COMMITTEE FOR FINANCE AND PERSONNEL
OFFICIAL REPORT
(Hansard)
Report on the Public Consultation on Amendments to the Domestic Rating System
24 September 2008
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Mr Roy Beggs
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Mr Peter Weir
Witnesses:
Dr Veronica Holland ) Department of Finance and Personnel
Mr Brian McClure )
The Chairperson (Mr McLaughlin):
I welcome Brian McClure, head of rating policy division, and Veronica Holland, from rating policy division, who will brief the Committee.
Mr Brian McClure (Department of Finance and Personnel):
Thank you for the opportunity to brief the Committee on the recent rating consultations, the Department’s approach to those consultations, and the intended approach to the process. Four consultations are complete, and I want to update the Committee on three of those: the proposal to reduce the maximum capital value for the rating system; the rating of empty homes, and the proposed deferment scheme for home-owning pensioners. In a fortnight, I will brief the Committee on the consultations on data sharing, green rebates and the review of the student relief scheme.
As the Committee is aware, in November the Executive agreed to the three proposals on which consultations are now complete. The consultations focused on the detail of the proposals. As members know, the devil is in the detail, and the detail of those proposals is extremely important, which is why the Department went out to consultation on them. After I talk about the way forward, I will talk the Committee through what the Department has done thus far.
The Chairperson:
Perhaps you would treat each consultation as a separate discussion.
Mr McClure:
That is how I intend to play it; I will simply paint the background first.
The Minister is keen to hear the Committee’s views before taking final decisions on the proposals, and, in fact, he will not take any decisions before doing so. The papers that I provided to the Committee are the first drafts of the composite consultation paper that the Department will provide to the general public. Although the Department carried out a series of consultations, those will be pulled together into one consultation report, which will provide summaries, as in the drafts, and outline the way forward, but we will not know what that is until the Minister has heard the Committee’s views.
Members of the Committee and the Executive will be provided with an advanced copy of the composite consultation report when it is ready. However, the main purpose of this morning’s briefing is to give the Committee a flavour of the consultation.
Before I do so, it might be helpful to outline the process. Each consultation was issued to approximately 200 individuals, organisations and local representatives. The consultations ran from June to September, and the Department accepts that it was not ideal to hold them over the summer and, therefore, we took steps to ensure further engagement. For instance, we held a series of meeting with interested groups such as Advice NI; Age Concern Northern Ireland; Help the Aged; the Royal Institution of Chartered Surveyors; the Consumer Council; the Rural Community Network; the Northern Ireland Fair Rates Campaign; Ballymena Borough Council and various others.
We went on the road and talked to people to try to elicit informed responses on the important issues. We also placed advertisements in local newspapers and produced a series of press releases and reminder press releases. We wrote to the main stakeholder organisations before the conclusion of the consultations to ask them to respond and to do so on time. Therefore, although consultation over the summer was not ideal, we took measures to make it as inclusive as possible.
The first proposal is to reduce the maximum capital value from £500,000 to £400,000, and I have given the Committee a flavour of the responses to the consultation on that because it finished in June. Some 152 responses were received to the consultation: 23 from a broad range of organisations, one from the Alliance Party, and 128 from individual ratepayers.
Of the responses from organisations, four were in favour of a lower cap, 15 were against the proposal, and four simply commented on broader policy issues rather than addressing the issue at hand. However, the responses from individuals were quite different. Some 113 out of 128 were in favour, with 49 preferring a lower cap than the proposed £400,000. Two were against the proposal to lower the cap, and 13 simply commented on wider policy issues.
An issue that emerged from the Committee and during the consultation process related to the impact that such a cap would have on local government; and some councils commented on the need for consideration to be given to compensation measures.
That is a quick update on maximum capital values. Would you like me to run through all the issues and then take questions collectively or would you like me to take it issue by issue?
The Chairperson:
It would be better if we take it issue by issue.
Mr McClure:
That is fine.
Dr Farry:
I will spare you the detail of the Alliance Party’s response. First, I declare an interest as a member of North Down Borough Council. I want to raise the issue of the potential scope for transitionary relief. North Down Borough Council, among others, is concerned about the funding for the £500,000 cap for the 2007-08 financial year. It was announced at St Andrews that that would happen, but it was not formalised until March 2007, which was after councils had struck their rates for the 2007-08 financial year.
