree that there is a certain thrust to it?


My final point concerns rate relief for general stores in rural settlements. We had two taxable hereditaments, namely, domestic and non-domestic. Is there a suggestion that a third category be established for rating purposes?


Dr McCormick: There is no pre-judging what this review is all about. It is very much a matter of judgement as to how much should be raised. I take the point that the language, in terms of erosion of the taxbase, can be perceived in that way. However, we are very clear that the issue being addressed is what method and system of revenue raising is going to produce a better, more equitable and more defensible outcome? The amounts to be raised are to be determined at political level once the new system is in place.


It is fair to say that if the review is, for example, solely to extend relief and exemptions, then there would be problems. There would be a genuine problem in terms of making up the lost revenue. There are ways in which that can be done. It requires a reassessment of aspects of public spending. However, as the Minister said this morning, there are plenty of demands on public spending. Therefore, it seems prudent, at least, to ensure that the option of maintaining something like the existing level of revenue is there and, given what has been said about comparisons with elsewhere, then the scope to increase also has to be thought about.


That is purely to analyse the options here. The scope of the review is to assess what realistic, credible and defensible methods would exist. That is the nature of the exercise. The Department worked on the paper, which developed and evolved through discussion among Departments, and in the end it was approved by the Executive. Therefore, it is a paper that takes on board reaction to proposals from the Executive.


The calculation of the rate is definitely within the scope. The scope that was described there and the things that were itemised were not intended to be exhaustive. Certainly, looking at how the rate is calculated has to be within the scope of the exercise.


Mr Hussey: Domestic and non-domestic third category -


Dr McCormick: There is already a range of categories of kinds of property. Within the broad basis of domestic and non-domestic sector, the range of reliefs in annex 2 of the paper show the way a range of different sectors are treated. Some are exemptions and others are not even considered in the valuation and rating systems.


Mr Pearson: The reliefs can span both domestic and non-domestic sectors, and most in the annex relate to the non-domestic sector - de-rating of freight and transport; de-rating sport and recreation. All those would generally be non-domestic properties.


The exempt category would contain charities, parish houses and vicarages.


Mr Hussey: Would they still have an NAV?


Mr Pearson: They would.


Mr Hussey: Would they still receive their blue printed certificate telling them their NAV, and whether it is domestic or non-domestic? Essentially there are the two categories, and then there are the exemptions which make the difference.


Mr Pearson: Yes.


Mr Hussey: Is there a suggestion that there could be a separate third category which would contain all the exemptions?


Dr McCormick: Yes, that is entirely open to consideration. There are no constraints in those terms.


The Chairperson: On the issue of relief for general stores in rural settlements, one of the points I was raising this morning, was the danger of the out of town shopping centres. I know that you are talking about a valuation which is to be set by the Department, but is there a danger of increasing competition in the out-of-town versus the town-centre situation?


Dr McCormick: I do not think that that should be a problem, because the scheme is targeted on providing assistance to rural settlements. That is the group that is being targeted for assistance by the scheme, not the shopping centres in any sense.


Mr Pearson: It is specifically aimed at small rural settlements, of a population of 3000 or less.


The Chairperson: My next point relates to premises that would be of benefit the local community. To broaden that, sometimes they are not just in a local rural community, they could be in a town centre. It could be the community hall or the community resource centre. It always seemed to me that there should be rate relief on those.


Mr Pearson: If a particular property were not within the settlement boundary it would not be eligible under the current legislation.


Mr Hussey: Given the nature of a rural community, the premises might not be within the bounds of a particular settlement, but the benefit to the community is not only to those who live within the boundaries. The community in a rural sense is much wider than just one of the 510 settlements that have been identified by Planning Services.


The Chairperson: That is the danger. It is similar to the situation where the International Fund for Ireland's boundaries for grant aid are so tight that they do not usually take in the scope of the premises that need it.


Mr Hussey: In particular with regard to the community sector.


The Chairperson: The other issue of concern was the talk of rates on vacant property. I do not know what ideas there are for trying to bring that back into operation, but I would have concerns about that, and levying rates on agricultural land and other such things in the rural community. The danger is that the community will be driven off the land again. There are enough pressures there at the moment, and they should not be increased.


Dr McCormick: The paper says that if it is a root and branch review it prejudges no aspect of the issue. The case for change in some other areas would be very weak, but it depends on what options are emerging. If we were moving away from something which is lacking in the existing system, who is to say what the right outcome would be?


Mr Delaney: Perhaps I could give you an example of our thinking. In relation to industrial de-rating, we felt that this was a global exemption, untargeted, and that everyone gets it. For example, an established industry which was quite profitable would be getting relief, but a sunrise industry, which wanted to come to Northern Ireland - a software development company which would not be involved in an industrial aspect - would pay full rates in start-up. We are not saying that is the way it should be, but there is an option there for a targeted rating system, as opposed to global exemptions and reliefs. Exemptions and relief are more complex than a global system, which is simpler to operate and calculate, but we wanted to put things like that on the table.


In the same way, if reliefs were to be extended to others in the domestic sector it might be necessary to look at vacant properties. In other words, if the same amount of money is raised from the rates there will have to be those who gain and those who will potentially have to lose. Otherwise, it will have to be moved from the domestic sector to the non-domestic sector.


It is a complex issue and nothing is being prejudged. Perhaps some of the language is not the way it should be, but it is a complex area and we wanted to ensure that the Assembly and the Ministers would have the full shopping list of options. Without prejudging, there will probably not be one single solution, but there will probably be a basket of choices which would make up a certain amount of money.


Mr Hussey: Are you aware of any schemes in the business sector that are outside the normal rating scheme for the calculation of rates where, perhaps, the known and expected profitability of the business are taken into consideration? Everyone is shaking their heads so I will come back to that. Are you aware of the scheme that was negotiated by the Northern Ireland Licence Retailing Trade?


