Official Report (Hansard)
Date: 23 May 2007
COMMITTEE FOR FINANCE AND PERSONNEL
New Rating System
23 May 2007
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Mervyn Storey (Deputy Chairperson)
Mr Roy Beggs
Dr Stephen Farry
Mr Simon Hamilton
Mr Fra McCann
Ms Jennifer McCann
Mr Adrian McQuillan
Mr Declan O’Loan
Mrs Dawn Purvis
Mr Peter Weir
Mr John Wilkinson ) Department of Finance and Personnel
Mr Alan Brontë )
The Chairperson (Mr McLaughlin):
I welcome John Wilkinson, who is the chief executive in Land and Property Services, and Alan Brontë, director of Domestic Assessment and Rating Services, to the meeting. Hansard will record the session, and the transcript will be published. Therefore, the usual health warning on mobile phones applies.
Mr John Wilkinson (Department of Finance and Personnel):
I welcome the opportunity to talk to the Committee about the operational implications of the new rating system.
We have prepared a short presentation of about 15 minutes after which there will be time for discussion.
I am John Wilkinson. I am the chief executive of Land and Property Services. I took up the post on 2 April, so I am almost up to my two-month anniversary in the job.
This is my colleague, Alan Brontë. Alan is the director of Rating Services for Land and Property Services, and he has been in the post a little longer than I. We are both chartered surveyors, and between us we have about 60 years of experience in valuation, property and rating.
I would first like to touch on the formation of Land and Property Services on 1 April of this year. I will then go into the meat of the presentation, which is an operational overview of the challenges that we faced in valuation and collection in recent months. I will summarise that very briefly and then hand over to you for questions.
The review of public administration (RPA) in 2006 proposed that the Valuation and Lands Agency (VLA), the Rate Collection Agency (RCA), Land Registers of Northern Ireland (LRNI) and the Ordnance Survey of Northern Ireland (OSNI) be merged in two phases to form Land and Property Services (LPS).
The first phase — the merger of the Valuation and Lands Agency and the Rate Collection Agency — was completed on 1 April 2007. For the purposes of the presentation, Alan and I will refer to the old organisations by their former titles. On 1 April 2008, the Land Registers of Northern Ireland and the Ordnance Survey of Northern Ireland will be merged, which will complete the second phase of the creation of Land and Property Services. Merging those organisations will drive forward efficiencies and business improvements, and they will work in partnership to improve the service to the citizens of Northern Ireland. The vision statement for the organisation is:
"transforming land and property services and information for the public good".
I shall give a brief overview of some recent operational experiences. The domestic rate revaluation of 2007 was the first of its kind in Northern Ireland since 1 April 1976 — a gap of 31 years. However, non-domestic revaluations were carried out in the intervening period, in 1997 and 2003. There has also been a change in basis from rental to capital values. Furthermore, the Valuation and Lands Agency and the Rate Collection Agency underwent major IT replacements. All that work was done within a challenging reform timetable, alongside the maintenance of existing business such as non-domestic rating and client services.
I shall outline some of the operational challenges that we faced. As you heard, there were 720,000 properties to revalue, and our revaluation was the first in the UK to be conducted using computer-assisted mass appraisal (CAMA) techniques, which are used extensively in the USA, Canada and Australia. An individual valuation of each property was conducted using the Valuation and Lands Agency’s comprehensive database and sales analysis. The work was completed in June 2006, and property details and indicative bills were published in the summer of 2006, which was a new and innovative service. In addition, Land and Property Services provided a comprehensive public information programme and valuation helpline.
That is a brief overview of some of the work carried out by Land and Property Services. I shall hand over to Alan Brontë, who was in the thick of all that work, to provide more detail.
Mr Alan Brontë (Department of Finance and Personnel):
I will begin by looking at some figures. Assembly Research and Library Service may have already provided the Committee with figures, albeit in a little less detail, but it is worth running through them again.
We published the valuations extremely early by most international standards: well in advance of 1 April 2007. We did so for several reasons. We wanted to ensure that obvious errors and omissions could be corrected before bills were sent out. It also gave ratepayers the opportunity to become familiar with a different procedure and system from the one they were used to.
