Session 2007/2008

Second Report

Committee for Finance and Personnel

Report on the Committee's
Reponse to the 2007 Executive
Review of the Domestic Rating System

Ordered by The Committee for Finance and Personnel to be printed 7 November 2007
Report: 06/07/08R (Committee for Finance and Personnel)

Membership and Powers

Powers

The Committee for Finance and Personnel is a Statutory Departmental Committee established in accordance with paragraphs 8 and 9 of the Belfast Agreement, Section 29 of the NI Act 1998 and under Assembly Standing Order 46. The Committee has a scrutiny, policy development and consultation role with respect to the Department of Finance and Personnel and has a role in the initiation of legislation.

The Committee has the power to;

consider and advise on Departmental budgets and annual plans in the context of the overall budget allocation:
approve relevant secondary legislation and take the Committee Stage of primary legislation;
call for persons and papers;
initiate inquiries and reports; and
consider and advise on matters brought to the Committee by the Minister of Finance and Personnel.

Membership

The Committee has eleven members, including a Chairperson and Deputy Chairperson, with a quorum of five members.

The membership of the Committee since its establishment on 9 May 2007 has been as follows:

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

Ms Dawn Purvis

Mr Peter Weir

List of Abbreviations used in the Report

Report

Executive Summary

Key Conclusions and Recommendations

Introduction

Consideration of the Options

Other Issues

Conclusion

Annex A - Department of Finance and Personnel Summary Analysis of Strand 1 Options

Annex B - Department of Finance and Personnel Summary Analysis of Strand 2 Options

Appendix 1
Terms of Reference for the Review.
Correspondence between the Department and the Committee

Appendix 2
Minutes of Proceedings (Extracts)

5 September 2007

12 September 2007

26 September 2007

3 October 2007

10 October 2007

17 October 2007

24 October 2007

7 November 2007

14 November 2007

Appendix 3
Minutes of Evidence

26 September 2007
Department of Finance and Personnel

3 October 2007
Citizens Advice

10 October 2007
John Simpson, Economist, Department of Finance and Personnel/University of Ulster

17 October
Institute of Revenues, Rating and Valuation
Economic Research Institute of Northern Ireland

Appendix 4
Written Submissions

Citizens Advice

Federation of Small Businesses

Consumer Council

Rural Community Network

John Simpson

Econmic Research Institute of Northern Ireland

Northern Ireland Fair Rates Campaign

Appendix 5
Memoranda and Papers from Department of Finance and Personnel

Letter from Minister (26/9/07)

Update from Departmental Assembly Liaison Officer (5/10/07)

Update from Departmental Assembly Liaison Officer (19/10/07)

Land Value Taxation: An International Overview – University of Ulster

Study into Vacant Domestic Property – University of Ulster

Response to Northern Ireland Fair Rates Campaign figures

Appendix 6
Northern Ireland Assembly Research Papers

Implementation of Changes to Domestic Rates in Northern Ireland

Long-Term Alternatives to Domestic Rates

An International Comparison of Local Government Taxation

Scottish National Party Proposal for Scottish Local Income Tax 4

List of Abbreviations
used in the Report

AME	Annually Managed Expenditure
BMA	Belfast Metropolitan Area
CAB	Citizens Advice Bureau
CAS	Citizens Advice Scotland
CFP	Committee for Finance and Personnel
CSR	Comprehensive Spending Review
CTB	Council Tax Benefit
CV	Capital Value
DEL	Department of Employment and Learning
DETI	Department of Enterprise, Trade and Investment
DFP	Department of Finance and Personnel
DLA	Disability Living Allowance
DOE	Department of the Environment
DPA	Disabled Persons Allowance
DRD	Department for Regional Development
DSD	Department for Social Development
DWP	p.209
EJO	Enforcement of Judgement Order
EQIA	Equality Impact Assessment
ERINI	Economic Research Institute of Northern Ireland
EU	European Union
FSB	Federation of Small Businesses
FT	Full – Time
GB	Great Britain
GCCNI	General Consumer Council Northern Ireland
GPS	Global Positioning Systems
HB	Housing Benefit
HMRC	Her Majesty’s Revenue and Customs
HMSO	Her Majesty’s Stationery Office
IFS	Institute of Fiscal Studies
IRRV	Institute of Revenues, Rating and Valuation
ISNI	Investment Strategy for Northern Ireland
IT	Information Technology
IVA	Individual Voluntary Arrangement
LIT	Local Income Tax
LPS	Land and Property Services
LVT	Land Value Taxation
MLA	Member of Legislative Assembly
MP	Member of Parliament
NAV	Nett Annual Value
NI	Northern Ireland
NIE	Northern Ireland Electricity
NIFRC	Northern Ireland Fair Rates Campaign
NIHE	Northern Ireland Housing Executive
NIMDM	Northern Ireland Multiple Deprivation Measure
NISRA	Northern Ireland Statistics Research Agency
NPI	New Policy Institute
OAP	Old Age Pensioner
OECD	Organisation for Economic Cooperation and Development
OFMDFM	Office of First and Deputy First Minister
PC	Pension Credit
RCA	Rates Collection Agency
RCN	Rural Community Network
ROI	Republic of Ireland
RPA	Review of Public Administration
RPI	Retail Price Index
RR	Rate Rebate
SNP	Scottish National Party
SSA	Social Security Agency
SSSI	Sites of Special Scientific Interest
TA	Territorial Authorities
TLA	Territorial Local Authorities
TSN	Targeting Social Need
UK	United Kingdom
USA	United States of America
UU	University of Ulster
UUJ	University of Ulster – Jordanstown
VAT	Value Added Tax
VLA	Valuation and Lands Agency
WWF	World Wide Fund for Nature