Mr Pearson: That relates to the valuation of premises.


Mr Hussey: Does it relate only to valuation?


Mr Pearson: The rates bill will be affected by the valuation but there is not a specific exemption or relief for licenced premises. There are different ways of valuing licence premises.


Mr Hussey: Does it fall into the calculation?


Mr Pearson: Yes, if we could get the same result as the consumer of rates or payer of rates.


Mr Close: Mr Hussey was referring to the application of the revaluation and how it was applied to premises at the time of the revaluation and was an attempt to link it into ability to pay.


How confining is the application of other taxes? Are there any ways round that? Is a profit tax ruled out? Rather than go through a whole list, can you link something into the income tax that is currently being paid by an individual or family? Is a person ruled out because they are using their income tax base as a possibility for raising other moneys?


Mr Pearson: The Republic of Ireland has a residential property tax where an income is seen as a trigger or threshold. The tax is not based on the income; it is based on the market value of the house. Relief was received depending on whether or not the income was in a certain threshold. However, that tax has been done away with.


Mr Close: The most obvious case would be the industrial de-rating depending on whether or not the firm is profitable. Is that ruled out?


Mr Delaney: No. As Dr McCormick said, it would take a long time to develop that and it would hold us up because then you would be into such things as double taxation and profit tax on companies in Northern Ireland. That did not apply to the South. If that were to be an allowable deduction for corporation tax, there would be protracted negotiations with the Treasury as to how they handle it. It would not be ruled out.


Dr McCormick: When it is going well, other avenues will be explored. Following our first look at options we might then come back to the Committee.


The Chairperson: Consultation and the brainstorming of ideas between the Committee and various groups that would be involved are important because there is the opportunity to pull out ideas. There are a number of issues that we could talk all night about. Consultation is a very important avenue to expand the thinking of the Committee and the Department.


Mr Delaney: The possibility of levies and tolls is another avenue.


Mr Close: Looking at it from the other side, are we tied, through legislation, to pay the same level of benefits as are paid in Great Britain?


Dr McCormick: That is a matter where there is a theoretical discussion. It is a big step to depart from parity on the benefits system, but it is theoretically possible.


The Chairperson: There is an issue around housing benefit and rates and in relation to the Housing Executive. It is a strange situation when the Housing Executive has a number of empty properties and at the same time is paying housing benefit for private properties in the same area. That may be due to the quality of house. Without trying to restrict where people live, there needs to be an option so that when people make a choice to go a certain way, then it costs them to do so.


On the make-up of review group, there does not seem to be anyone outside the civil service structures with the exception outside consultants. Are there groups in the business and social communities that could have an input influence regarding the rating of properties?


Dr McCormick: When we move into the main consultation phase in the autumn it is intended that there will be structured and organised engagement with the relevant sectors. Because it effects so many people, that will need to be thought through very carefully. The Departments would need to advise on how that should be handled within the range and remit of the steering group.


The Chairperson: Would they need to be on the steering group?


Dr McCormick: No, that is not the intention.


The Chairperson: There could be benefit in having those two categories represented on the steering group in order to have input from both sides.


Thank you very much.



The Annexes to the Minutes of Evidence of the Committee that relate to the Report on Error in the Penny Product Calculation and Review of Rating Policy are given below.

Annex 1: Letter dated 8 February 2000 from the Minister of Finance and Personnel.

Annex 2: Letter dated 8 December 2000 from the Minister of Finance and Personnel.

Annex 3: Letter dated 4 January 2001 from Belfast City Council.

Annex 4: Letter dated 15 January 2001 from the Minister of Finance and Personnel.

Annex 5: Letter dated 5 March 2001 from the Minister of Finance and Personnel.

Annex 6: Letter dated 24 April 2001 from the Department of Finance and Personnel




8 February 2000


In January, you may recall, following an investigation into the resources element of the General Exchequer Grant, DOE announced corrected allocations for the year 2000/01.

Unfortunately, the Rate Collection Agency, an Executive Agency now within the Department of Finance and Personnel, made an administrative error when calculating some of the data used to determine the allocation of the General Exchequer Grant. The error was corrected and additional checks to ensure the accuracy of future calculations have been introduced.

However, I am writing now to make you aware that further examination of prior years' allocations has revealed that errors also occurred in the RCA in relation to 1997/98 grants and DOE will, I understand, be answering an inspired Assembly Question and issuing a press release on the matter today.

Procedures for determining the amount of grant due to each Council include a finalisation process once accounts have been audited and all but four councils have received final settlements for 1997/98. The Councils fall into 2 groups, depending on the completeness of the process. Thus errors in the grant calculations for that year for the Councils with fully finalised grants result in either underpayments or overpayments for 15 Councils. For the 4 Councils with unfinalised grants, adjustments are needed to the estimated and already notified finalisation figures. The effect on each Council grant is attached at Appendix 1.

DOE will correct the underpayments, some £0.9m in total. This will of course be welcome news to the nine Councils in this category. The four outstanding finalisations will also be made on the corrected figures and will result in less favourable grant settlements for each District concerned and will therefore be an unwelcome but unavoidable action.

The Councils which have been overpaid present a more complex situation - six Districts are involved with a combined overpayment of just under £700,000 and DOE will be entering into urgent dialogue with these Councils to consider how best to approach the matter so that disruption to financial planning is minimised as far as possible.

On a general point, an internal review will be commissioned to examine the entire process for determining the allocation of the General exchequer Grant to identify what, if any, further action overall is required.

I am copying this letter to the members of the Committee for information.