Between rating policy division and Land and Property Services (LPS), councils were given the impression that the initial funding of the cap in year one would be borne by the system overall, and that the impact for ratepayers would occur only in 2008-09. However, LPS is asking some councils to fund the first two years of the £500,000 cap in one year, and they have been issued with bills to that effect. Therefore, councils are paying double the cost of a £500,000 cap in one financial year.
How did that situation arise? Was there a breakdown in communication regarding transitionary relief? Is there potential to consider extending retrospective relief to address the issue, given that its purpose is to ease the transition? At the moment, some councils have massive revenue problems, and North Down Borough Council has the most acute problem. However, Belfast City Council and Carrickfergus Borough Council are also potentially affected. Is there scope for considering retrospective applications for transitionary relief to address the problem?
Mr McClure:
I am happy to discuss the issue; however, as the member has pointed out, it has not been the subject of any of the consultations. It was a late policy measure, which was introduced in March 2007 just before the beginning of the rating year. A consultation paper was produced for the political parties, but the issue of compensating arrangements was not raised in the paper, nor was it raised in response to the paper. However, there have been some Assembly Questions on the issue. We contacted the finance officers of various councils and provided them with the impact assessment. It had always been our understanding that the measure was a reduction in the tax base across the board — that valuations above £500,000 would no longer be taxed.
As to what can be done; the Minister may wish to consider the issue, including whether proposals should be broadly applied or applied to councils that suffer significant hardship as a consequence, whether they tie-in with finance arrangements for the review of public administration, and other difficult matters.
Although I have not been briefed to advise members about this matter, I am happy to raise it with the Minister again and report back to the Committee.
Dr Farry:
Okay.
The Chairperson:
I would say that on behalf of the Committee that that was a bit of a curve ball.
Mr Hamilton:
I have a general comment. In more cases than not, the people who will be positively affected by the cap will probably not notice the difference. However, a considerable number who will be affected are in the asset rich, income poor group that we frequently talk about. Therefore, I support the idea of lowering the cap, another positive consequence of which would be to bring Northern Ireland bills more in line with those in the rest of the UK.
Like Dr Farry, I declare an interest as a member of Ards Borough Council, which is one of the councils that would be affected adversely by a reduction in the cap. Lowering the cap to £400,000 must be done in tandem with transitional relief. How that would be administered is up for discussion; however, one action must be done in conjunction with the other. Otherwise, a broad swathe of ratepayers in the average income bracket will be subsidising many people who are well off. Therefore, my support is conditional on having transitional relief, particularly for councils that would be hardest hit by the reduction in the cap — not just mine and Dr Farry’s, but others throughout Northern Ireland.
Mr Weir:
I declare an interest as a member of North Down Borough Council. Am I right in saying that everyone who responded to the consultation, and who mentioned relief, was in favour of it in some form, and that the only divergence was whether it should be permanent rather than transitional?
Mr McClure:
Yes. That is a fair comment.
Mr Weir:
Presumably also, those who supported transitional relief, without mentioning permanent relief, did not express opposition to permanent relief.
Mr McClure:
That is correct.
Mr Weir:
Would it be fair to say that those responses demonstrate a degree of consensus on the matter?
Mr McClure:
Yes. It is fair to say that those who stand to benefit through a compensatory arrangement were in favour of it.
Mr Weir:
Particular reference was made to North Down Borough Council, Ards Borough Council and Belfast City Council, which would be heavily affected by the proposals; however, judging by the list of councils that mentioned the issue, some of the others, which would only benefit marginally, must have backed the general principle of relief.
Mr McClure:
I agree that the impact on the three councils you mentioned differentiates them from the other 23 councils.
Ms J McCann:
The Committee raised issues about the cap, and I note that Mr Hamilton mentioned allaying the fears of people who are asset rich and income poor. Will the cap mean that less-well-off people will be subsidising the rates of those who are better-off?
Although some organisations have expressed that concern, your paper states that analysis demonstrates that the impact on individual ratepayers will be minimal. Will that definitely be the case because I see that a concern is being expressed?