Executive Summary

Domestic rates are a key component of local funding in Northern Ireland, both at a regional level, to contribute towards the funding of all public services, including health, education and water, and at a district level, to fund local government services, such as waste collection and leisure services. The combined annual income from domestic rates currently stands at approximately £450m and the regional component, in particular, has increased significantly in recent years. A new domestic rating system was introduced by the Direct Rule administration in April 2007 following a review process initiated in 2000. The impact of the reforms on ratepayers, particularly pensioners, attracted mounting criticism and, following the restoration of devolution in May 2007, the Minister of Finance and Personnel, during the first debate on rating in the new Assembly, announced that there would be an Executive Review of the Domestic Rating System.

It was in this context that the Committee for Finance and Personnel identified domestic rating as a priority issue for its work programme. The Committee gained the Department’s agreement both to consult with it on the terms of reference for the Review, which provided the basis for a public consultation during July and August, and to provide the Committee with an opportunity to assess the outcome of the consultation before submitting the Committee response to the Review. This report sets out the Committee’s response and, in so doing, follows the structure of the Review terms of reference.

The terms of reference was wide ranging and separated the policy options for consideration into the following three categories:

(i) Strand 1A options (changes that can be made to the existing system by April 2008 via subordinate legislation) – eight options were identified under this category;

(ii) Strand 1B options (options for change in the context of the existing system which would take longer to implement – i.e. require primary legislation) – nine options were identified under this category; and

(iii) Strand 2 options (wider options for reform that consider ways of replacing or supplementing the new capital value system with alternative ways of raising revenue) – ten options were identified under this category.

Given the tight timetable for the review of the Strand 1A options, the Committee agreed that, in gathering evidence to inform the Committee response, the aim would be to supplement rather than duplicate the submissions received during the Department’s consultation.

In addition to receiving further evidence from the Department, including cost-benefit analysis on a range of the options, the Committee took oral and written evidence from Citizens Advice; the economist, John Simpson; the Economic Research Institute of Northern Ireland, the Institute of Revenues, Rating and Valuation and the University of Ulster. Additional written submissions were received from the Consumer Council, the Rural Community Network, the Federation of Small Businesses and the Northern Ireland Fair Rates Campaign. The Committee also commissioned several research papers from Assembly Research & Library Service. The evidence and information gathered has been invaluable in informing the Committee’s considerations and will provide useful reference material for any further examination of the options.

On the basis of the evidence received, the Committee has recommended a number of options for the Department and the Executive to pursue, whilst ruling out others. In reaching its conclusions and recommendations the Committee has taken account of the various guiding principles which have been identified in the evidence, including ‘ability to pay’ and the ‘benefit principle’, whilst also being cognisant of the practical issues associated with each option, including affordability and feasibility. In addition to addressing each of the reform options, the Committee has made recommendations on other issues, including the uptake of reliefs and transparency and communication in relation to rates bills. The Committee looks forward to further engagement with the Department and other stakeholders on the options which require further examination, including the Strand 2 issues, such as green taxes/credits and local income tax, which should be reviewed in the longer term to assess their merits as alternatives or supplements to the existing property-based system of local taxation.

