COMMITTEE FOR FINANCE AND PERSONNEL
OFFICIAL REPORT
(Hansard)
Draft Rates Amendment Bill
7 January 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Witnesses:
Ms Veronica Holland )
Mr Brian McClure ) Department of Finance and Personnel
Mr Ivan Millen )
The Chairperson:
We will now receive a briefing from departmental officials on the policy aims of the draft Rates Amendment Bill. I refer members to the DFP paper, which provides information on the scope and policy aims of the Bill. Copies of the DFP consultation report on the Executive’s review of domestic rating have also been provided, along with the Department’s announcement on the green rebates. There has been a great deal of correspondence on this matter. In addition, we have been provided with copies of the Department’s response to David McNarry’s request for a rates relief for carers to be included.
I welcome back Mr Brian McClure, Ms Veronica Holland and Mr Ivan Millen, and I wish you all a happy new year.
Mr Brian McClure (Department of Finance and Personnel):
I wish you and the members of the Committee for Finance and Personnel a happy new year, Chairperson.
The Chairperson:
I can see that you are all bright-eyed, bushy-tailed and ready for the new year.
Mr McClure:
Thank you for the opportunity to brief the Committee on the draft Rates Amendment Bill, which will give effect to a range of ministerial and Executive decisions arising from the Executive’s review of the rating system, and several non-domestic measures.
Details of the Minister of Finance and Personnel’s decision on domestic rating are set out in the consultation report, which was published yesterday. The members of the Committee will be familiar with most of the detail of that report. Final printed and bound versions of that consultation report are on the way to the Committee, but members were provided with the final version before Christmas.
Members should note that the Bill consists largely of enabling powers. It is primary legislation; the details of the measures to be taken will be set out in associated subordinate legislation. Forgive me if I repeat myself — some of this information will be familiar to members.
I will begin with the rating of empty homes. Although primary legislation to allow the rating of empty homes is already in place, the Executive’s decision to rate empty homes at 100% rendered the current provisions to deal with those matters as inadequate. That is why we are planning to provide for fresh powers. Furthermore, the Bill includes an enabling power to allow anti-avoidance measures to be introduced in due course, if considered necessary. Those measures will deal with situations in which ratepayers avoid rates by deliberately damaging their property.
Those provisions will not be introduced right away. We are going to review the effectiveness of the policy as it is operated.
That is a sensible approach, which arose through the consultation. Reduction in the maximum capital value is another issue.
Dr Farry:
Should we discuss each issue individually or as a block?
Mr McClure:
I am happy to play it whatever way you wish.
The Chairperson:
I thought that it would be helpful if Brian took us through the issues step by step.
Mr McClure:
As the Committee will know, reduction in the maximum capital value is being achieved through subordinate legislation. However, we cannot provide compensating payments to councils for 2009-10 and 2010-11 through subordinate legislation. Special provision will have to be made in primary legislation. Although the primary legislation will take some time to be adopted because it affects the final reconciliation, councils will not be disadvantaged as a result. They will be paid through the normal penny-product process for the higher-level cap. The draft Bill will not disadvantage councils; in fact, it is to their advantage — that is something on which I know that the Committee was particularly keen.
Provisions are already in place for the deferment of rates for home-owning pensioners, similar to the primary legislation on the rating of empty homes. We are taking certain provisions to allow a joint deferment agreement to be entered into to make the scheme more secure. On the issue of green rebates, the draft Bill will make provision for a rate rebate to be awarded to owner occupiers who install loft and cavity wall insulation.
Taking account of the views of some members of the Committee, the draft Bill will also provide a possibility of extending the scheme to the social-rented sector, should changed circumstances make that necessary. I am sure that the Committee will wish to discuss that later. In addition, it will make provision for a five-year rates payment holiday for first residents of new zero-carbon houses. There is another departure: a two-year holiday for first residents of low-carbon housing. That is something that the Minister decided to change in light of last year’s consultation.
The draft Bill will also include measures to improve data sharing between DSD and DFP for the purposes of awarding rate rebates and rate relief, and, in particular, to improve the targeting of those reliefs, and the verification processes associated with them. Members should note — although it is not in regard to the legislation — that an interdepartmental group has been established to take forward recommendations from the access-to-benefits report on the take-up of reliefs. I will be updating the Committee periodically — perhaps quarterly — on progress.