Minister of Finance and Personnel





Overpayment from 1.2.99

Outstanding Accounts


Amount Due

Adjustment required

































































Newry & Mourne







North Down
















8 December 2000


I wrote to you on 8 February 2000 about the need to revise the penny products for 1997/98 and subsequent years because the Rate Collection Agency applied the incorrect growth factor as part of the calculations.

New checks were introduced following this error to ensure the accuracy of future calculations. The Agency has just completed the calculation of the actual penny product for 1999/2000 and has discovered that the total rates assessed for domestic and non-domestic properties were incorrect in previous years. The calculation of the actual penny products for rate revenue and General Exchequer Grant for 1999/2000 are correct.

Unfortunately rates assessed for Northern Ireland Housing Executive domestic properties were, since 1995, incorrectly included in the overall calculation of non-domestic rates assessed. The error occurred because these properties were allocated to a discrete data group within the Agency's database called "Public Sector". Data from this group was added to the non-domestic rates assessed to calculate penny product information for rate revenue and general grant purposes. The accuracy of rate demands issued to ratepayers was not affected by the error.

The inclusion of Domestic Rate Aid Grant as part of the previous calculations masked the affect of the erroneous data. The assumption about the data has only now been identified, queried and corrected because of the checks introduced by the Agency's Chief Executive, Mr Arthur Scott.

Regrettably this means that the penny products for 1997/98 and subsequent years will have to be revised. Local Government Division, DOE, use these figures to determine the distribution of the General Exchequer Grant and clearly the new figures will impact on earlier calculations by that Department.

The Agency Chief Executive is writing to Council Chief Executives to advise them about the rate revenue outcome for 1999/00 and to explain the difficulty with the earlier years. I understand that Local Government Division (DOE) is also writing to Council Chief Executives about the implications of the error on General Exchequer Grant allocations and the action they are taking.

The Agency and the Department of Environment's Local Government Division are working together and plan to announce the revised penny products for 1997/98 and subsequent years together with the outcome of these revisions as soon as possible. Officials in both Departments are considering how best to deal with any financial adjustments required.

A number of detailed calculations are required before precise figures are available. Initial indications for rate revenue distributions for 1998/99 suggest the impact of the error will be much less than 1% of the total amount paid. The complexity of the formula used to determine the distribution of General Exchequer Grant prevents any estimate of the impact at this stage.

I shall write to you again when the outcome is known. I am copying this letter to Rev W McCrea, Chairman of the Environment Committee, and to members of both Committees for information.

Minister of Finance and Personnel



8 December 2000


New robust checks ordered by Mr Mark Durkan MLA, Minister of Finance and Personnel have uncovered an error in the classification of information used to determine the payment of district rates by the Rate Collection Agency to District Councils

Although the error has existed since 1995 it has only effected the calculations since the revaluation of non-domestic properties which took effect on 1 April 1997.

The Department is reviewing payments of district rates made to District Councils for 1997/98 and 1998/99. Any adjustments necessary will be made. Work to revise the calculations for earlier years will be completed shortly.

The error also affects the distribution of General Grant made by the Department of Environment to District Councils. Officials in the Department of Environment will reconsider the distribution of General Grant from 1997 when the revised information becomes available from the Rate Collection Agency.

The Rate Collection Agency collects district rates on behalf of Northern Ireland's 26 District Councils.

The amount of district rates paid over by the Agency to District Councils is based on a complex formula and the error affected this calculation.

The Rate Collection Agency calculates and provides certain information to Local Government Division (DOE) to facilitate decisions about the distribution of general grant.




4 January 2001


I wish to inform you that the Council's Policy and Resources Committee, at its meeting on 15th December, considered a letter which had been received from the Rate Collection Agency indicating that, whilst more robust and detailed checks had been put in place by the Agency to rectify an error in the procedures which had been discovered earlier in the year, a further error had been identified. An extract of the Committee's minute in this regard is attached.

I would draw to your attention the Committee's request that a letter be sent to the Rate Collection Agency expressing its serious concern and disappointment at the identification by the Agency of yet another error in calculations concerning the Penny Rate Product and the difficulty which this would cause for the Council in determining the District Rate. The Committee further agreed that a delegation be appointed to meet with Mr M Durkan, MLA, Minister of Finance and Personnel, to raise with him the Committee's concerns in this regard.

The Council, at its meeting on 2nd January, ratified this decision and agreed further that the delegation also raise with the Minister concerns about the reported rise of 8% in the Regional Rate. In addition, the Council agreed that the Chairman and Deputy Chairman of the Assembly's Finance and Personnel Committee be notified of the Council's concerns.

Accordingly, I am drawing these matters to your attention and perhaps you would let me have your response to the Council's concerns in this matter at your earliest convenience.

Head of Committee and
Members' Services


Extract from minutes of -



Rate Collection Agency -

Penny Product

The Director of Corporate Services reminded the Committee that in previous years problems had been experienced in relation to the obtaining of information from the Rate Collection Agency concerning the calculation of the product of a penny rate. Indeed, in the past the Rate Collection Agency and the Valuation and Lands Agency had been invited to attend a meeting of the Committee to clarify and explain the difficulties which had arisen.

He reported that a letter had been received from the Rate Collection Agency indicating that, whilst more robust and detailed checks had been put in place by the Rate Collection Agency to rectify an error in the procedures which had been discovered earlier in the year, a further error had been identified. A copy of the letter, with the exception of schedule 3 referred to therein, is set out hereunder:

'The final penny products for 1999/00 have now been calculated and the details for your Council are provided on the attached schedules. Figures for 1999/00 re-assessments are subsumed in the 1999/00 assessment figure.

The Adjusting amount shown at the bottom of schedule 3 will be paid to your Council.

Following the error earlier this year more robust and detailed checks have been put in place by the Agency. These new checks have operated effectively to ensure that the 1999/00 calculations are accurate. However, in applying this more rigorous checking regime another error has been identified.