Mr McClure:
Yes. In principle, once we pass the period of the regional rate freeze, other ratepayers will, in theory, pay more because there will be no mechanism to recoup that money while the freeze is in place. However, the increase is barely measurable, because only 2,000 or 3,000 ratepayers are in the £400,000 to £500,000 value bracket, and it will result in a matter of pence for all ratepayers. Therefore, the answer to both questions is yes; yes, it will be redistributed but, yes, the impact will be minimal.
Mr Beggs:
We discussed earlier that Land and Property Services encountered difficulties with the change in policy. Is it possible to introduce proposals flexibly — perhaps through a statutory rule — to ensure that the implementation date can be finalised once we are certain that the proposals will not hinder the general operation of Land and Property Services? Too many changes have occurred simultaneously — new computer systems, reorganisation, and so on — that have not been handled effectively.
Mr McClure:
Although the Executive agreed that the measures should be introduced from 2009, the date can be kept flexible. The member makes a valid point about testing the readiness of Land and Property Services to deliver those policies. In light of the Executive review that arose from the PAC hearing, I consulted my papers to discover that we first discussed that review’s options with Land and Property Services in July 2007. We tested the viability with the agency, and we understand that they can, if necessary, introduce the reduced cap in April 2009.
Dr Veronica Holland (Department of Finance and Personnel):
It is important to note that several reforms are ongoing. The lone pensioner allowance and the rate relief threshold were implemented in 2008, the reduced cap is proposed for 2009, and the rating of vacant houses will be introduced in 2010. Therefore, reforms are being spread over several years — that should help LPS with the implementation.
Mr Beggs:
I declare an interest as a member of Carrickfergus Borough Council. I presume that a reduction in the cap would affect the amount raised by local councils and, ultimately, the income that would be raised through the regional rate. Are detailed figures available on the impact that the proposed reduction will have on the penny product in individual councils?
Mr McClure:
We do not have specific details. However, I can produce that for the next meeting. The Department is considering the consultation paper, and we provided illustrative figures, which outlined revenue loss in each district council area.
Dr Holland:
Carrickfergus Borough Council will lose approximately £8,000 because of the reduced cap.
Mr McClure:
If it is an £8,000 loss, we anticipate modest effect on the penny product. I presume that few properties were assessed at £400,000 or more.
Dr Holland:
There were 41 properties.
Mr McClure:
I will provide more information if the Committee wishes me to do so. However, that seems to answer the question — it would have a marginal effect on the penny product.
Mr Beggs:
Will the money be raised by the other ratepayers?
Mr McClure:
Yes.
Mr Beggs:
Will it be an extra £2,000,000?
Dr Holland:
Overall, for the reduction to £400,000, it will be just under £1,000,000 for district councils. A similar amount would also apply to the regional rate.
Mr McClure:
The regional rate would be just over another £1 million.
Mr Beggs:
Would there be implications in relation to the freezing of the regional rate?
Mr McClure:
A freeze on the regional rate prevents the recovery of money from other ratepayers. Even if that option were considered, it could not be pursued until the freeze period had passed. A decision would be required on whether to forego the revenue or allow ratepayers to make up the difference.
Mr Beggs:
Therefore, if the regional rate is not raised, does that preclude an amount from the block grant?
Mr McClure:
No choice would be left. There is no mechanism to recover the money from other ratepayers.
Mr Beggs:
Would that constitute a loss of money available to the Executive?
Mr McClure:
Yes.
Ms Purvis:
I share concerns about lower income ratepayers subsidising the proposed cap. However, I am also concerned that the purpose of the cap is to target people who are income poor, asset rich, and, in particular, pensioners.
The submission states that fewer than 2,500 properties will be affected by the cap. It also states that the highest rates bills in Northern Ireland will equate to the highest council tax bills in Great Britain. How many of those 2,500 properties would not normally qualify for other rate relief programmes? If there was not a £400,000 cap, would those 2,500 properties be entitled to lone pensioner deferment or other schemes? Is the cap a blanket way of targeting relief at a time when more specific measures should be sought in order to help those in greatest need?