There are some minor domestic rating amendments. As the Committee will be aware, a system of standardisation applies in the social-rented sector — which includes the housing associations. To save us having to take new subordinate legislation through affirmative resolution, the draft Bill will allow that to be done through negative resolution. This is a housekeeping issue, and the Department’s view is that it is inappropriate for that to be done through affirmative resolution.
The draft Bill also makes provision that will allow the level of allowance awarded to landlords to be changed, in cases where those landlords agree to pay rates on property on behalf of their tenants. We think that that is necessary in relation to policy on the rating of empty homes, but it needs to be reviewed in any case. An enabling power has therefore been inserted to allow that to be changed.
Those are the domestic provisions. The non-domestic provisions relate primarily to the non-domestic revaluation, which the Executive agreed on 21 June 2007, from which certain powers flow. As the Committee will be aware, this is not an exercise in raising more money, but a redistribution of the rating burden, which is a fairly technical exercise. The changes are mostly in regard to the valuation of the former public utilities. Three of the six public utilities — docks, electricity and railways — have their values assessed by a formula set out in the valuation.
We propose to treat them like any other business and assess them conventionally. I am happy to explain where we are with that.
The draft Bill will repeal those sections of the legislation regarding utilities. It will also deal with industrial derating. Members may be aware that industrial derating has been held at 70%; in other words, manufacturing in Northern Ireland pays 30%. This can be done through subordinate legislation, but the primary legislation, which was constructed to allow for the phasing out of industrial derating, states that from 2011 Northern Ireland manufacturing will pay 100%. It is therefore necessary to change that legislation so that that does not happen by default. That is a corrective provision in the legislation, and it will allow the Assembly the flexibility to set derating at whatever level it sees fit.
The Committee has discussed the small business rate-relief scheme at some length. There has been a great deal of discussion following the publication of the Economic Research Institute of Northern Ireland’s (ERINI) report on the small business rate-relief scheme, published in March 2008. Members will be aware that, as part of the Executive’s response to the economic downturn, the Minister announced that he intended to bring forward a small business rate-relief scheme for Northern Ireland, and the draft Bill will contain the enabling provisions for that. The detail of the scheme will be set out in subordinate legislation. That would be with a view to introduction, should the legislation be passed on time, in April 2010, which corresponds with the date of the revaluation.
Those are the main elements of the draft Bill. It is not our intention to consult on the detail of the draft Bill, given the extensive consultation that has already taken place on the policy, and the Committee’s valuable involvement in that. The Minister intends to submit the draft Bill to the Executive to be signed off before its introduction to the Assembly for detailed consideration. The Minister is keen to have the measures in place as soon as possible. Given the tightness of the legislative timetable — and we are up against it — the continued assistance of the Committee would be most appreciated, balanced with appropriate scrutiny.
The intention is that all the provisions be introduced in 2010, with the exception of the reduced cap, which is not part of the Bill — only the compensating payments to councils are included. The Minister said that he will keep the issue of the rating of empty homes under review if the present downturn continues in the housing market. If it does continue, the Minister may wish to consider deferring the issue of the rating of empty homes.
Mr O’Loan:
I would like to enquire about the rating of empty homes at 100% liability. Rates have been described as both a charge and a tax, which is a fair description. In part, they reflect the fact that the occupiers of a house receive services from a council. There is a regional-rate element as well. That does not totally defend the rate — to some degree, it is a tax. I had not noticed — if the matter has come before the Committee previously — that the empty-homes rating might stand at 100% liability. I cannot remember whether we discussed that issue. I am concerned given that, to some degree, rating is a charge on usage. If a house is empty, there are no occupiers to derive benefits from local services.
Have we considered that, and at what point was it agreed?
Mr McClure:
It was agreed by the Executive in November 2007. That agreement was secured following a consultation, the responses of which were firmly in favour of 100% liability for empty homes.