Northern Ireland Housing Executive property information used by the Agency in the calculation was not correctly classified several years ago. As a result the total domestic rates due were understated and the non-domestic rates due were overstated for 1997/98 and subsequent years.

Calculations for 1997/98 and subsequent years will have to be revised. This will affect payments already made of both rate revenue and General Exchequer Grant to District councils for these years. This may lead to underpayments and overpayments of both rate revenue and General Exchequer Grant.

No precise figures are available at this stage. Officials in both the Rate Collection Agency and the Department of the Environment are determining the precise amounts involved and will make them available as soon as possible.

I fully appreciate the difficulty this presents for your financial planning process and very much regret any inconvenience caused. Agency staff and Department of the Environment colleagues are working together to produce the revised information as quickly as possible.

In the meantime if I can be of any further assistance please do not hesitate to contact me.'

The Director of Corporate Services explained that the discovery of this error would mean that calculations in respect of the product of the penny rate for 1997/98 and subsequent years would have to be revised. Given the difficulties which had been experienced over the past number of years, he expressed the view that this recent development was disappointing and did little to inspire confidence in the Statutory Agency concerned. He added that the financial consequences of the error had not yet been determined but could well be detrimental to the Council. He put forward the view that this recent development would most certainly impede the Council's financial planning process. He added that it was essential that the Council had full confidence in the figures being provided by the Rate Collection Agency in order to be able to determine the District Rate.

The Director of Corporate Services tabled for the information of the Members a letter which had been received from the Local Government Division in respect of the penny product calculations. A copy of the correspondence is set out below:

'1. You will by now have received a letter from the Chief Executive of the Rates Collection Agency, outlining a problem that has recently come to light. As you know, RCA is an Agency within the Department of Finance and Personnel.

2. You will recall that an error was discovered early this year in the penny product figures provided by RCA, which are a key component in the formula for the distribution of the resources element of the General Exchequer Grant. As a result, the District Council allocations for the current year had to be recalculated and Councils were informed of their revised figures on 12th January 2000.

3. You will also recall that it subsequently emerged that the problem with the RCA figures dated back to 1997/98 and that adjustments to grant allocations for that year were also required.

4. Those nine Councils that were deemed to be underpaid received an additional allocation. It was out intention to make adjustments to recover the six overpayments as part of the 2001/02 allocations of grant.

5. This Department expected to have received, some weeks ago, the estimated penny product figures for 1999/2002 and the actual penny product figures for 1999/2000 from RCA, to enable it to calculate the grant allocations to be taken into account in setting next year's district rates. Indeed, a number of Councils have already been pressing us for this information.

6. The Agency has indicated that it expects to have completed work on the figures by 11th December. However, even if receipt of the figures by that date were guaranteed, it will take some time for us not only to finalise the General Grant calculations for the coming year's allocations, but also to assess the impact of the changes to the penny product information for the earlier years. This latter element is likely to have a financial impact, which will need to be taken into account before we can consider the allocations of the grant for 2001/02. In addition, it is expected that the RCA figures for the earlier years will have implications for the adjusted allocations referred to in paragraphs 3 and 4 above.

7. The Department appreciates the problems this further RCA error will cause for District Councils. Local Government Division will do everything possible to expedite the calculations, as soon as accurate penny product figures covering the 1997/98 - 2001/02 financial years are provided, in order to alleviate the difficulties for Councils. Nonetheless, some delay in notifying you of your allocations for next year is already unavoidable.

8. I would ask you to accept my assurances that we will undertake the calculations as a matter of urgency, while ensuring that accuracy is not sacrificed, and to bear in mind the difficulties which the error has created for staff in the Division.'

The Director of Corporate Services pointed out that the Rate Collection Agency's error would cause difficulties in enabling him to finalise the Estimates of Expenditure for the forthcoming financial year. However, he informed the Committee that the Chairman (Councillor McKnight) had agreed that a special meeting of the Committee to consider the Estimates of Expenditure for the forthcoming financial year be held at 9.30 am on Friday, 5th January 2001. He reminded the Members that the Council was statutorily obliged to strike the District Rate by the stipulated date of 15th February.

After discussion, the Committee noted the arrangements for the holding of a special meeting to consider the Council's Draft Revenue Estimates and agreed that a letter be sent to the Rate Collection Agency expressing the Committee's serious concern and disappointment at the identification by the Agency of another error in the calculations concerning the Penny Rate Product and the difficulty which this would cause for the Council in the determination of the District Rate.

The Committee agreed also that a delegation, comprising the Chairman (Councillor McKnight), the Deputy Chairman (Councillor Brophy), or their nominees, and a member of each of the other Party Groupings on the Committee not represented by the Chairman and Deputy Chairman, together with the Director of Corporate Services and other relevant officers, be appointed to meet with Mr M Durkan, MLA, Minister of Finance and Personnel, to raise with him the Committee's concerns in this regard."

Annex 4




15 January 2001


I wrote to you on 8 December 2000 about the need to revise penny product calculations for the 1997/98 and 1998/99 because of the incorrect classification of certain publicly owned property by the Rate Collection Agency.

This error originated in 1995 when a new Public category of data was created in the Agency's database. It appears that the appropriateness of this data set was never questions as regards penny product calculations until new and more robust checking arrangements were introduced by the Agency earlier this year.

You will be aware that this error caused both the calculation of penny product information to determine rate revenue payable to Councils and the distribution of General Grant to Councils to be calculated wrongly. DOE's Local Government Division is responsible for determining the work to reassess penny product information for 1997/98 and 1998/99 is now complete and the amended figures have been checked and agreed by the Agency and Local Government Division. I understand that Local Government Division has written separately to Councils about the revised General Grant position.