Mr McClure:
That is a valid point. I do not have the level of rate relief available to people in those houses. I will try to obtain that information for the Committee. Alternative reliefs are equally available to people who meet the relevant low income, disability or other qualifying criteria. I am talking about the lone pensioner allowance, which would equally apply to those in that bracket. Your question is a good one. However, I do not know how many in that group get other help. It is a blanket measure.
During consultation, people told us that those in higher-value houses were paying more for the same services, that pensioners were more greatly affected, and that there was concern about the impact of rising household costs. Those were the messages that we got from those who were in favour of the cap.
However, the proposed measure is principally aimed at pegging rates bills in Northern Ireland at the average highest council tax band in Great Britain. The figure of £400,000 was selected by the Minister who — with the Executive’s agreement — thought that people in Northern Ireland should not pay more than those in the average highest council tax band in England, Wales and Scotland.
Mr Beggs:
The briefing paper states that the £500,000 cap:
"affected just under 2500 properties and ensured that the highest rates bills in Northern Ireland equated with the highest council tax bills in Great Britain ".
Does the current cap do that?
Mr McClure:
The cap of £500,000 was the absolute highest and applies to Sedgefield in England — ex Prime Minister Tony Blair’s former constituency, although perhaps not to his house, or one of his houses. The proposal equates to the average council tax bill in the highest band, which is slightly different from being the absolute highest.
Ms Purvis:
I am still concerned that this is a blanket measure that is not being targeted at those most in need. I would be interested to know how many of the 2,500 households already benefit from other relief schemes.
Mr McClure:
I will try to get that information, and I will write to the Committee before the next meeting.
The Chairperson:
That would be helpful.
Mr Paisley Jnr:
Dawn’s question extracted the answer to my question, too.
The Chairperson:
That might have been because that issue took much longer to deal with than anticipated, and there was a degree of overlap. Mr McClure, would you deal with the remaining two issues? We will have a discussion on them afterwards.
Mr McClure:
The next issue, the rating of empty homes, is very important. There were 49 consultation responses, 15 of which were from councils. The majority of individuals and organisations who responded were in favour of the proposals, or were in favour of them with some amendments.
I turn now to councils, which are a subgroup of the organisations category. Some 13 councils were in favour of the proposals with some amendments, while two councils agreed entirely with the proposals. The main issues raised in the consultation process were the phasing in of the rating of empty homes and the initial exemption period. Issues also emerged about the impact of such a measure on ministers’ houses and derelict farm buildings — specifically whether the measure would encourage the accelerated demolition of farm buildings, which could prejudice people’s future position with regard to planning applications. It is our belief that that will not be the case, but I am simply reporting what people have told us. We will consider the matter carefully when drafting the legislation in order to ensure that that will not happen.
Ms Purvis:
I want to ask about an issue that cuts across the deferment scheme and the rating of empty homes scheme. The deferment scheme proposes that deferment should continue when an elderly person is taken into care. In the proposal for the rating of empty homes it has been stated that there will be an exclusion for a person receiving care. How will that work if an elderly person is in residential care for six months? Will the deferment amounts add up for six months? How will such people be excluded from the rating system if they are in care?
Mr McClure:
The deferred amount would be allowed to sit until the individual either sells the property or passes away, in which case the deferred sum would be dealt with in the estate.
Ms Purvis:
Yes, I am aware of that. However, in the scheme for the rating of empty homes, the preferred approach is that a person in care would not be liable —
Mr McClure:
That is right, yes.
Dr Holland:
As Mr McClure said, the intention is that that agreement would hold until such times as the individual had returned to the property.
Mr McClure:
No liability or additional liability would build up during that period. There would be a double protection.
Ms Purvis:
Whose responsibility would it be to notify Land and Property Services that a property had been vacant for six months while the owner was in care, thereby ensuring that that person is not charged during that period in accordance with the deferment scheme?
Dr Holland:
The individual or their family should contact Land and Property Services.
Ms Purvis:
That issue must be examined.
Mr F McCann:
Ms Purvis asked one of the questions that I intended to ask. Do any other exemptions apply?
Mr McClure:
Properties that are listed or are caught in probate are exempt.
Dr Holland:
Other exempted properties are those that, for legal reasons, are subject to Government action and are not allowed to be occupied — basically in cases where, for some reason, it is not possible to occupy a property, in order to ensure that the person is not penalised.