The detailed information that we supplied in the summer was useful, and the feedback that we received supports that.
Between summer 2006 and 31 March 2007, some 57,000 queries were received through a variety of means. We were able to deal with and satisfy 51% — just over half — of queries at the first point of contact. Of those queries, some 28,000 were passed to our valuation staff for review. On most of those occasions, an inspection and discussion with the ratepayer was necessary. That represents some 4% of the 720,000 properties, which is extremely low by international standards.
Therefore, 28,000 cases required an investigation. The priority cases were sifted as they were received. For example, the cases of those people who would experience the largest change in liability were deemed worthy of being considered first. We also sought to deal initially with those people who made contact and advised that they were experiencing anxiety or faced potential hardship.
Since 1 April 2007, a further 6,000 people have contacted us and, in each case, the formal process has been initiated. Some 2,500 of those cases have been passed to the valuation staff. Therefore, 16,500 reviews are being worked on. That is just 2% of properties, and having sought advice elsewhere, Land and Property Services believes that that is a reasonable position to be in.
Earlier, the research team highlighted the challenges that we face. Some 15,000 of the reviews have been analysed, and, indeed, this issue first came to public notice as a result of a parliamentary question. As was said, almost 80% of the reviews have either not required a change or the change has been within the plus or minus 10% threshold. Therefore, about 22% of the changes have required an adjustment of slightly more than 10% either way. After 30 years without change, and having gone through 720,000 properties, we believe that that is a reasonable standard.
Therefore, 1·3% of the stock needs to be changed on review. If Members want me to, I will happily return to those figures, as I have had to run through them fairly quickly.
As well as dealing with the valuation challenge, Land and Property Services is responsible for the collection of rates for domestic and non-domestic properties. The collection of rates required the complete replacement of our IT system. The replacement was not as a result of an existing IT reform — it was absolutely necessary to replace a very old system that was being kept going on spare parts.
Coupled with the new billing system, it was important that we had a modern platform to handle rental and capital value. It should be remembered that we have both systems because the non-domestic system runs, as do those in most other jurisdictions, using rental value. We also have a capital value system and are, therefore, dealing with domestic and non-domestic properties.
As well as rate collection, the rate collection side deals housing benefit for owner-occupiers. Also it is responsible for providing the range of rate relief that is now available. These include capping, transitional relief, disabled persons allowance and others to which my colleague referred.
In mid-April, over 500,000 bills were issued to meet the deadline of getting payment commenced, particularly for those who were changing their method of payment to direct debit. Therefore, that is an intense period of work.
We also commenced a information campaign for ratepayers and a website that provides a self-service option for ratepayers.
Throughout this challenging period — and it has been a particularly busy time — it has been quite difficult to keep normal business going. IT problems have slowed down our normal business, making it difficult to chase ratepayers who are in arrears. However, that will be a priority as we move into a more settled period in 2007-08 and try to catch up and restore levels of customer service to what we believe they should be.
We recognised early that we wanted to provide a good call-handling service, and we set up a helpline on the valuation side last summer that proved useful to customers. However, the turn of year is always a very busy period for rate collection, with 500,000 bills being issued in a single week, and it is extremely difficult to handle everyone’s query the first time they call us.
We set up new call-handling procedures using the Northern Ireland Citizen Interaction Centre (NICIC), which is a part of the DIAL Network system. We have been using up to 70 staff and have substantially increased the number of lines to handle calls. The Committee has received figures for the number of calls we handled in one week, but we have dealt with 100,000 calls since 16 April — a 30% increase on the same period last year — and an average of over 4,000 calls a day. As the Committee will appreciate, our staff has been quite busy handling those queries.
Although it is not possible to answer everyone’s call, our abandoned-call rate is extremely low. There was a peak on 18 April, which was day three after the bills were issued, and there was another one last week when the second wave of supplementary bills was issued. Our staff has coped very well with that intense period of work.