As a result of the reassessed penny product information for 1997-1999, 14 councils have been underpaid and 12 have been overpaid. The underpayment totals £364,020 and the overpayment amounts to £430,293. The net impact of the error (ie £66,273 overpaid) represents less than 0.03% of the total rate revenue payable to all Councils for 1999/00. Annex A details the under and overpayments for 1997/98. Annex B details the under and overpayments for 1998/99. Annex C provides a summary for the two years 1997-1999.

The Agency and I are anxious to minimise any financial burden arising as a result of the error. I have instructed the Chief Executive to advise Councils about the outcome of the revised figures and to make good any underpayments of rate revenue immediately. Where overpayments have been made, the Agency will offer Councils the opportunity adjust future payments of rate revenue due. Where appropriate, the Agency will meet with Council Officials to discuss and agree arrangements to recover overpayments by instalment.

The Agency and I very much regret the error. The Chief Executive has assured me that the robust checking arrangements, which detected this error, will continue to operate to ensure the accuracy of penny product calculations in the future.

I am copying this letter to James Leslie and to Rev W McCrea, Chairman of the Environment Committee.

Minister of Finance and Personnel

Annex A











Armagh City & District

























































Newry & Mourne






North Down












Annex B











Armagh City & District

























































Newry & Mourne






North Down












Annex C











Armagh City & District

























































Newry & Mourne






North Down












Annex 5



5 March 2001


You will be aware from commitments made in the first period of devolution of the need to undertake a review of rating policy. This is a major and long term exercise. The present arrangements reflect a complex mechanism that has been developed over a long period of time, and which gives rise to a number of significant issues. A wide ranging review is therefore both timely and appropriate and the attachment to this letter sets out the approach and scope of the Review which have been recently endorsed by the Executive Committee.

The Regional Rate brings in some £292m of spending power for the Executive in 2000/01, including £23.8m from Rate Rebates as part of the social security system. It is collected alongside the District Rate which brings in £226m for the Councils (including £23m from Rate Rebates).

The review now being undertaken has a number of significant dimensions:

(a) the place of revenue raising in our Programme for Government - while our powers are significantly restricted under the Northern Ireland Act (1998), we are not constrained to continue with the existing system of regional rates. In considering the existing and alternative systems, we have to take account of the impact on individuals, society and the economy.

(b) in particular rating policy has significant implications for equality and New TSN: while those most in need receive rate rebates, the impact of the existing and any alternative systems would need to be examined very carefully in terms of equality and New TSN. The rating system is not fair on some individuals, for example single pensioners, because the property basis of the rate is not adjusted to take account of personal circumstances. Within the scope we have under the 1998 Act, we need to address this and other equality issues;

(c) the present policy involves different treatment of different sectors of the economy: the balance of revenue raising between the domestic, industrial, commercial and other sectors needs to be considered carefully in the review; we will need to examine the impact of policy options on, for example, the disadvantaged, the small business sector and the charitable and voluntary sectors.

(d) these points are compounded by the fact that the domestic valuation list has not been updated for many years, which in itself gives rise to a range of equity issues.

In addition, we need to consider very carefully the position on funding of the water service. This is relevant because of the direct relationship in the recent past between a large part of the regional rate and the funding of the water service (this is the subject of a permissive power in the Financial Provisions (NI) Order (1991) order.)

Also, we need to recognise that the combination of water charges and Council Tax which are raised in other regions is significantly higher than that raised here - this is a major issue for the Treasury and one which is likely to affect any future case we make on levels of public expenditure and the inadequacies of Barnett.

As well as all these major issues of policy and principle, it is also important to bear in mind the procedural dimensions of any system: the existing system involves valuation of properties which is the responsibility of the Valuation and Lands Agency and collection through the Rate Collection Agency.

The policy area also strongly affects the relationship between the regional government and the district councils. The district rate is the main source of independent revenue for the councils. Any review of policy which would involve change for reasons which applied at regional level would also have to take into account the implications for an equitable and practical system of financing of district councils. This in turn links in to the issues that would arise from a Review of Public Administration. Consideration of the future arrangements for local government will have implications for the question of how the relevant functions would be financed. Thus it would make good sense for there to be very close co-ordination between these strands of work to ensure that political and financial accountability are protected.

Widespread consultation on the future of rating policy will also be essential. This will be particularly important when policy options are beginning to clarify. Whatever policy option we eventually propose to adopt would have to be examined for its contribution to promoting equality of opportunity (through a formal Equality Impact Assessment) and in terms of New TSN.

The changes recommended by a review of this nature could be radical, and could have a significant impact on the economy and public expenditure issues in the region. Significant change would need to be effected through complex and controversial primary legislation, which would have to address the effect on the social security system. Implementation of a new system would have major implications for administration, including the possible need for major new ICT systems. For all these reasons, this Review will take some time, and the Executive has agreed that the review should proceed as soon as possible.

The attached paper sets out the more detailed proposals for the scope and terms of reference for a review of rating policy and sets out in some detail how this could be taken forward in a sequence of defined stages with an indicative timetable.

I would welcome the Committee's comments on the scope and terms of reference, and would be happy to discuss it with the Committee. In the meantime, with Executive approval, I have instructed officials to proceed on the basis of these proposals given overall time constraints and the wide ranging issues to be explored even in the opening phase.

I am sending a copy of this letter to James Leslie.

Minister of Finance and Personnel



1. The aim of the review of rating policy is to assist the Executive to put in place arrangements which ensure that the responsibility and powers of the devolved administration for regional revenue are used to best effect. This would mean ensuring that:

The scope for the review and the approach to be taken, as agreed by the Executive, are set out below. This includes consideration of how the review is to be handled, and the proposed timescales.