Key Conclusions and Recommendations

1. Whilst recognising that there was no clear consensus in the evidence as to the merits of changing the level of the maximum cap of £500k, the Committee recommends that the Department considers the option further in the context of decisions on the wider rate reforms and the overall affordability and fairness of the reforms. (Paragraph 12)

2. Having considered the available evidence, the Committee recommends that a minimum payment/capital value is not introduced, as it is not required given the capacity of the present domestic rating system to determine payment liability, taking account of capital value and entitlement to rate relief and housing benefit. (Paragraph 16)

3. The Committee recommends that rating of vacant domestic properties should be introduced as soon as possible, as this would help to address the present shortage in housing supply whilst also raising revenue. The Committee also believes that the Department should consider both phasing the implementation, starting with the properties with higher value, as a means of expediting the policy, and providing initial exemption and concessionary periods to allow for ownership changes. (Paragraph 22)

4. The Committee recommends that any amendments to the rate relief scheme need to be encapsulated in a simple, straightforward process to ensure that the advantages of potential savings in rates bills are not lost in an increased administrative burden, leading to a further deterioration in the take-up rate due to the degree of complexity. (Paragraph 28)

5. The Committee recommends that the Department considers amendments to the rates relief scheme on the basis of sound cost-benefit analysis of the options. In particular, the Committee considers that the case is well made for an increase in the upper threshold for savings above £16k, which would help to boost the uptake of relief. The Committee also believes that careful judgement will be required as to the level to which the upper threshold for savings should be raised, as this will have a bearing on other NI ratepayers if the increase is not funded by the UK Government as part of a wider reform of housing benefit. On the issue of funding uplift, the Committee calls on the Department to ensure that, by introducing this locally, NI would not subsequently lose out if the UK Government follows suit. (Paragraph 30)

6. The Committee has concerns over whether the existing education and training relief genuinely targets students or whether landlords are the real beneficiaries. The Committee, therefore, calls on the Department to establish the extent to which there is evidence to prove that the scheme has resulted in reduced rents for students. In the event that this cannot be established, the Committee would recommend that the existing provision is replaced by more targeted support for students. (Paragraph 34)

7. The Committee recommends the introduction of a deferred payment scheme for pensioners and considers that, even if only a small number of pensioners were to benefit, the choice of deferment should be available and that it should be provided on the basis of an advantageous interest rate and with an annual review facility. (Paragraph 39)

8. The Committee recommends that the early payment discount should be retained and that the Department should consider the case for extending the scheme to those who pay by direct debit. (Paragraph 43)

9. The Committee considers that the Department should establish whether there is sufficient evidence of need which would justify the significant administrative burden and revenue loss associated with an extension of the transitional relief scheme beyond the present 3-year period. (Paragraph 48)

10. The Committee recognises that there is no clear consensus in the evidence on the merits of a graduated tax system and recommends that this option should not be taken forward as part of the current review as this would result in the domestic rating system being more complex and less transparent. (Paragraph 54)

11. Having considered the available evidence, the Committee recommends that a single person discount is not taken forward as part of the Review, given that this form of relief would be a blunt instrument, which would fail to target those most in need, and would be subject to potentially high levels of fraud as well as being costly in terms of revenue loss. (Paragraph 60)

12. The Committee recommends that a single pensioner discount should be introduced, subject to the outcome of further analysis by the Department of the affordability and feasibility. (Paragraph 64)

13. The Committee supports the case for an automatic discount for pensioners over the age of 75. In addition, the Committee recommends further analysis by the Department of the affordability, in terms of revenue loss and the potential impact on other taxpayers, of introducing an automatic pensioner discount. The Committee considers that this reform should be introduced if the further analysis indicates that it would be affordable. (Paragraph 68)

14. The Committee considers that there is a need to promote understanding and awareness of the existing Disabled Persons Allowance, both in terms of its rationale and the eligibility. The Committee recommends that the Department undertakes further analysis to establish the impact of the existing Disabled Persons Allowance before giving further consideration to the merits of the various options for broadening the provision. (Paragraph 74)

15. Whilst, on the face of it, circuit breakers have the attraction of apparent fairness and transparency, the Committee, having considered the available evidence and research, recommends that this option should not be pursued, given the likely difficulties in administering and policing such a system and also in view of the extensive relief scheme already in place in NI. (Paragraph 78)

16. Whilst there was no clear consensus in the evidence as to the merits of an enhanced discount to farmers, the Committee, nonetheless, recommends that the Department considers the option further in the context of its decisions on the other reforms. (Paragraph 82)

