Committee for Enterprise,
Trade and Investment
Tuesday 3 September 2002
MINUTES OF EVIDENCE
Industrial Derating
(Ulster Farmers’ Union)
Members present:
Mr Neeson (Deputy Chairperson)
Mr Armstrong
Mr Clyde
Ms Courtney
Mr McClarty
Mr McMenamin
Ms Morrice
Mr Wells
Witnesses:
Ms Gillian Briggs )
Mr Wilber Mayne ) Ulster Farmers’ Union
Mr Greg Shannon )
The Deputy Chairperson:
I welcome Ms Gillian Briggs, Mr Wilber Mayne and Mr Greg Shannon from the Ulster Farmers’ Union to this morning’s Committee meeting.
Mr Mayne:
I thank the Committee for inviting us. We are happy to respond to the consultation paper; Mr Shannon will give a summary of our thoughts on it. The Ulster Farmers’ Union represents a wide spectrum of rural interest through its membership and also in the wider community.
Mr G Shannon:
I shall briefly run through three major points raised by the examination of the rates procedure, after which my colleagues and I can answer questions. If the Committee wishes, we can provide formal written responses to any questions.
First, the union represents the vast majority of commercial farmers. There are about 13,000 members, including many large farmers and a rump of small farmers who are concerned about the implications of environmental legislation and everything that affects the countryside. We have always been conscious of our upstream and downstream linkages, even if we sometimes have head-to-heads with them. They are vital to the rural economy, since those firms and businesses support us, and we support them. They take our produce and do the best they can to make money for themselves and for us. As a result, the potential livelihood of a wide spectrum of people depends on the success of agriculture. Therefore, considerable emphasis should be placed on the issues which we shall raise today for the benefit of the countryside. Essentially, rates are regarded as another tax on the community. The existence of such a tax must be justified by the value of what it gives us and how that is delivered.
We propose to cover the matter in three distinct points: the concept of rates; the calculation of rates; and concessions. The current concept of rates is far removed from the original idea of using them to look after the local policeman, the poorhouse and so on. Local support services were minimal at that time. However, councils now carry out a multitude of functions based on the principles of local democracy. We do not question the need for that — it is useful and valuable that local people have input into what is done in their area, as it would be difficult to carry out such work satisfactorily in a broad sweep. There must be room for variation.
However, it is almost wholly funded by central government. In England around 85% is funded from central government, and the figures for Northern Ireland cannot be much different. Therefore, the Ulster Farmers’ Union is concerned that the current paper does not deal with the fundamental issues which developments have created. That aspect must be examined fully before any options for the calculation of rates are evaluated.
Apart from the high level of Government funding, there is an issue of low yield resulting from changes in rates charges for two reasons. First, a smaller number of houses pay high rates. Secondly, those who live in smaller houses or are on low incomes get rate support from social services, so the money moves round in circles. Little is achieved by saying, as the paper does, that an extra £700 million could be collected if all concessions were abolished. That is a major fallacy.
The second point is that the calculation of rates requires a more fundamental review than that afforded by the paper. The current paper assumes that the basis for rates calculation is correct and that there is no other option. To produce a series of options on the perceived basis of raising more money is to put the cart before the horse. If the ratepayer is the horse, his or her ability to pay has not been properly considered. Once the ratepayer’s income drops below a certain level, the money comes from central government, so the system becomes circular.
The strength of the horse has not been considered, nor has the size of the cart. The paper gives the impression that the cart will be larger, but no one knows what the money will fund or what the costs will be. To carry the analogy further, the loading of the individual horse fails to examine, or provide for, its ability to pay. That nearly proved the death knell for rates in Great Britain, and I should not like that to happen here.
It is vitally important that house size or perceived rental value is not seen as a guide to paying ability, for it does not take into account the fact that some people — through no fault of their own, perhaps having been left a large house which they are unable to sell — will be charged more. Not even central government takes that view when calculating income tax.