2. The legislative context within which the Rating Policy Review must be conducted is governed mainly by the provisions of the Northern Ireland Act in relation to taxation. Under the Act (Schedule 2, paragraph 9) most issues of taxation are excepted matters. To be precise, the reference is to taxes or duties under any law applying to the United Kingdom as a whole, or of substantially the same character as a UK wide tax.

3. Thus there may be some scope within the Act to develop revenue raising measures which would be distinct and unique to Northern Ireland. However, in practical terms, the most reasonable area for exploration, under the current devolution arrangements, lies in a property based tax. The more open question is whether this should remain on the current basis of rates based on NAV, (ie an assumed rental value) or a system based on capital values. The latter, which might - but need not - be a variant of the Council Tax approach used in England, Scotland and Wales, could have particular relevance to the domestic sector. The Review will also consider the approach to property based tax systems throughout the world for both domestic and non-domestic sectors.

4. There are a number of key rating policy issues which have implications for public expenditure and the equitable distribution of the rate burden. These issues are concerned mainly with the property valuation base or 'tax base' for the levying of both District and Regional Rates. The Regional Rates are set by the Department of Finance and Personnel and the revenue, which is not hypothecated to financing specific expenditure, contributes £292 million in 2000/01 to financing public expenditure in Northern Ireland.

5. The work of the Review will need to take account of comparative information on the levels of local revenue raised in other regions. Securing better data for this purpose will be a key part of the first phase of the Review (see below, paragraph 23). The key comparisons available now are shown in Annex 1.

6. The present system includes a wide range of important exemptions and reliefs. For example there are reliefs or exemptions for industry, sports and recreational facilities, and charities. Agricultural land is not valued for rating purposes.

7. Two concerns here: firstly any erosion of the tax base through extending existing reliefs and exemptions or the introduction of new reliefs will either reduce the rate revenue and hence public expenditure, or push more of the burden onto other rate payers. The converse of this is that the removal of existing reliefs and exemptions would be a potential source of additional revenue for funding public expenditure. DETI's view is that industrial derating is relevant to its policy goals, and this will need to be taken into account as the position is reviewed.

8. Secondly, the current distribution of the rate burden and the associated reliefs may not now represent the most equitable distribution of the burden. There are several aspects to this: the valuation list is out of date and may be causing anomalies; it is not clear that, even if the valuation list was fully up to date, that the rate burden is fair in terms of ability to pay; and the balance of the burden between the domestic and non-domestic sectors may not be equitable.


9. The scope of the review could include the following key areas for consideration:

a. The net annual values (NAVs) used as the tax base for both domestic and non-domestic rates and which reflect rental values at particular points in time;

b. the range of rate reliefs and exemptions; and

c. the system for striking, collecting the rates and the distribution of rate revenues to District Councils.

Also included here would be crosscutting issues such as the implications for striking the District Council rates, the funding of water and sewerage services through a 'water rate', and the effect of any reform on rate rebates.

10. The rating system requires particular attention in terms of its impact - and that of any alternative system on equality and New TSN. In this Review, Issues are likely to arise in relation to:

11. The review will also have to take account of the impact of the rating system and any alternatives on policies such as industrial support, urban regeneration and support for the voluntary sector.


12. The rental values of households in Northern Ireland have not been revalued since 1976 so there is a likelihood that inequalities in the rate burden have developed within the domestic sector. There is a need, therefore, to examine the case for a domestic revaluation and also consider various revaluation options and their associated costs. These might be, for example, continuation with the 1976 domestic valuation list, revaluation on the basis of rental values, or revaluation on capital values. The DFP New TSN Action Plan includes a commitment to consider the impact on New TSN objectives of conducting future revaluations on the basis of capital rather than rental values.


13. Now that Regional Rates revenue is a direct funder of Public Expenditure in Northern Ireland the derating of industry, freight transport and sport and recreation and exemptions represent a loss of revenue to the Executive. These reliefs are worth £62 million a year. In addition the District Council rate revenue loss due to derating of about £24 million also represents a pressure on public expenditure as District Councils receive compensation for this derating loss through the General Exchequer Grant. The table at Annex 2 shows the cost of derating and exemptions.

14. In addition, but not included in Annex 2, there are rebates for special facilities for the disabled in dwellings (100%); determined by the VLA (Article 31A - reduction in rate bill) and rebates for nursing homes etc (100%; determined by RCA; Article 31B - reduction in rate bill).

15. The introduction of rating of vacant property, the related issue of rating ownership rather than occupancy, the question of property which is not valued, eg agricultural land, and relief from rates in rural settlements could also be included for examination.

16. Evaluation of the rationale and effectiveness of the above reliefs could be undertaken and consideration given to a regime of reliefs which would provide 'better value' and conform more with New TSN and the equality obligation.


17. The Regional Rates are struck at domestic and non-domestic rates in the pound and are uniform rates throughout the Region. As a result of the revaluation of non-domestic properties, which came into effect in 1997/98, separate domestic and non-domestic rate poundages are struck at both Regional and District level using a factorisation procedure to account for the differing valuation bases. Consideration could be given to simplifying this method and striking truly separate domestic and non-domestic poundages.

18. The ratepayer in Northern Ireland has a combined rate bill consisting of Regional and District Rates. The Regional and District rates are both collected by the Rate Collection Agency and the product of the District rates is paid over to each Council. Consideration could be given to the separation of Regional and District rate bills, which in turn, would affect the procedures and rules for disturbing revenues to District Councils (the 'tax split').


19. The review will consider the implications of any proposed rating reform for the funding of water and sewerage services, alongside DRD's work on this issue.


20. Consideration will also need to be given to the effect of any rate reform options on the payment of rate rebates by the Department of Social Development. This applies on a parity basis with Council Tax Benefit in England, Scotland and Wales. The Treasury's Statement of Funding Policy requires that if the Executive increases rates by a percentage which is greater than the increase in the Council Tax in England, some of the proceeds are clawed back by the Treasury to cover the resulting costs of rate rebates. Thus any more fundamental reform of the rates could give rise to repercussions on the Departmental Expenditure Limit, as a result of the Treasury clawback mechanism. Rate rebates in 2000/01 amount to an estimated £46.8m, of which £31.8m is accounted for by tenants and £15m by owner occupiers.