17. The Committee considers that the option of introducing discount for owner occupiers should instead be framed in terms of applying an additional rate on second homes. Having considered the available evidence, the Committee believes that a fuller assessment of the potential administrative impediments to introducing a rating on second homes, together with the associated costs and benefits, will be required before this option can be considered further. (Paragraph 87)

18. The Committee considers that the option of rates credits for environmental measures, including energy efficiency improvements in the home, is deserving of careful consideration and calls on the Department to engage further with stakeholders, including the Committee, to establish the potential of this option. (Paragraph 92)

19. The Committee recommends that the option of banding capital values is not ruled out until the Department establishes whether the conclusions of the University of Ulster research in 2003, which found against banding, would be different, based on present property values. (Paragraph 99)

20. Having considered the available evidence, the Committee recommends that the option of a local income tax should not be considered further at this stage, but that the option should be reviewed in the longer term and in light of any future experience of a local income tax operating in Scotland. (Paragraph 107) (For amendments moved to the Report and not agreed and for details of divisions see the Minutes of Proceedings of 24 October 2007 in Appendix 2)

21. Having considered the available evidence, the Committee recommends that the option of income tax varying powers should not be considered further at this stage. (Paragraph 111) (For amendments moved to the Report and not agreed and for details of divisions see the Minutes of Proceedings of 24 October 2007 in Appendix 2)

22. Given its limited feasibility and the potential impracticalities and administrative difficulties, the Committee agreed that a local sales tax should not be pursued as an option for raising revenue in NI. (Paragraph 115)

23. The Committee recommends that the option of a poll tax is ruled out, not least because of the failure of the policy in GB and the fact that it does not relate to ability to pay. (Paragraph 119)

24. Having considered the available evidence, the Committee recommends that the option of a tourist tax should not be taken forward at this time as this could adversely affect NI’s tourism industry at a critical stage in its development. The Committee also considers that if a local tourist tax was to be introduced in the longer term, following consultation with stakeholders, there would be merit in the resultant revenue being ringfenced for further enhancement of the tourist product. (Paragraph 126)

25. Whilst recognising that there was no clear consensus in the evidence as to the merits of road charging, the Committee recommends that the Department considers the option further, particularly in terms of its potential economic impact, costs and benefits, feasibility, effectiveness in reducing road congestion and in the context of decisions on the other rating reforms. (Paragraph 133)

26. The Committee concludes that the option of green taxes/credits warrants careful consideration and looks forward to engaging with the Department and with other stakeholders to examine the range of possible approaches in this area and the associated merits. (Paragraph 139)

27. The Committee considers that the research and analysis of land value taxation is at too early a stage to make even an initial assessment of the potential merits of this option as a replacement or supplement to the property-based system of local taxation. (Paragraph 148)

28. The Committee recommends that derelict land taxation should be introduced in respect of land zoned for development, on the basis that this will help prevent land being left derelict to avoid taxation, whilst raising revenue and also supporting other policy aims, including economic development and the supply of affordable housing. (Paragraph 152)

29. The Committee recommends that the Regional Rate and District Rate element of rates bills should be clearly differentiated on household rates bills, including specification of the precise sum that is being allocated to each. (Paragraph 153)

30. The Committee calls on the Department to ensure effective communication with ratepayers to promote public confidence and understanding of how the revenue from rates helps fund public services, both centrally and locally. (Paragraph 154)

31. The Committee considers that the Department should take immediate steps to assuage public concern that any subsequent increase in capital value will lead to a similar increase in an individual rates bill and to offer reassurance that the consequences of revaluation will be revenue neutral. (Paragraph 155)

32. On the basis of the evidence received, the Committee concludes that there is a widespread problem with low uptake of rate reliefs (which also affects the level of rate rebate) and believes that this is a missed opportunity both in respect of relieving hardship and in terms of benefits revenue forgone to NI. The Committee, therefore, considers that the Department should pursue vigorously the measures identified for improving take-up of reliefs, which include the simplification of the application process and working more closely with other government agencies to identify those eligible for reliefs and with voluntary organisations to raise awareness amongst difficult to reach groups. (Paragraph 161)

33. The Committee recommends that the Department explores the potential for improved data sharing between relevant agencies, and in particular the possibility of the Land and Property Services agency having access to the Social Security Agency’s database, which holds details of benefit entitlement, to make the application process faster and more efficient. (Paragraph 163)

Introduction

Background

1. Prior to summer recess, the Committee for Finance and Personnel considered the terms of reference for the Review of Domestic Rating Reform (Appendix 1). A consultation process was then carried out by the Department of Finance and Personnel (DFP) over the summer and departmental officials briefed the Committee on the report of this consultation process on 26 September 2007.[1] The Committee was required to respond to the Minister by the end of October, to allow the process to be taken forward and any necessary legislative change to be implemented for April 2008. Given the tight timetable, the Committee agreed that its evidence gathering should aim to supplement rather than duplicate the evidence received by the Department in written submissions to the consultation.