It has also been proposed that property under the capital value of £20,000 be excluded from that measure. Different properties in particular circumstances have been proposed for exclusion.
Mr McClure:
The main categories of properties that have been proposed for exclusion are those that are subject to probate; listed properties; properties with a capital value of less than £20,000, and vacant properties belonging to people who have had to be admitted to nursing homes.
Mr F McCann:
Did you say that houses that are deemed unfit are excluded? That seems unfair, because anyone who is leasing out an unfit house should face the consequences and pay rates.
Dr Holland:
It is more correct to say that derelict and uninhabitable properties — rather than unfit — are excluded.
Mr McClure:
The exclusion will apply only to properties that it would be illegal to let. It is not illegal to occupy an unfit house. A significant number of houses in Northern Ireland are deemed unfit, for one reason or another, and it is not proposed to exclude them. The consultation is on the detail, and final decisions have not been made yet.
Mr Paisley Jnr:
Is there a mechanism in place that will allow the level of liability to fluctuate with market values?
Mr McClure:
Do you mean in a graduated way?
Mr Paisley Jnr:
Take, for example, a vacant property in a rural part of Northern Ireland. It value might be set at a particularly high value, but, with a decline in market interest, falls below your scale. Given the current economic climate where property values have fallen, is there a mechanism to take account of the direction in which the market is going?
Mr McClure:
That issue is out for consultation, but it has not been raised with us. The state of the current property market is an issue. We are in a completely different situation now to where we were when the policy was announced. One only has to drive along any road in Northern Ireland to see all the ‘For Sale’ and ‘To Let’ signs. If the situation persists, the commencement date for the measure should, perhaps, be reconsidered. However, there has been no consideration of trying to engineer it in a way where it could alter that, and I am not clear how that could be done.
Mr Paisley Jnr:
A house or building that has a value of £20,000 or less is to be excluded. A vacant property, as a site, would be worth more than £20,000, but, as the market fluctuates, it might be worth less than £20,000. Will that be taken into account?
Mr McClure:
The exclusion applies only to buildings.
Mr Paisley Jnr:
I am thinking of brownfield sites on which there are buildings.
Dr Holland:
It is important to remember that the capital value of a property is determined on the basis of its current circumstances and on whether it is used as a private dwelling, as opposed to development potential. That is excluded from the capital value that is attributed to any property.
Mr Paisley Jnr:
I assume that you take with a huge pinch of salt the support for the legislation given by organisations with a beneficial interest in increasing the tax take. It is like writing to people and saying "free beer for the workers". They are bound to agree to that. Is there some balance in the consultation?
Mr McClure:
Most of the responses that we have received have been supportive. Housing Rights Service, the Communication Workers Union, district councils, the Consumer Council and other important organisations that represent a broad spectrum of opinion in Northern Ireland are in favour of the measure. The Ulster Farmers’ Union was more cautious than most, but others were supportive.
Mr Paisley Jnr:
Would it be a fair assumption that the proposal will have a more severe impact on rural parts of Northern Ireland?
Mr McClure:
Yes. You are quite correct, because that is where there are more empty homes. In Northern Ireland, 29% of properties are deemed to be in rural areas, but that is where 35% of vacant properties are located also.
Mr Paisley Jnr:
Are there any section 75 implications?
Mr McClure:
The initial equality impact assessment that was carried out in district council areas did not suggest that any section 75 groups were significantly disadvantaged. No evidence emerged from the consultation. We very closely engaged with the rural community network, which gave a central response and took responses from the network. It is geared up to commenting on the rural impact of policies. There was nothing that was particularly negative from the rural community network.
Dr Holland:
There was nothing that was overly substantive. For all three policies that have been consulted on to date, the comments that were made in relation to impact assessments — both specific equality impact assessments and wider ones, such as New TSN and rural-proofing — were, by and large, fairly small. Nothing substantive of that nature was contained in the consultation responses.
Mr Paisley Jnr:
Due to the impact that that has on rural communities, they are bound to be disproportionately affected by the policy. There must, therefore, be some sort of section 75 implication.