The Committee’s research brief highlighted a significant textual error in one of the information leaflets. We had already noticed that error, but it was unfortunate that the very important words "would have" were omitted from the text during part of an editing process as we tried to bring together, and remove, words that we believed would make the leaflet clearer. However, I assure the Committee that the transitional rate relief that ratepayers are entitled to was correctly awarded in their bills, and we have sought to reassure people about that. The error resulted in a peak of calls for about a day or so, but we have tried to explain and correct the omission in our publicity. Transitional relief has been correctly provided to ratepayers.
I will hand back to Mr Wilkinson to summarise.
Land and Property Services has been through a fairly high level of activity recently, bringing together a major revaluation exercise after 31 years. At the same time, it has dealt with IT replacements and a change in the basis of valuation, coupled with the logistics involved and public acceptance. Staff worked incredibly hard over that period, and we have been constantly looking to re-route and divert resources where we have felt the peaks of activity would be.
We have completed 720,000 valuations and issued 550,000 bills, and queries outstanding are just over 2% of the total number of domestic properties involved. In the meantime we have put together modern delivery platforms to ensure efficient future domestic and non-domestic revaluations, and have assisted in providing a comprehensive service of relief and allowances to ratepayers.
Given the work done in recent years, and particularly given our experiences in recent months, we are moving in the right direction to deliver the vision of Land and Property Services: to transform land and property services and information for the public good.
Thank you very much. I acknowledge that whatever people’s views about the policy context, significant work has been done to modernise the delivery mechanisms and the follow-through on that. On those grounds, you have got off to a good start. However, I am sure that there will be questions about the detail.
Thank you for the presentation. My questions are purely about the operational side of the new rating system. I will touch on two aspects, the first of which is rates collection.
When we moved to a new rating system based on capital values, concerns were expressed that although there would be winners and losers, there might be a degree of resentment among those who lost out as a result of the changes. Have any changes been noticed — although it may be too early to say — in rate payments? Have there been any particular problems with collection flow, and has the pattern of payment changed in any way?
It is too early to see a pattern because the payment expiry date for people who wished to receive a discount was 18 May 2007. Therefore, it has only been a few days since we began to receive the first flush of money. We are not aware of any protest in the form of, for example, people withdrawing direct debit arrangements. We have tracked the accounts of people who have withdrawn direct debits and have found that they have paid in cash. We are not aware of any real change in that area.
As regards the review of valuations, the Committee’s figures, coming from the same sources as your own, seem to bear out the fact that approximately 15,000 people have had their valuations reviewed. I know that the notification of capital valuations was staggered between different areas — depending upon the council area in which a person lived. However, I was taken aback when it was said that some cases had been prioritised. The figure of 15,000, which the Committee has, and which I appreciate covers around half of the country, seems to comprise only seven districts. That seems to suggest that there was no prioritisation, up until March 2007, of any cases outside those seven districts. Will you comment on that?
My second question is about the speed with which the review process has been implemented. I realise that there will always be a degree of frustration with these things. Fifteen thousand reviews have been dealt with at the informal stage. However, there could be approximately 30,000 to 35,000 reviews in total when the review process is completed. It has been said that there are 28,000 ongoing reviews, with another 2,500 to be added. Has a target been set for completing the review of all of those cases, or at least 99% of them? Of course, I realise that there will always be a small number that will come in at sporadic times.
As regards how we prioritised in order to provide a better service: as we had spread the notification process by district council area — with, for example, one council starting in July and another at the end of August — we did not think that it was fair to consider applications for review in the order in which we received them. Many people who had applied for a review of their valuation were, in fact, better off when it came to liability. They might not have agreed with their valuation, or they might have disputed some details about the data provided on their notifications, but their liability, if anything, was reduced.
In fact, if anything, their liability was reduced. We thought it better to look first at cases in which people’s liability, as projected through to April of this year, had increased substantially. Moreover, we have written twice to those who have reviews pending to ask them to contact us if their bills are causing them upset or hardship. I am confident that that was the right decision as regards prioritisation.
Approximately 16,500 reviews are now outstanding. It is difficult to predict how many review applications we will receive. However, the bills were issued in mid-April, and, one month on, the early indications are that we will not receive the amount of applications that you have suggested.
I was talking about the total number of reviews; the 15,000 reviews that have already been carried out and the 16,500 that appear to be in the pipeline. Given that the current total is 31,500, the final figure will probably be between 30,000 and 35,000.