Rates are supposed to provide services, so why should people in different areas or living in different houses be charged a different price for the same service? I am not a lawyer, and I shall not examine the issue in depth, but I do not believe that it would stand up under human rights legislation.
Finally, there is the concept of concessions. Concessions are always brought into such systems and — dress them up how you will — they reflect recognition of two things: first, that the initial charge is too high for the industry or the individual to carry, and that therefore a built-in concession is necessary; and, secondly, that certain classes cannot gain access to services. On an agricultural point, domestic farm dwellings with an agricultural tie are valued at half the rate they would be if that tie were lifted. The majority of such dwellings with an agricultural restriction are retirement homes, and the procedure considerably reduces their value. It is therefore only right that such dwellings should have a reduction in the rates bill.
In tourism and rural areas, ratings for bed and breakfast premises and self-catering accommodation must be re-examined. Tourism accommodation is rated as a domestic dwelling, even though self-catering accommodation may have an occupancy rate of only 60%. Such a rating system must be taken into account when considering the farm diversification process which encourages farmers to diversify and in turn create a healthy rural economy.
We shall take members’ questions; if we cannot answer them all now, we shall supply a formal response.
Mr G Shannon:
Before we move on, I should perhaps mention that we provided a paper detailing the 10 review points. I used it as my reference, although I am unsure if members all have a copy. Most of those 10 points relate to my first two themes of the funding and calculation of rates. I left the concession issue blank in that context. We can highlight the number of the relevant point.
The Deputy Chairperson:
The Committee Clerk has provided members with the paper.
Mr Wells:
Do you appreciate that the Committee can deal only with industrial derating? The issue of rating is the preserve of the Department of Finance and Personnel. We cannot deal with wider issues such as the ability to pay and the services paid for by the rates. We can only consider the question of whether it is right or wrong that businesses, including agricultural businesses, should no longer be exempt from rates. That is why we have restricted our questions.
The argument concerning ability to pay was raised. Farmers can also apply for rates rebates. A security officer or hospital porter on a low wage who cannot afford to pay his rates can apply for housing benefit and obtain a rate rebate. I suspect that many farmers would be in a similar position.
There is a view that farming is a business like any other, and if the policy is that the benefit is abolished for all manufacturing businesses, then why should those in agriculture not also bear that burden and pay rates on their property and houses? I do not hold that view myself, but it will be raised during the debate.
Mr G Shannon:
Thank you for those points. We worked from a paper that addressed issues broader than merely that of industrial use. We may have to go into the issue in more detail in a written reply. However, the first thing that must be recognised is that agriculture utilises a greater area than any other industry — even the industry of coal-mining does not extend across the land like agriculture does.
Secondly, it has been built over the years on a cost system which, to use your terminology, rightly or wrongly included rates exemptions. Even before the relative profitability of the business is mentioned, production and storage facilities are involved which are unlike those of any other industry which you might care to name. For example, a corner shop, foundry maker or even coal mine has a cash flow every week. If there is a bad week, there is a chance of the next being good.
In agriculture, there is one throw a year, and after that you have had it. There is a risk that the proportion of overhead costs taken up by rates, however calculated, will be completely disproportionate and impact on the ability to pay — and I am not speaking specifically of the current agricultural crisis. The agriculture industry is also in competition with countries and regions where, to a large extent, farmers get rates reductions or pay no rates or property taxes whatsoever.
If an individual cannot afford to pay his rates and gets assistance from social security to do so, what happens in the case of a business which has lost money during the financial year? Does the DHSS or someone else cough up for the rates, or are rates an immediate cost on the business which must be settled regardless, with the result that it is “too bad” if a business goes bankrupt?
Mr Wells:
So it does happen?
Mr G Shannon:
In the current context and for the foreseeable future, a situation would arise regarding the industrial part of the farm, if you wish to class it as such, where 95% of farmers would become bankrupt inside one year.