The Committee took oral evidence from the following:

Citizens Advice;
John Simpson, Economist;
Institute of Revenues, Rating and Valuation (IRRV);
Economic Research Institute of Northern Ireland (ERINI).

2. The Committee also received further written evidence from the Consumer Council, the Rural Community Network and the Federation of Small Businesses and has included consideration of this information in this response. Members were also updated regularly by DFP officials responsible for the review and were briefed by researchers from the University of Ulster (UU) on the ongoing research, which DFP has commissioned into the potential for a land tax and on the rating of vacant domestic properties.

3. DFP also provided summary analysis of the policy options, including information on costs, benefits, and impacts, which has been especially helpful in informing the Committee’s deliberations. The Department requested that this information be restricted to the Committee and that it should be discussed only in closed session, given that Executive decisions on the options were pending[2]. Whilst the Committee agreed to this request it decided that an Official Report be made of all the evidence taken by the Committee in open session and included in this Report at Appendix 3. It is hoped that this evidence will also inform the Department’s further consideration of the policy options.

Guiding Principles

4. The Committee notes that stakeholders have advocated various guiding principles for the Review, some of which were contained in the Review terms of reference. These include:

ability to pay (i.e. relationship between tax liability and income and/or savings);
benefit principle – that there should be a correlation between what people are asked to pay and the value of services they get in return;
whether domestic rates should be directly linked to services consumed (hypothecated), should be purely a property wealth tax, OR a mixture of both;
the relative merits of progressive versus regressive tax;
transparent and easily understood;
effective (i.e. yields revenue to meet local needs);
broadly acceptable, stable and easy to administer;
revenue neutral (i.e. overall any reductions/increases should be offset by other changes to maintain the revenue base, especially given future plans to fund water through rates);
other implications of tax choice (e.g. tax not only raises revenue, it creates incentives and competition between regions).

5. Having considered the consultation report and taken further evidence, the Committee recognises that varying degrees of priority are attached to these principles by consultees and that some of the principles may prove difficult to reconcile. In particular, the revenue neutral principle may be breached if local needs increase and the system is still to be effective. The pressure to generate additional revenue or make additional efficiency savings is especially evident in the context of the recent Comprehensive Spending Review (CSR) announcement and the recommendations from the independent review of water reform. The Committee is also keenly aware of the tension between ‘ability to pay’ and the ‘benefit principle’ in taxation. During oral evidence, it was also pointed out to the Committee that governments generally are not in favour of hypothecation of taxes as this reduces the scope for discretionary decision making to meet demands on revenue.

The Committee’s Approach

6. The Committee considered DFP’s consultation report and extracted the key arguments from consultees, both for and against the short and long-term options being considered in the Review. This was supplemented with information from Assembly Research papers, on the long-term options for reform and on potential international comparators, and from the written submissions and oral evidence from the witnesses detailed above. The Official Reports of the oral evidence are at Appendix 3. The written submissions received by the Committee are at Appendix 4 and the follow up information from DFP and research papers are at appendices 5 and 6 respectively. This evidence is summarised below under each of the options contained in strands 1A, 1B and 2 of the Review terms of reference.

7. The Department’s analysis of the strand 1A and 1B options (including the costs of lost revenue, potential revenue gains and numbers likely to be affected by each option) form a separate annex to this report (Annex A). Further analysis of the strand 2 options was also provided by DFP and is included at Annex B.

8. The aforementioned information and analysis provided a basis for the Committee’s deliberations and enabled it to offer qualified support for some options, to recommend some options for further consideration and to rule out some others. The Committee recognises that further analysis of several options is underway or planned by DFP, especially relating to the longer-term options in strand 2. Whilst this information will be available to the Committee in due course, the Committee has not been in a position to fully consider all the options at this time. The Committee cannot therefore offer unqualified support for some options or fully rule out others. However it has identified the policy options which have particular merit and those which warrant further research and consideration.