That is correct. Those figures are distributed perhaps more on the eastern side of the Province than on the western side. It is easy to understand that, because people’s liability has increased more in certain areas than in others because of the change in redistribution of value.
Do you have a performance management target or some sort of target date by which you aim to have at least 99% of the reviews cleared up?
We are attempting to carry out reviews as quickly as we can. I expect that it will be late autumn before we get through all the cases that we received before the end of March. At the same time, we are trying, with the limited number of staff in all the other parts of the service, to add new houses to the list — and new houses are being built every day. It is important that those houses are valued and that the valuation lists for the councils continue to grow accordingly as that will impact on setting the district and regional rates. It is important for the Department and local authorities that we continue with the non-domestic valuations, and new office blocks must also be put on the list. Therefore, it is a matter of balancing priorities and using resources to best effect. We could devote all of our resources to clearing reviews quickly, but that would lead to a decrease in the rate of growth on the valuation list.
I am not suggesting that the agency do that, I am simply trying to establish whether some sort of target date has been set — either internally or elsewhere — by which the reviews will be cleared up. I appreciate that you may not be in a position to answer that question.
We have an internal target for valuing new properties, and we aim to reach that target within two months, because that will obviously impact on the amount of rates to be collected. One of the tasks in my new job will be to look at internal processes and performance within the organisation. In the months ahead, I will continue to work towards clearing reviews, but I will also carefully monitor any new cases. My experience of this kind of situation is that it is a matter of constantly juggling demands. For example, I could aim to work towards completing the 14,000 reviews that are outstanding from the first wave of reviews, but, in the meantime, the agency might receive cases that present greater hardship issues than some of the cases that were originally received. Therefore, we will focus on two goals: first, improving processes and performance management as regards clearing review backlogs; and, secondly, keeping an eye on any new cases. In that way, we can deliver the best possible service to the public with the resources that are available to us.
If an individual finds that that liability is reduced on appeal, he or she may be entitled to a refund. That raises many issues. For example, how long would it take to receive a refund? Would the overspend be totally refunded? Would there be an allowance for interest charges?
You may have already provided the Committee with the answers, but they have gotten lost among all the supplementary questions you had to deal with. I do not know whether a target time has been set within which those appeals must be acted on. Has an in-house-service target time been set, or do you intend to consider the issue and let the Committee know subsequently?
A target time for reviews for new properties has been set.
I heard that part. [Laughter.]
I will examine in-house performance and set some targets to clear the reviews outstanding. In a perfect world, the remainder of the first wave of reviews would be cleared this year, and that is what we will try to do. However, some juggling must be done if cases of greater hardship are presented in the meantime.
I appreciate the extent of the period of transition in which Land and Property Services is involved, but I suspect that the matter is one about which I will have to write to you and put on the agenda.
My first point is allied to what Mr Weir has said. I am concerned about the significant backlog of reviews, as it may be late autumn before they are cleared. That is not good news for the many homeowners who are affected. Several people have come to my constituency office with their concerns. The point that you made about payments is well made, Chairman. People who have asked for a valuation review are, in the meantime, being encouraged to pay their rates at the level at which they were originally assessed.
I worry that it might be well into next year, albeit with interest, before the rebate process is completed. Mr Wilkinson should get on and set his targets, because concerns have been expressed. There is opposition to the new policy, and, although we cannot alter that, the current situation does nothing to help.
Secondly, rates relief mechanisms that have been budgeted for are not all being taken up. I have been quoted figures that suggest that perhaps only 25% of the relief available has been taken up. That is a concern, because we should ensure that all those who are entitled to those mechanisms are made aware of them, particularly as they have been budgeted for. What is being done to promote effectively the availability of those relief mechanisms? How are you communicating with the general public? What advertising has been done? You mentioned information with the rates bills, but public representatives often find that the complexity of application forms and of the information leaflets that precede them often puts people off, particularly the elderly.
What is being done to address the lack of take-up of those reliefs, and to make it easier to apply for them?
I will answer the first part of Mr Hamilton’s question and then hand over to Mr Brontë to respond to the question about rates relief.