Mr McClure:
We published an initial equality impact assessment, which I will send to the Committee. The measure could be beneficial to rural areas because it could remove —
Mr Paisley Jnr:
It will affect councils, certainly.
Mr McClure:
It could also reduce dereliction and put more properties on the market. That would improve housing affordability in isolated areas. I take your point about —
Mr Paisley Jnr:
I will stop you there, Brian. That would have been the case up until 2006, but that is no longer the case under PPS 14. Only with a change to PPS 14 and — hopefully — an Executive meeting to allow that to happen, would that become the case; not that I am making a point, Chairperson.
The Chairperson:
Of course not.
Mr Paisley Jnr:
It would be nice to think that derelict buildings in the countryside could become homes. However, that will not happen until there are changes to other legislation.
Mr Weir:
Presumably, the other potential benefit to rural areas is that if income is generated from some of those buildings in the countryside, it means that there is a greater level of income for councils in rural areas. In practice, that means that more money could be spent on services in rural areas. Alternatively, it means other people in rural areas will pay a lower amount in rates. That is the other side of the coin.
Mr Paisley Jnr:
I invite the member to come to the countryside to see that there are no leisure centres in the corners of fields —
Mr Weir:
That sounds like sheep in Ballymena.
Mr Paisley Jnr:
Keep your preferences to yourself. The implication for services is slightly different.
I would like you to study that issue and see whether you could bring something back to the Committee about the section 75 implications. That is an issue that has not been explored.
Mr McClure:
I will attend to that as well.
Mr O’Loan:
There is obviously a slump in house sales at the moment. Many builders and developers have empty houses, which is the last thing that they want. As you said, that was something that was not envisaged when work on the policy started. A lot of careful thought should be given to that point, because the last thing that the construction industry needs at the moment is a further financial burden that is not of its making. They should be protected from that, which could come from postponing the scheme, as you talked about, or very careful consideration of when a house should come on stream for its first rating.
Mr McClure:
I agree, entirely — the matter was dealt with in a consultation paper. It was proposed in the policy paper that there should be a one-year exemption for new houses.
Mr O’Loan:
I do not believe that that would be adequate, given the new situation.
Mr McClure:
I take that on board and will certainly consider it.
Mr Beggs:
The £20,000 threshold for exclusion was mentioned earlier — I presume that that refers to the market price of a property. I have never heard of a house being sold for £20,000 in recent times. How many houses would qualify for such a threshold?
Dr Holland:
We can get the exact figure for you, but my recollection is that it is a few thousand houses.
Mr McClure:
It must be remembered that our figures are based on the January 2005 assessment by Land and Property Services and the answer is a few percent, but I will get the exact percentage for you.
Mr Beggs:
How do you distinguish between the site value and the house value? Presumably that amount refers to the property value, which is the site and house value combined?
Mr McClure:
That is correct, but it does not take account of any development potential. Even if a house is on a site that is worth a fortune, the house will only be assessed at the rate that it would normally sell for — any abnormal development potential associated with the house must be ignored in relation to the rating assessment.
Mr Beggs:
I am interested in the number of such houses and their geographical spread — for example, are we talking about inner city housing?
Mr McClure:
Mostly, it involves isolated cottage properties, particularly in the west.
The Chairperson:
The briefing paper indicates that partial deferment will not be permitted — what is the rationale behind that?
Mr McClure:
The rationale is that the system is quite expensive to set up, both for ratepayers and for the Department, so it is question of whether it is worth creating such a system for only part of a rate bill. The system involves a long-term financial commitment and, to be worthwhile for both the Department and the ratepayer, it must be used for the entire rate bill rather than part of the liability. Otherwise, we could get involved in small amounts of money, which would not justify the high set-up cost for ratepayers and the Department.
Shall I move on to the final point?
The Chairperson:
Yes, because some members have indicated that they wish to discuss it.
Mr McClure:
Of the 24 responses to the consultation paper, 22 were from organisations, including nine district councils. The consultation ended last Friday, and since then there have been three further responses that were all broadly supportive of the measures — one from Newry and Mourne District Council, one from Disability Action, and one from a ratepayer. The response from Disability Action drew attention to the fact that we must ensure that proper safeguards are in place to fully protect ratepayers’ interests in relation to deferment, but it was still a broadly supportive response.