Mr Wells:
I accept that. However, there is an argument that farmers are sitting on a very strong asset base. The great paradox of the farming situation in Northern Ireland is that, while farmers’ incomes have shrunk to practically nothing, the value of land and farms has continued to rise inexorably. In my constituency, farms are selling for absolutely crazy money, and no one can understand how that can ever be recouped. On the basis that rates are fundamentally a property tax, surely those who have the most valuable property should bear some of the burden to provide services for the wider community.
Mr Mayne:
Most properties being sold are not being bought by farmers but by people who wish to develop the land. Take Mr Shannon’s equation a little further. New Zealand, with whom we are trying to compete in a world market, operates an extensive system of farming with very few buildings. In comparison, Northern Ireland operates an intensive farming system where much of the stock is kept inside. If some agricultural buildings are to be rated, that will knock us straight onto an uneven playing field with our competitors in the rest of the world.
The Deputy Chairperson:
The thing that interests me in what you are saying — and perhaps you could give us a follow-up response — is the situation in relation to rating in other EU countries, particularly in relation to agricultural land. That would put things in perspective. You have mentioned New Zealand. The Committee has great sympathy regarding the problems which have beset the agriculture industry in the past few years. Do you have any comparisons from within the EU?
Mr Mayne:
No.
Mr G Shannon:
It may be possible to find out. It will take some time.
The Deputy Chairperson:
How about the Republic?
Mr G Shannon:
The Republic of Ireland has abolished rates. It is working, presumably, on central government funding. A county council gets a grant, and it is best to live within that and provide the expected services.
The fundamental point is that there is a great deal of money coming into local services from central government — about 85% of total funding — and much of that appears to be going round in circles. We wonder why no one is examining the issue fundamentally. If a council decides to fund local transport by subsiding buses, it is very difficult to do the same for a rural dweller. I am deliberately using the words “rural dweller” rather than “farmer”. The authorities will find it extremely difficult to send out a bus when he wishes and at a reasonable price.
There are many issues where the rural dweller is at a complete disadvantage. It is environmentally wrong to send out a 30-seater bus at five miles to the gallon when someone can drive in at 30 miles to the gallon with his family. You need only put two people in a car to balance the public transport rate. There is something wrong there, but it is not for this Committee to deal with. It is a fundamental fact for all rural dwellers. Many matters for which they are left responsible do not affect the urban dweller to any great extent. If the authorities decide to do something for the urban dweller, that is much more economic, and that is why it is got away with.
The Deputy Chairperson:
You will be glad to hear that there are two farmers on the Committee.
Mr Armstrong:
I noticed that some of you view rates as just another tax. Most people do so, since it is a way of collecting money from an area to finance services in it. Anyone required to pay tax should be in a profitable situation. In rural areas, the profitability of small farms and small businesses is low. We should abolish the rates, as the Republic of Ireland has done, and find another way of collecting taxes.
I am sure that some of you have ideas on how that tax could be collected other than through rates, and I should like to hear them.
Mr G Shannon:
I welcome your comments from a farming point of view. However, the union does not feel that it is in a position to provide the final answer. There are many other people whose views must be taken into account.
Central government funding is easy to collect. One adds another 1% to the income tax rate and — hey presto — one has done two things, the first being to make collection cheaper, for it costs no more to collect than existing income tax.
Secondly, those least able to pay are not asked to do so. However, that must be balanced against the power given to central government to control local economies. How tightly would they set the rules? If, in my case, Lisburn City Council were given £25 million from central government, and the council decided to spend £1 million of that on something original, would it get thumped around the ears for being so daring? Spending that money might be the answer for Lisburn City.
People would then be inclined to say that it does not matter who is elected locally — he is already controlled with so much money to spend; he has a task, and it is up to him to carry it out. Regardless of whether it works like that, it is the fundamental problem and shows a potential benefit of people contributing locally. Someone must decide if it is only housing which we are considering, for when industrial rates are raised, that will eventually be realised in higher prices.