I agree with what you have said, Mr Hamilton. I will do everything possible — with the resources available to me — to resolve the outstanding reviews more speedily. However, I remind the Committee of the statistics that have been presented on the outcomes of those reviews. In many cases, no changes are made, and there is only a small number of cases in which increases are applied. It will not always be good news for everyone. Nevertheless, as the Chairman pointed out, any overpayment will be quickly repaid, as will any interest paid. I will move on that issue as quickly as possible.
I wish to add to Mr Wilkinson’s answer. When we say that people have asked for a review, I use that language generically, because we have been advised that data are incorrect in some of those requests for a review. They are not even valuation-significant errors: the address or the postcode may simply be incorrect.
Many people have told us that we have said that they do not have a garage, when in fact they do. Therefore people are advising us of data amendments. Overall, people are very honest, because they know that errors will be spotted eventually, and they do not want to face paying substantial arrears. Although the bulk of the issues concern queries over valuation, it would not be wrong to say that other reasons exist for the backlog.
It is very early in the process to talk about rate relief. About 50,000 bills went out last week, including housing benefit notification letters. Those people who are already on partial housing benefit will be receiving their bill now. We shall do the redeterminations to see whether those people, who are our target audience among owner-occupiers, will be able to get more rate relief.
As for what we have done about rate relief, we ran a brief advertising campaign on the themes of who should receive help and how to get help. The campaign targeted those who are eligible for rate relief. Advertisements were placed in the local press over a certain period and were supplemented by outdoor advertising on buses, adshels, and telephone kiosks. Information leaflets accompanied the bills. Provision was also made for minority languages.
A most important aspect of our work is to make use of the advice community and constituency officers. We are currently running a series of seminars working with local constituencies in areas including Belfast and the north-west. A number of MLAs will attend those seminars. We work with Advice NI and Citizens Advice Northern Ireland to help them to help the community.
We are also publishing information packs, which include a DVD that explains some of the process and gives examples of who is eligible for rate relief. Some people may be surprised to learn that they can benefit from rate relief, so it is important that we spread that message.
The advertising campaign is in its early days. However, it has received its initial push through measures such as working with the advice community, and we will continue to return to it. As well as wishing to increase take-up among owner-occupiers, for which Land and Property Services has responsibility, we are keen to increase take-up among those who receive normal housing benefit. The process is ongoing.
Do you have baseline figures for the number of people you expect to take up rate relief? How are those figures calculated? One category that may cause particular difficulty is those people who have modified their house to accommodate disability.
At the end of March 2007, about 8,500 people were claiming a reduction in their rates under the terms of the disabled person’s allowance (DPA). In the first four weeks after the bills were issued, we sent out about 1,400 application forms for DPA. To date, we have received about 850 of those forms back. DPA bills were sent out in May — slightly later than other bills. I am encouraged by the fact that we have received such a response already. I do not have to hand the figures from my policy colleagues for the departmental projections on how many people they expect to attract with the new form of DPA. The new DPA was designed primarily to simplify the process. More people may be included under the new form of DPA, but it is primarily about making the process and service slicker, quicker and less intrusive.
Is there backdating to enable someone to claim a relief to which they had been entitled?
No. However, there is a 25% flat-rate allowance under the new scheme. There may be those who, when they apply that 25% allowance, find that the resulting figure is lower than that they currently receive. They will remain at the previous level, however.
I return to Peter Weir’s point about winners and losers. The chart that was issued showed the increase in bills broken down by district council area. That caused some confusion in that people took the message that the change from rental to capital values was neutral across Northern Ireland. They then saw a chart that showed 24 council areas with an increase in rates and two council areas with a decrease. Presumably, that factors in the rise in the regional rate and the district rate in those areas. However, that chart caused much confusion.
I am not sure which chart you are referring to.
It is entitled ‘Average Northern Ireland Domestic Rate Bills 2007–2008’.
A chart was published last year on the Department’s website. A similar chart for 2006–07 that provided the basis for the indicative bill was also published. If people were paying on a capital-value basis, based on 2006–07 levels of expenditure on a local or regional rate, an indicative bill was issued for last year.