Mr O’Loan:
Did the Committee express a view on 100% liability for empty homes? We were in favour of rating empty homes, but I cannot remember agreeing to 100% liability.
Mr McClure:
I do not have the exact words, but my recollection is that the Committee was in favour of 100% liability.
The Chairperson:
Fra McCann is nodding in agreement, but I must confess that I do not remember — and I am a year older.
Mr O’Loan:
The housing sector has changed since the draft Bill was conceived. That is reflected in the paper that you have provided the Committee with and, to some degree, in the draft Bill’s measures. Given the many pressures on builders and developers, I am concerned that many of them have been sitting with empty homes for prolonged periods, which is the last thing that they want. That may last for some time. Is a one-year moratorium before the rates are incurred a sufficient protection, given the difficulties that builders and developers are experiencing?
Mr McClure:
That point was raised before in the Committee. At that time, I said that we could change the moratorium period through subordinate legislation — if 12 months is inadequate, we can change it to two years or to whatever period is considered appropriate. More importantly, the Minister recognises the change in economic conditions since the policy was initiated, when the main issue was housing affordability. That picture has changed, and the Minister is mindful that if the housing market is still stagnant in April 2010, it may not be appropriate to introduce 100% liability on empty homes. The Department is pressing ahead with that provision in the draft Bill, but the Minister will take stock closer to the time of its introduction and will consider sympathetically any effect that it may have.
Mr O’Loan:
I am content with that; thank you.
The Chairperson:
What is the envisaged timetable for the draft Bill to become law, provided that the Committee accepts your request for co-operation?
Ms Veronica Holland (Department of Finance and Personnel):
We hope to present the Bill to the Executive next month and introduce it for Assembly and Committee consideration as soon as possible after that. It should receive Executive sign-off by the end of February at the latest.
Mr McClure:
We are working towards an end date of autumn 2009 when it will receive Royal Assent.
Ms Holland:
Yes; we hope that it will receive Royal Assent in late 2009.
Mr McClure:
We need to have the legislation in place in sufficient time to allow the preparation of the subordinate legislation, which will be quite detailed, and also, more importantly, to give Land and Property Services (LPS) the certainty that it requires to develop its systems to deal with the changes.
The Chairperson:
We can engage on the mechanics of how the Committee can satisfy its statutory function and be of constructive assistance.
Mr McClure:
That would be much appreciated.
Dr Farry:
Essentially, you are saying that the power will be granted in legislation but that the Minister will have discretion over the start date. We recognise that there is a pronounced difference between the economic situation in which the Bill was conceived, and the present one.
I want to discuss the issue of rates capping. I declare an interest as a member of North Down Borough Council. Transitional relief will be available for homes worth up to £400,000, but you have ruled out transitional relief for the £500,000 cap. That may be viewed as an historic issue, but in the first year that the £500,000 cap operated, councils had struck their rates before a decision was made on its formal introduction.
Therefore, no councils would have taken that into account when preparing their budget estimates. However, councils were then asked to pay for the first year of the cap through their finalisation figures. The effect is that, in several council areas, a double-year cost of the cap is being recomposed for the forthcoming financial year. That creates an argument for transitional relief. A significant burden is involved, in that the cost is spiking because two years’ cap is being funded through one year’s budget.
Mr McClure:
I note your points. The matter has been mentioned before, and I will bring it to the attention of the Minister, who has decided that the transitional arrangements will apply only to the new lower cap. However, I will report the views of the Committee — as I do with all Committee meetings.
Dr Farry:
I presume that you are saying that the effect of the £400,000 cap is not being passed on to councils with regard to the estimated penny product for the forthcoming financial year; by the same token, the effect of the transitional relief is not being passed on either. In effect, they cancel each other out. However, the consequence of that is that councils are taking a guarantee from the Executive and the Assembly that the transitional relief will be put in place; otherwise they will be asked to pay for it in the finalisation figures. There is a certain leap in the dark, and I trust that that will follow through.
Mr McClure:
That is correct.
Dr Farry:
The Minister met the Northern Ireland Local Government Association to discuss the pressures that councils will face in the coming financial year, and he has given a commitment to consider measures that he can put in place. Without going into detail, can you tell us whether legislation will be needed to implement those measures?