That is the only update to the information that we provided in the written reports to the Committee. Three responses opposed the proposals, three agreed with them entirely, and 14 were broadly in favour but suggested some amendments. Views were mixed with regard to the age threshold and to whether the provision of advice — that is, providing applicants with financial modelling information and advice on whether to go into the scheme — should be mandatory.
The consultation was helpful on a number of those main issues. Indeed, the proposals that we will put to the Minister — particularly in relation to the age of eligibility — will be slightly different to those that originally suggested in the consultation paper.
Mr O’Loan:
I was horrified by the complexity of the consultation document. Did it need to be so complex?
You said that the responses that you have received were generally positive. Indeed, I have argued that even only a small number of people were interested it would still be worth setting up the scheme. Although setting up a scheme would be complicated, you have not said that the difficulties would be disproportionate to the benefits.
Mr McClure:
The prevailing view of the consultation is that setting up a scheme would be worthwhile. The Minister has not made a final decision, but the Executive have agreed that — subject to consultation on the detail — a scheme should be set up. Nothing emerged from the consultation that could be described as a show stopper.
I agree with your comments about the complexity of the consultation paper. Indeed, the paper included a brief apology, explaining from the outset that it is a long-winded document. However, it should be remembered that the scheme involves a long-term contractual relationship with the Department; interference with people’s property rights; legal interests; and large amounts of money. Therefore, the paper is complex by necessity. It would not have been possible to distil it to the same length as documents that only deal with smaller issues such as the rating of empty properties.
Mr Hamilton:
As I have said in the past, I am not entirely at ease with the concept due to its complexity and the implications for property rights. However, I understand why it is being introduced.
Has the consultation led to any new thinking about independent financial advice being mandatory? It would be advisable for some people to seek guidance; the process should be made clear and certain recommendations should be made to those people. However, I am not sure whether financial advice should be made mandatory because many applicants would be capable of understanding the implications without receiving advice. Most people would be entering the scheme to avoid a rates bill due to income reasons, yet they may incur a substantial bill from an independent financial adviser that would have to be paid up front and could not be deferred.
Mr McClure:
The measure is designed for pensioners; therefore, advice should be available. We do not yet know whether it should be mandatory to receive that advice. However, we would like people to be able to make an informed decision on the basis of a clear financial model of what the scheme could potentially cost them in the long term.
People should be able to trust organisations in the advice sector to provide that information, rather than having to employ independent financial advisors. I am not saying that financial advisors are untrustworthy. However, the advice sector must be equipped to provide the right advice and give people access to the relevant financial models.
Dr Holland:
Eleven of the consultation responses commented specifically on financial advice. Six of them supported the idea of advice being mandatory, and five stated that people should be strongly advised to accept financial advice. As you said, many people are capable of making up their own mind without having received advice.
As far as responsibility for providing advice is concerned, the voluntary sector, as Brian pointed out, would need to be properly equipped. We have some concerns about the sector’s capacity to undertake that responsibility, and those must be taken into account before deciding on the way forward.
The Chairperson:
Did any of the voluntary sector organisations raise the issue of indemnity in relation to their providing advice?
Dr Holland:
Citizens Advice was the only one to state that it is not specifically authorised at present to provide regulatory advice, but the other organisations did not raise that particular issue.
Mr McClure:
That is a good point, because there is a distinction between providing information and providing advice. The Department regards the role as providing people with clear information to enable them to make up their minds, as opposed to providing advice on whether people should avail themselves of the scheme. To enter the territory of offering advice begs the question of whether it would become a financial service governed by the Financial Services Authority (FSA) regulations and all that comes with that — and that would be a show-stopper.
The Chairperson:
You are right about that.
Ms J McCann:
People who are asset rich but income poor are at the forefront of this proposal. Many people bought their homes years ago, and their houses are now worth much more than they were then. Those people, therefore, may have much more equity than income. When we discussed that again we should have considered those people, particularly pensioners, and, instead of deferring their rates, sought to be more innovative, perhaps by removing the requirement for them to pay any rates.