The Department of Finance and Personnel has tried to give people an indication of their average bill in a district council area, based on the new system. Two factors affect that issue: the revaluation and redistribution, which will move value across Northern Ireland; and the year-on-year increase in the district and regional rates. However, revaluation is a value-neutral exercise.
I appreciate that, but because they were not considering last year’s figures, people thought that there would be those who would gain from the revaluation. It appears that most people are losing, although I appreciate that the figures are presented in this way for the sake of transparency.
I am sure that you appreciate that those are average figures.
Yes, I appreciate that.
We produced figures at the time that showed distribution within that average and the number of people who were significantly better off and those who were significantly worse off. It is about fair share.
I have one more question, and, as a member of North Down Borough Council, I declare an interest. In the past, several district councils were given the opportunity by the former Rate Collection Agency to include an explanatory leaflet with the rate bills that were sent out in their district council area. In many cases, the leaflet gave a breakdown of the regional rate and the district rate. Those leaflets contributed to transparency by showing whether the increase was from the local council or from central Government. That scheme was withdrawn for this year, which caused some consternation. Are there any plans to reintroduce that scheme?
I apologise for the consternation that the removal of that service caused with some of the councils. It was a service that we were happy to provide to district councils, and we are glad that they found it helpful. However, the inclusion of several leaflets and forms with rate bills this year was a tight logistical exercise with IT systems. It was not a practical proposition to include the explanatory leaflets.
Can the leaflets be included next year?
I am quite happy to be approached by local authorities if they feel that that service would be helpful.
That was almost an "aye".
It is as close as we are going to get.
It is a yes. I am happy to do that.
If the member would like the statistics on the disabled person’s allowance, I am happy to provide them in a written statement.
I appreciate the fact that you have undertaken a mammoth task in revaluing 740,000 properties. However, it is wrong to refer to the 16,500 outstanding properties as "the 2%". Those 16,500 individuals have concerns that must be addressed. They are 16,500 customers, and I ask you to focus on that and not on low percentage numbers to ensure that those concerns are addressed.
Property valuations have varied hugely, which affects changes to the rating system. Some valuations have gone up, and some have gone down. What effect will that have on the rates relief budget? That will have shifted. Some people who have been able to claim in the past may not be able to do so now, and others may be able to claim.
Have you been able to track, or do you expect, any changes there? Are you adopting modern technology to manage rate-relief processes? Elderly persons can sort out their attendance allowance, pensioners’ tax credit, etc, over the phone. Are you making use of such customer-friendly techniques?
Our staff is more than willing to visit homes; that is why we are working with the advice community. We want to provide a quality service to customers, so we will make every opportunity available to them to suit their needs. I am passionate about ensuring that people get the relief that they deserve. That involves highlighting the relief system in every way that we can, and taking every possible opportunity to provide people with a service.
To pick up your point about how the change in capital values affects relief, it is important to remember that the valuation exercise was completed in June 2006 and so policy-makers knew the values and locations of all of those 700,000 properties. That information was built into the projections for rate relief and into the system as a distribution of where people were in need.
I am not complacent at all about the 16,500. That needs to be dealt with quickly. We will be focusing on that. When I mentioned some of the "bigger picture" statistics, I was trying to pat all of the team on the back. I have not been here long enough and cannot take any credit, but by international standards, they have done a good job.
To go back to rate relief and customer-friendly processes, you have said that you are happy to send members of staff out to visit individuals, but my question was whether the first interface is user-friendly. Can some issues be dealt with over the phone? Not everyone wants a stranger coming into their home. How do you get to that stage? Do customers have to fill in a complicated form? Have you looked at making the customer interface user-friendly?
Housing benefit is a means-tested benefit, and unfortunately that requires the applicant to provide a fair amount of detail. We have put steps in place to simplify the process — for example, by removing the proof-of-ownership requirement. However, the customer interface is improved by our work in partnership with others: the Social Security Agency, the National Association of Citizens Advice Bureaux, the Consumer Council, and the Northern Ireland Council for Voluntary Action. We try to do our best, but it comes down to getting forms filled out, and that can be daunting to an older person. However, we will do whatever we can to make that process as smooth and user-friendly as possible.