Mr McClure:
That is a valid point. Councils are in difficulty now and need help now. The options that we are putting to the Minister will, at most, require subordinate legislation. However, we are constrained by what we can do in the legislation and by what we can do on Government accounting. The Minister wants us to look at measures that can be delivered quickly, rather than some promise for the future.
Dr Farry:
My final issue relates to the green rebate. From reading into what has been proposed, the rebate will be for the first adaptors: those who are the first to introduce zero-carbon homes will qualify for the rebate. Two questions arise. First, is there a provisional sum for the amount of money that will be set aside for rebates, and, secondly, what percentage of a rebate is envisaged? Is it a 100% rebate or a proportion of rebate?
Mr McClure:
There are two strands to the green rebate. One strand is for new houses — which is what you are referring to. New zero-carbon houses will have a five-year rates holiday, and low-carbon houses will have a two-year rates holiday, which implies that no rates will be payable during that period. We have budgeted about £1 million to cover the cost of the rebate. It is a small but positive step to encourage demand for such houses. Green houses cost more to build than other houses; therefore there must be an incentive.
Dr Farry:
Does that apply solely to newbuilds or does it apply to conversions and refits?
Mr McClure:
It will not apply to retro-fitting; it will apply only to new houses. However, that is not to say that at some point in future we will not view the effectiveness of that measure and consider extending it.
Dr Farry:
My next point has, perhaps, been mitigated by the point about newbuilds. Many people adapt to energy efficiency early because they think that it is of economic benefit; the bulk of the population, however, adapts slightly later and may need an incentive. It is important that intervention does not overly focus on those who adapt first, who may be motivated by other factors. An intervention that covers a wider range of the spectrum could deliver the desired outcomes more effectively.
Mr McClure:
Although I accept the point, it could be difficult to engineer such an approach. Most owner occupiers bring their house in line with modern insulation standards. People can avail themselves of either the NIE Energy cashback scheme or the Department of Finance and Personnel’s rate-rebate scheme, which could result in a partial rate rebate in the following year.
The Chairperson:
You might recall that there was a fair amount of discussion about green rebates, and the Committee requested reconsideration of the exclusion of Housing Executive and housing association stock. Will the draft Bill provide the possibility of extending the scheme to social housing? Have changed circumstances made that measure necessary?
Mr McClure:
Since the Minister heard the Committee’s views, he has been anxious to address the issue. The Department consulted the Housing Executive, the Federation of Housing Associations and the Energy Saving Trust. Those bodies believe that it is unworkable to extend the scheme to the social-rented sector at this time.
Furthermore, it is potentially discriminatory because there are no other support mechanisms available for tenants in the social-rented sector. Therefore, no schemes are available for a tenant who decides to upgrade their house with insulation off his or her own bat. The scheme only helps people who pay rates. That is potentially discriminatory because the warm homes scheme and the NIE Energy cashback scheme do not apply to the social-rented sector. The Minister decided that it is a sensible precaution to include in the legislation the potential to extend the schemes to the social-rented sector at some point in the future. The Department relayed the Committee’s views — which we took seriously — during consultation with the Housing Executive, the Federation of Housing Associations and the Energy Saving Trust.
Ms J McCann:
Some of the rent that individuals pay to the Housing Executive goes towards rates.
Mr McClure:
I am not suggesting that they do not pay rates. However, the only people who could avail themselves of the scheme pay rates through their rent. People on full housing benefit would be unable to avail themselves of the scheme, and that is potentially discriminatory.
Ms J McCann:
Although you say that the scheme could be discriminatory, I know people who live in rented accommodation — through the Housing Executive or through a housing association — who are unable to purchase a house. Those individuals have, because of high energy costs, paid to insulate their lofts and cavity walls themselves. Could the scheme not allow those people a rebate of rates that they already pay to the Housing Executive?
Mr McClure:
Not at the moment. Other schemes, particularly those for low-income groups, do not include the social-rented sector.