The situation arose with the creation of enterprise zones with no rates levied. That was fine, since it got people involved and attracted many businesses into those areas, since they could get out of paying rates to Magherafelt, Coleraine or whomever. The industry could not afford the rates burden, and people were going to be put out of work. The Department of the Environment paper does not deal with that fundamental issue, and, although I appreciate Mr Wells’ point about industrial derating, the question must be dealt with in the long term. If we could employ Solomon as a consultant, it would probably work out very well, but we have not got him, and many people will simply have to do their best. I am hedging my answers because I see so many implications, no matter which way we go.
Mr Armstrong:
I sympathise with you. Would you consider some other commodity or article being taxed rather than rates, for example, discouraging something that is frowned upon in our society, instead of levying a rate?
Mr G Shannon:
That is nearly unanswerable, Mr Armstrong. My point is that the current rates system does not take the income of a person into account. It is easy for someone to put his or her P45 or P60 on the table detailing income, but a self-employed person, as most farmers are, may find it more difficult to claim rate rebates.
Secondly, we already effectively have three taxation systems, including rates. The Inland Revenue takes income tax, and the second system is VAT through Customs and Excise. Value Added Tax has the same problem, although it is not as noticeable, since assistance is given to people on low incomes and 17·5% is taken off every product regardless of whether a person is able to pay. That may be fair, working in the same way for everyone; however, it means that the higher-income earner can always buy more. If any other system is put in place, higher collection costs are incurred, since differential rates must be imposed in different areas. There must be some way of dealing with that to allow local authorities to design a programme in their area for such mandatory matters as sewerage and water. Local authorities may want to do other things supported by their local representatives. A case is made, and the money is taken out of a particular pot. Local authorities therefore have control; they need not spend one or two years persuading someone behind a desk that they have a good idea. That is currently happening in rural development. By the time the necessary authorities are persuaded of the viability of an idea, the opportunity has passed. Quick responses are required.
Mr Armstrong:
Do you agree that rates were one way of getting money quickly with no questions asked?
Mr G Shannon:
All matters must be balanced and consideration given to the person who is being disadvantaged.
Mrs Courtney:
I come from a rural background and have served that community as a councillor for over 17 years. I have sympathy with what Mr Shannon said, particularly with regard to transport. It is not practical for anyone to put a bus on the local roads in my area. The same school bus service operates now as operated many years ago.
Nothing has changed in rural areas except that farmers have more problems. There are fewer farms, and the farming community has diversified almost totally. Planning permission is difficult to get — I blame the planners — and the Department of the Environment has a lot to answer for. The Planning Service should be strongly targeted, not only to provide rate relief but to allow the building of more houses in rural areas. That would enable people who have gone away, made some money and want to return to live on the farm to do so. The farms cannot sustain the two houses, and those returning to them are diverted into the urban community where there seem to be incentives for them. There is no incentive to move back to the countryside, and it is being left bereft. The Planning Service is responsible for a great deal of the problems created over the last few years.
Mr Clyde:
I agree with Mr Armstrong about the rating of farms, but I should like to see farm dwellings exempt from rating. Farmers in Northern Ireland are becoming older and fewer. A rate exemption would encourage young farmers to take over the farm instead of going away to work. There are a great many young farmers now, and, if they want to manage their father’s farm, they must find another job to supplement their income. Farm dwellings should be exempt from rates.
Mr Mayne:
The first problem encountered by a farmer who wishes to diversify is the Planning Service. If the farmer does get a project up and running, he is rated — unless he is manufacturing something, and that is seldom the case. They usually diversify to machinery repairs or bed-and-breakfast businesses. The farmer is therefore hit straight away from two angles. I agree with Mr Clyde.
Mr Armstrong:
I am introducing a private Member’s Bill in the Assembly which, if successful, will mean the horse being treated as an agricultural animal. That will mean that rates will not be payable on buildings or anything else connected to the horse industry.
The Deputy Chairperson:
Thank you for attending the Committee meeting.
3 September 2002 (part ii) / Menu / 3 September 2002 (part iv)