Returning to the take-up of rates relief, can you give us figures on disability relief and other types of relief? I would appreciate knowing the cost of that relief, including the cost of the £500,000 cap.
An issue that has come to my attention in my constituency is the underestimation of capital values. In one example, a house that was estimated at £150,000 recently went on the market at £265,000 and sold for £340,000. Some owners are anxious that the revaluations due to take place in 2010 could cause increases of well over 33%, given the increase in house prices.
Have you considered the future impact of that and the implications for your operations systems? Will transitional relief be available after the 2010 revaluation for cases where increases are above 33%? Given the difficulties and teething problems with the recent revaluation, are contingency plans in place for 2010?
I shall lead on the answers to those questions before handing over to Alan, who will go into some of the detail. It is an interesting point. As someone who is new to the Province, I have been looking at property prices over the past couple of years since the revaluation date, and I can see that there have been some big price increases.
The key issue is the difference in property values and the amount of rating revenue collected per pound. Some of that turbulence is eliminated by regular revaluations. Given that it was 31 years since the last revaluation, and that the basis has also changed from a rental- to a capital-value system, it is inevitable that there will be a lot of churning in the absolute levels of increase between relative properties and different localities. Regular revaluations remove some of that turbulence and therefore decrease the need for relief. The bottom line is that the increase should be more constant.
I have the figures about the cap. Until 18 May approximately 2,200 properties benefited from the £500,000 cap, and the total relief amounted to around £2·5 million.
As John said, if property prices in Northern Ireland rose at exactly the same rate, there would be no need for revaluation. Revaluation addresses only the differential growth in property prices. The message that we are trying to convey is that growth in property prices per se has no effect on rates, but people are very concerned about the next five years. Local authorities and DFP will determine what is taken from the rating system through the regional rate.
As regards valuation standards, at a time of unprecedented growth in property prices, we strove for, and achieved, a high international standard in the quality of the revaluation. Our standards were assessed in line with recognised standards, particularly those of the International Association of Assessing Officers, that examine the accuracy of a valuation process. The international standards consider the model and professional knowledge that we used to make a valuation and measure how close the valuation is to deviating from that value.
Having analysed and inspected some 50,000 sales, we know the values of particular properties. As we go through the process, there is a well tested method of checking that valuations are accurate. The fact that we have the biggest group of chartered surveyors in Northern Ireland means that we can professionally check those valuations. There will always be isolated examples where valuations have not been accurate, but we try to go straight to market value.
There are definitions relating to market value contained in the statute, based on the capital value of a property on 1 January 2005, as John said. The statute also mentions certain averages; for example, we must assume that a property has had an average internal fit-out. Obviously that does not take into consideration properties of very high specification that are out of character with the rest an area. Nevertheless, it was thought important to use that system in order to avoid having to make internal inspections of properties.
In one street, there may be several properties that have differing market values due to internal fittings — we call it "gold-taps syndrome", because a house with gold fittings might fetch a higher price — but, under the assessment process for property tax or domestic rates, statutorily, their value would not differ. That can give rise to some of the anomalies that have been highlighted.
I do not wish to go into this matter in too much detail, but one other important point about valuations is that development value is ignored. For example, a property with a large garden that is sold on the open market will fetch a higher price because it has development potential. We ignore that large garden, or potential development site, because to include it would be unfair when assessing domestic rates. I apologise for the lesson, but perhaps it was helpful.
We are getting excited now because we are, basically, valuers. [Laughter.]
Because of what has happened over the last 31 years, and the change from a rental-value to a capital-value system, some 2,200 properties have seen a big increase in rates. There has been something of an outcry about what might happen next.
On the point that was made about house prices, there is a direct relationship — if inheritance is taken out of the equation — between earnings and the amount that a person can borrow to buy a house. House prices are dictated by what people will bid. What might happen in future will depend on many factors, including people’s ability to borrow money to bid for houses. The value of the housing market can come down, as we saw in England in the late 1980s. That is an interesting topic, and we will watch the property markets carefully in order to provide sound advice.
Thank you very much, John and Alan, for an informative session. The Committee may wish to pursue some matters through correspondence with the Department. Undoubtedly, we will return to this topic.
Thank you, Chairman and members.