The issue does not just affect DFP; it is a broader issue that affects other Departments, including the Department for Social Development and the Department of Enterprise, Trade and Investment, and it relates to whether their energy policies should be extended to include the social-rented sector. Our point is that if circumstances should change and other schemes are extended to include the social-rented sector, it would be only right and fair that a rate-rebate scheme should be extended likewise, and the legislation will allow that. However, for a rate-rebate scheme to sit on its own with regard to social-rented tenants would create serious difficulties and could be discriminatory.
The Chairperson:
Nonetheless, a group that is generally accepted as a target group is excluded from the benefits of the scheme.
Mr McClure:
One could say that about the Department for Social Development’s warm homes scheme and about NIE Energy’s cashback scheme.
The Chairperson:
I accept that.
Mr McClure:
The rate-rebate scheme will complement those schemes, and if they are extended to include that group, the rate-rebates scheme should immediately be extended as well.
The Chairperson:
I accept that you are not resisting the idea, but there is an anomaly when a target section of our community cannot benefit from the scheme; in fact, cannot even access it. That goes for the other complementary schemes, the warm homes schemes and so on. That issue must be highlighted.
Mr Paisley Jnr:
Can another approach be taken by placing an obligation on the owner?
Mr McClure:
There are obligations on landlords in the social-rented sector to ensure that their housing stock is brought up to modern standards of insulation, and they are funded to do so.
Mr Paisley Jnr:
I am suggesting pursuing the matter in a way that will allow the subsequent benefit of the rates reduction to be passed on to the social-rented tenant in some way.
Mr McClure:
You are quite right; we will want to consider that if circumstances change and the scheme is extended.
The Chairperson:
Yes, but we are compounding the omission by saying “if circumstances change”. We are only focusing on an issue that you highlighted in your presentation. We will have to address that issue sooner or later.
Ms Purvis:
The scheme seems to exclude tenants in the social-rented sector and thus could be discriminatory. As Jennifer said, Housing Executive and housing association tenants pay rates and carry out home improvements themselves, with the permission of their housing authority, yet they are excluded from the scheme. That seems to be potentially discriminatory.
Mr McClure:
We must also consider that landlords are under an obligation to ensure that their housing stock reaches the appropriate standard. Therefore in the normal course of events the work will be paid for 100%. The rate-rebate scheme is not directed at low-income groups. It will provide only a partial rate rebate the following year.
Ms Purvis:
That suggests that everyone who lives in the social-rented sector is on a low income.
Mr McClure:
I am not saying that; I am saying that responsible landlords in the social-rented sector, such as the Housing Executive and the housing associations, are supposed to maintain their housing stock to the appropriate standard, and they are funded to do so. They will pay for the work. If we extended the rate-rebate scheme to tenants who carried out the work themselves and who spent the money on improvements in advance, as it were, they could find that they received only a partial rebate the following year. I am not sure whether people would expect the rebate to be partial; they would be disappointed. Why would you spend your own money to upgrade a property and get only some of it back when your landlord is expected to do that work for you and pay for it all? I am simply questioning whether there is a need to extend the scheme.
Ms J McCann:
There is a need because the Housing Executive is not doing that work. At the moment, some houses are still using Economy 7 heating, which people just cannot afford at the moment.
Dawn is right — you are discriminating against a section of people because they are renting from the Housing Executive or housing associations. People pay for home improvements with their own money because energy bills are so high. They do it to save money in the longer term because they cannot afford the cost of oil, gas and electricity.
People who are renting from the Housing Executive or housing associations should be treated in the same way as people who own their homes — they are paying rates in the same way as them, so they should be treated in the same way. I understand where you are coming from and that it is the responsibility of the housing associations and the Housing Executive, but the reality is that that is not happening.
Mr McClure:
We consulted with the Housing Executive, the Federation of Housing Associations and the Energy Saving Trust. They thought that extending the scheme to the social-rented sector at this time would be unworkable, and we must take those views seriously. We take this Committee’s views seriously, but we foresee more problems arising if it were extended at this time, because it would sit alone. The DSD warm homes scheme does not exist in the social-rented sector, nor does the NIE cash-back scheme, so we do not plan to have a rate rebate scheme for social-rented tenants in which those who pay rates can avail themselves of the scheme and those who do not pay rates cannot, as that is not the case in the owner-occupied sector.