Safeguards must be built into the deferment scheme, because it will encourage people to get into debt, and that is a major issue, particularly given the current financial situation. Many people may consider the scheme and, on deciding that they cannot afford to pay the rates, take the option to defer. If they continue to defer payment, after a matter of years, their homes will not, in effect, be theirs. It is, therefore, essential that safeguards are built into that proposal to protect those people, because I can envisage many of them getting into serious debt.
Mr McClure:
I agree entirely, and the Department is not presenting the scheme as an easy option. We want people to think carefully and get the correct information before they consider joining the scheme. However, the upside is that the scheme provides choice, and if people are under pressure to sell the family home to be able to afford to live, it may give them more time to remain there.
Mr Beggs:
I welcome the fact that people have the option to decide whether to buy into a scheme that may allow them to remain in their homes. A variety of responses were received on the interest that should be applied to the scheme, varying from the view that it should be revenue neutral to pitching it below the Bank of England base rate.
Financial advisers were mentioned earlier. If the rate of interest were pitched below the Bank of England base rate, any financial adviser would counsel people not to pay rates but to opt for deferment, put the money into the Bank of England and make a profit. Therefore, the scheme must be pitched carefully because it will have implications for the block grant. We want to offer people help without creating a situation in which financial advisers advise using the scheme as a money-making mechanism.
Mr McClure:
We do not want the scheme to become an attractive investment vehicle.
Mr Beggs:
Yet, it is important that an option is available to help people.
Mr McClure:
That issue has been considered, and the consultation paper asked whether a limit on savings should be associated with the scheme. Should the scheme provide people who have £100,000 in the bank the choice to defer payment of their rates? Some would argue that it should not.
Mr Beggs:
It would be unwise.
The Chairperson:
Who will review the Department’s decisions on deferment agreements, and will there be an independent element to that review?
Mr McClure:
It is not an issue that we had considered. At the moment, that is dealt with by another area in the Department and we view that as a contractual relationship between the Department and the ratepayer. The potential for independent review has not been raised with us, but it is certainly something that we will think about.
The Chairperson:
OK. The Committee had recommended that pensioners be allowed to review the decision to defer their rates annually. Will the preferred approach accommodate that recommendation?
Mr McClure:
Sorry, I thought that you were talking to members, Mr Chairperson. Before I answer that question, we have thought of something that relates to your previous question on the subject of appeals.
Dr Holland:
The consultation paper proposed that if someone had issues with a decision taken by the Department either to award, or most likely not award deferment that they would be able to ask the Department to review that decision. Only five of the consultation responses actually commented on that. Specifically, there were three of those that were in favour of what had been proposed. Ballymena Borough Council suggested that there should be an independent appeal mechanism, while the Northern Ireland Fair Rates Campaign stated that it should be undertaken by an independent assessor. However, it was not made clear whether the appeals should be conducted by the Department or by an outside body. Therefore, the views expressed on the issue were relatively small in nature and were fairly evenly split.
Mr McClure:
However, that is an issue that we will certainly look at. I apologise Chairperson, your last question was in relation to —
The Chairperson:
It was in relation to pensioners being able to review the decision to defer —
Mr McClure:
Do you mean some form of cooling-off period?
The Chairperson:
Yes, or perhaps pensioners deciding to bring any agreement to an end over a period of time.
Mr McClure:
Yes. Pensioners can decide when they feel that they have built up enough deferment. The debt would then be suspended, but would continue to accrue at the concessionary interest rate until due. That would be when the property is sold or when the person passes away. However, it would still be possible for pensioners to eventually opt out of the scheme.
The Chairperson:
Can pensioners settle for the sum that was deferred and set against the property? Can they do that directly themselves or indirectly through family members?
Dr Holland:
Yes. They could, for example, defer for a period of five years. Following that period they could then decide to settle the amount due or, conversely, could place the debt on hold with interest continuing to accrue.
Mr McClure:
Therefore, they could not clear the charge on the property in advance of the property being sold.
The Chairperson:
OK. Thank you very much for that. That was quite an interesting discussion. It continued a little longer than the Committee had anticipated. However; thank you for your assistance today.
Mr McClure:
Thank you. I will communicate with the Committee in writing before the next meeting. That communication will cover the points raised in relation to equality impact, the eligibility of those in the £400,000 to £500,000 bracket and any other points that the Committee required clarification on today.