Steering Group

21. An Interdepartmental Steering Group led by DFP has been established with representatives from relevant Departments (including DOE, DETI, DRD, DSD and OFMDFM). Representation is also to be open to other departments. The Steering Group will be responsible for the overall conduct of the review and will be assisted by a project team consisting of staff from Central Finance Group (DFP), other relevant Departments, the Valuation and Lands Agency (VLA) and the Rate Collection Agency (RCA), and assisted by NISRA and by consultancy support as necessary.


22. It is proposed that the review should develop in stages as outlined below. The stages are modelled on Cabinet Office guidance on professional policy making which is an important aspect of 'Modernising Government'.


23. This would comprise:

There would be a report back to Executive and the Committee for Finance and Personnel to ensure that these foundations for the review were to the satisfaction of Ministers and the Assembly Committee. Other Committees would need to be appraised of developments as well.


24. This would involve:

At this stage, following a report back on the findings, there would need to be substantive discussion by the Executive on the direction that might be set in policy terms to provide a clear basis for the next stage. There would also be a report back to the Committee for Finance and Personnel on the conclusions from this phase of the review, and information could also be provided to the other Committees.


25. There would then need to be full consultation outside government on proposals and options, followed by consideration of the results of consultation, and a report back to Executive, the Committee for Finance and Personnel, with the other Committees being kept informed. Early discussion and engagement with the District Councils would be an essential step.


26. At this point the Steering Group would make specific recommendations to the Executive. In light of their own views based on their analysis of the conclusions from Stage 2 and the consultation at Stage 3, Ministers could then decide on a preferred option. This would then need to be discussed fully by the Committee for Finance and Personnel. Following a formal Statement to the Assembly, there could also be a substantive debate on the proposals at this stage.


27. The next stage would then involve the identification of options for implementation including an outline implementation plan showing how transition to the preferred option would be effected. This would include establishing arrangements to monitor and evaluate the implementation of the policy.

28. This would then be followed by the necessary legislative process to give effect to the revised policy. It would be essential to put in place the necessary resources to implement the revised policy.


29. The key timings proposed are as follows:

The objective will be to take legislation through the Assembly in the 2003/2004 session so as to implement agreed policy changes as soon as feasible thereafter (stage 5) - the implementation timetable will depend on the significance of the changes.


< size=2>



Current Position in Northern Ireland

Best available comparison with England

Average rate revenue generated per household

Domestic Regional Rate Bill plus average District Rate Bill in 2000/2001 is £386

In 2000/2001 Average Band D Council Tax is £847 and the Average Council Tax per Chargeable Dwelling is £697

Average Non-domestic Rate Bill (all properties)



Rate Bill for a Non-domestic Property of NAV £10,000



(Estimate of the equivalent bill in England for the same property)


(i) The average rate bill for Northern Ireland was calculated by first obtaining the average Domestic NAV as at 31 December 1999 and multiplying by the 2000/2001 overall average rate poundage. The Council Tax base of an area is equal to the number of band D equivalent properties. Both the Northern Ireland average Domestic Rate bill and the average Council Tax bill have been calculated before taking into account benefit and relief reductions.

(ii) The Non-domestic average rate bill for Northern Ireland was calculated by first obtaining the average Non-domestic NAV as at 31 December 1999 and multiplying by the 2000/2001 overall average rate poundage. The average Rate bill in England was obtained by calculating the average rental value as at August 2000 and multiplying by the 2000/2001 NNDR. The comparisons are affected by the range of exemptions, for example there is 100% industrial derating in Northern Ireland but not in England.

(iii) In the calculation of the Rate bill in Northern Ireland and England for a Non-domestic property with a NAV of £10,000 it is necessary to convert the bills to a roughly comparable basis as Non-domestic

(iv) In the calculation of the Rate bill in Northern Ireland and England for a Non-domestic property with a NAV of £10,000 it is necessary to convert the bills to a roughly comparable basis as Non-domestic properties in Northern Ireland and England are valued under different valuation basis; a GDP deflator of 1.0917 is applied to the value of a property in England. The data applied in the calculation was supplied by the VLA (total Non-domestic NAV in Northern Ireland at 31 December 1999), RCA (total number of properties in Northern Ireland at 31 December 1999), RCA (total number of properties in Northern Ireland at 31 December 1999) and the VLO (total number of properties and total Non-domestic NAV in England at August 2000).




Industrial derating

Freight & Transport derating

Sport & recreation relief



Regional Rate






District Rate













1. Derating for industrials (100%), applies to factories, quarries, mines and manufacturing processes etc; determined by VLA (Schedule 7 of The Rates (NI) Order 1977 - NAV wholly derated).

2. Derating, for freight transport (75%) ie docks and railways; determined by VLA (Schedule 7 - RV is 25% of NAV).

3. Recreational Hereditament relief of 65% by way of a reduction in the rate poundage. Applies to clubs and sports facilities engaging in activities on the list of "prescribed" recreations, ie prescribed by statutory rule (Article 31).

4. Exemption for public, charitable, religious, educational, science and the fine arts etc (100%); determined by VLA (Article 41, Schedule 13 - exempt NAV).



1. The criteria to be used in considering the policy options would be as set out below. There needs to be emphasis on exploring the implications of options in relation to the Programme for Government, the key issues they would create, and relevant data and evidence, taking into account:

2. The next step would be to appraise the options (including the current system) in relation to the information obtained on the options in Stage 2 of the Review following Treasury 'Green Book' guidance and incorporating a test against the main principles or requirements for a "good" rating structure. The generally accepted requirements are:




24 April 2001

Thank you for your letter of 28 March 2001 and the questions from the Committee seeking information from the Department about the calculation of the penny product.