Mr F McCann:
I agree that there are responsible landlords and the Housing Executive and housing associations probably fit into that category to a degree. However, as Jennifer mentioned, there are exceptions to the rule. When you talk about the social-rented sector, does that include the private-rented sector?
Mr McClure:
No.
Mr F McCann:
That is a big anomaly — you are selecting a category of people who are, probably, among the worst-off in society and are excluding them so that they cannot tap into the scheme.
Mr McClure:
To clarify — the decision to exclude the private-rented sector was made because very generous tax advantages are offered to landlords in the private-rented sector.
Mr F McCann:
You must admit that when one considers the private-rented sector, especially socially rented houses, quite a number of people fall into the category of being irresponsible landlords who do not tap into available schemes and who provide bad housing.
Mr McClure:
The new Bill will include the potential to extend the scheme.
The Chairperson:
That is to be welcomed. In relation to the change in circumstances, my initial thought was about the energy-efficiency certification process — will that not highlight an inconsistent approach as well? How can social housing of any kind be certified if there is no incentive? We must provide an incentive for owners to address matters such as emissions targets by introducing roof and cavity wall insulation, but we seem to have excluded a certain section of the housing stock from the scheme.
Mr F McCann:
On a point of information, that sector includes over 130,000 houses.
The Chairperson:
We have probably exhausted the argument at this point, but I think that the Department has recognised the Committee’s concern in relation to the social-rented sector, whether that is accommodation provided by the Housing Executive, housing associations, or otherwise.
Mr McClure:
Yes; we recognise that, and that is why we undertook further consultation with the Housing Executive.
The Chairperson:
Did the Housing Executive provide you with written submissions? It may be valuable for the Committee to look at that, so that we can get our heads around the issue and understand precisely why those groups thought that including the social-rented sector in the scheme was unworkable, as that seems to be a very definitive judgement.
Mr McClure:
We had meetings with the Housing Executive — if it would be helpful, I will write to the Committee with more detail on what had been said about the issue.
The Chairperson:
Yes; that would be helpful.
Mr McClure:
We had to consult with those groups very quickly, so there were exchanges of emails as well as meetings.
The Chairperson:
We could get bogged down in this subject if we cannot get some kind of satisfaction on it. If you could write to the Committee, that would be very helpful to us.
Mr O’Loan:
I now have sight of this Committee’s report on the 2007 rating review, and I see that we recommended that rating of vacant domestic properties should be introduced as soon as possible, to help to address the present shortage in housing supply, while also raising revenue. We have discussed that point in regard to the change in circumstances, but there is no specific reference to 100% liability in the recommendation, nor in the leading discussion. I notice that the evidence provided by the economist John Simpson recommended that when there were changes of ownership, it should be free for the first six months, followed by six moths at half rate.
The Chairperson:
That was my recommendation.
Mr O’Loan:
That is the closest reference to it. I suspect that the thought in our minds was that, if it were charged, it would be charged at full rate, although that is not made explicit. When I think of it now, regarding it as in part a charge, and in part a tax, I have some concern that it is 100%.
Dr Farry:
I would like to make a point on the notion of 100% liability in defence of the Department. If one is mindful of the performance of Land and Property Services, the ongoing debate about what is vacant and what is not, and the chasing up of vacancies, presumably if 100% is sought, that would avoid a lot of the bureaucracy involved in trying to work out what is vacant and what is not. In a sense, seeking 100% may actually be the lesser of two evils with regard to the broader cost to the system.
Mr McClure:
I think it has the beneficial side effect of helping to deal with a lot of the avoidance activity that occurs.
Dr Farry:
There is a logic to it.
Mr McClure:
There is. We could have gone for a staggered liability, with an initial exemption period, etc. However, the findings of the consultation were not generally in favour of doing it that way. There also operational issues. If one tries to over-engineer the policy, it makes it very difficult for Land and Property Services to administer.
The Chairperson:
That is it for now, Brian. You have agreed write back to us on the other issues. The Committee Clerk will work with you in order to reach a clear understanding of how we can timetable our approach to the work.
Mr McClure:
That would be very helpful.