The Chief Executive of the Rate Collection Agency gave an undertaking at the Committee hearing on 20 March 2001 to research and write to the Committee about two of the questions contained in your letter (questions 4 to 7). His reply to these questions has been incorporated into this response.

1. When did the Department of Finance and Personnel know that the rating system had broken down?

It is not correct to say that the rating system had broken down. The Chief Executive (and Agency Accounting Officer) confirmed in evidence to the Committee that "the system" had broken down, but he understood the question from a Committee member to refer to the checks in place to test the accuracy of the penny product calculations.

The Department wishes to confirm that the problem was one of specific checks in a particular process area failing to operate properly, rather than a general failure of the rating system.

The Chief Executive first reported that there had been an error in calculating the penny product for General Grant for the years 1997/1998 in a phone call to the relevant Deputy Secretary in the Department (the Director of Corporate Services) on 3 February 2000. He also reported that action to recalculate the information correctly was being taken together with an independent review of the process by Internal Audit. This was followed up in writing the following day. The Minister wrote on 8 February 2000 to advise the Committee of the position.

2. What actions were taken by the Department of Finance and Personnel to address the problems?

The weaknesses in the checking arrangements that led to the incorrect calculation of the penny product and the measures to correct them were the responsibility of the Chief Executive as Agency Accounting Officer. The Permanent Secretary and the relevant Deputy Secretary in the Department monitored the progress made by the Chief Executive in correcting the penny product information and sought and obtained assurances on the timely implementation of all the recommendations made by Internal Audit.

In the case of the separate problem of the misclassification of data, the Department sought and obtained regular reports on action being taken, which again was the operational responsibility of the Chief Executive as the Agency Accounting Officer.

3. When were these actions taken?

The penny product error was detected and reported promptly to the relevant Deputy Secretary in the Department on 3 February 2000 and to the Minister and the Permanent Secretary on 4 February 2000. Corrective action started immediately. The Minister wrote on 8 February 2000 to advise the Committee of the position. The Chief Executive wrote to the Deputy Secretary on 8 March 2000 providing further background information on the error and an update on progress. The Chief Executive wrote again to the Deputy Secretary on 20 July 2000 reporting the outcome of the Internal Audit investigation and provided assurance regarding the implementation of the audit recommendations to address the weaknesses identified.

Following further correspondence the Deputy Secretary wrote to the Minister on 27 October 2000 advising him of the outcome of the Internal Audit investigation.

The misclassification of data was identified and brought to the attention of the Minister and the Department on 5 December 2000. Further background briefing material was provided to the Minister and copied to the Department on 7 December 2000. As already noted, the Agency maintained contact and provided regular progress reports to the Department on action to settle under and overpayments of rate revenue to District Councils. On 12 January 2001 the Agency provided the Minister and the Permanent Secretary with details of the final position.

4. Would you confirm that the system in the Rate Collection Agency was operating correctly up to 1997?

The Chief Executive has examined all the relevant files that contain evidence of the penny product calculations being prepared, reviewed and authorised by previous Chief Executives. In addition, all RCA Annual Reports from 1991/92 to 1996/97 have been examined in order to confirm that the Agency operated an effective system of management control to ensure the effective and efficient discharge of its tasks and responsibilities. Internal Audit for each of those years provided independent assurance on the adequacy of the overall system of control operated by Agency and the Comptroller and Auditor General also independently checked and approved the Agency's accounts.

Based on this evidence the Chief Executive is able to confirm that the penny product calculation system operated correctly for the period up to 1997.

A problem was identified in November 2000, through robust checking arrangements introduced by the Agency, which originated in 1995. However this problem only affected payments of rate revenue to Councils for the years 1997/1998 and 1998/1999.

5. When will the report on the proposed in-year monitoring system be ready?

The Chief Executive informed the Committee that the Agency was exploring with Councils the value of introducing and developing an in-year monitoring system to provide early information about variances from the estimated penny product figures notified to Councils. Meetings between the Agency and a number of Council colleagues to discuss and develop proposals for consultation with all Councils have started. The Agency aims to complete the consultation exercise by the end of May.

6. Will the Committee have an opportunity to consider the report?

The Chief Executive's submission to the Minister on the outcome of the exercise will be referred to the Committee.

7. Would you confirm what advice was given to District Councils (eg Lisburn) on the use of the penny product estimate?

The Estimated Penny Product figure is based on information at a given point in time and it will rarely be the case that the estimated figure will agree with the outturn figure. Councils will therefore always be in a position where they will either have to refund money or the Department will have to make a payment to them. This has been made clear to Councils in the letters from the Department of Finance and Personnel at the start of the financial year advising them of their payment instalments on account in respect of rate revenue. This notification also remind District Councils about the need for an annual adjustment depending on the outturn penny product.

To seek to improve this situation the Agency proposes to introduce in-year monitoring of the estimated penny product figure so that the Agency can alert Councils at an early stage of any fluctuations in the original estimates provided. Councils will then be in a better position to make financial decisions about their future spending plans.

On the particular issue of advice to Lisburn Borough Council the Chief Executive has examined relevant files but has been unable to find any record of the meeting referred to by Mr Bell during the session with the Committee on 20 March 2001. He has also checked with Mr David Gallagher, the Chief Executive at that time, but he is unable to recall the particulars of any meeting.

More generally, there is no statutory requirement for the Agency to provide estimated penny product figures to Councils. However, the information is provided by the Agency to assist Councils with their financial planning.

I trust these responses meet the needs of Members.

If you have any further queries please contact me in the first instance.