Consideration of the Options

Strand 1A Options (changes that can be made to the existing system by April 2008 via subordinate legislation).

(a) Changes to the Level of Maximum Cap

9. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For (Cap/Reduction)	Arguments Against (Cap/Reduction)
Set to ensure highest bills in NI consistent with highest council tax bill in GB (approx £3k).	Only approx. 2,300 ratepayers benefit but the revenue loss in 2007/08 was £2.5m approx. In future years likely that this will be absorbed by other ratepayers.
Current cap level enforces a rough and ready parity with GB – this does not account for income differentials.	Lowering the cap would increase the number of ratepayers who benefit but means that lower income households cross subsidise higher income households.
The ‘benefit principle’ in taxation argues for a relationship between what people are asked to pay and the value of services they get in return.	Vast majority of properties benefiting are in a small number of council areas.
Removal of caps argued on ‘ability to pay’ principle but the correlation between house value and income is by no means absolute.	Blanket cap a blunt instrument.

10. The Committee noted that, in its response to the consultation, the Fair Rates Campaign favoured a cap at around £300k capital value. However, in his evidence to the Committee, John Simpson argued that a reduction would increase reallocation more than proportionately and that the present cap of £500k should be maintained as it is less than three times the overall average capital value and only affects 0.5% of households. On the issue of removing the cap, the Committee was advised by ERINI that this would mean that those who currently benefit would pay approximately £1000 per year more (though this masks the fact that some would pay very much more and some less). In its evidence, DFP explained that it is unsure at present as to whether changing the maximum cap would be subject to a full equality impact assessment; but if this is required it is unlikely that this option could be implemented by April 2008.

11. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

12. Whilst recognising that there was no clear consensus in the evidence as to the merits of changing the level of the maximum cap of £500k, the Committee recommends that the Department considers the option further in the context of decisions on the wider rate reforms and the overall affordability and fairness of the reforms.

(b) Introduction of a Minimum Payment

13. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Recognises that there is a basic level of local and regional government services that are consumed by households.	Those below the capital value threshold would experience a slight increase in rates, whilst those above would experience a slight reduction.
Would ensure those in lower value properties, who can afford to pay, make an appropriate contribution to the cost of providing those services.	Disproportionate impact on lower paid.
Those on low incomes would continue to be supported by the housing benefit system and the rate relief scheme introduced in April 2007.	Could run counter to new TSN policies.
Setting a minimum payment would significantly increase the cost of housing benefit – could be a funding gain for NI from annually managed expenditure (normally needs Treasury approval).	Caps benefit the very wealthy and/or the very poor with those in the middle left to cover shortfall.
	Would add to the cost of local rate relief scheme.
	Potential need for new IT systems may delay introduction.

14. In addition to the above arguments the Committee noted the advice from the IRRV that there is presently no need to introduce a minimum payment rule. Under the existing system the payment liability is driven by the person’s ability to pay as determined by the value of their house, the local rate relief scheme and the housing benefit scheme.

15. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

16. Having considered the available evidence, the Committee recommends that a minimum payment/capital value is not introduced as it is not required given the capacity of the present domestic rating system to determine payment liability, taking account of capital value and entitlement to rate relief and housing benefit.

(c) Introduction of Rating for Vacant Domestic Properties

17. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Would act against speculative development with investors leaving properties vacant for long periods. Capital gains tax reforms proposed by the Chancellor seem likely to encourage such behaviour further.	Impact adversely on pensioners as many have bought domestic properties to supplement their pension provision.
Significant policy tool in encouraging action on, or sale of, empty homes and would ensure an adequate supply of available, affordable housing. Also consistent both with Semple Report on Housing Affordability, which recommended 100% rating on vacant domestic property in NI after 6 months exemption, and with GB policy where vacant domestic properties liable to 50% council tax after 6 months exemption.	Potential gross revenue may be considerably reduced by costs and time involved in implementing/administering. Would involve identifying the owner of every vacant property in NI which could take up to 2 years.
Local services are still available to the vacant property.
Consistent with the decision to rate vacant non-domestic property.
If occupied property rateable as a valuable asset then principle should be extended to vacant property.

18. In its evidence to the Committee, DFP officials explained that current policy is based on the established principle that a property is rated throughout the year if there is an ‘intention to return’, though no rates are paid on properties which are deemed to be vacant. The Committee noted strong support expressed for the rating of vacant property during the consultation and in the evidence provided to the Committee. John Simpson recommended that vacant domestic property (including property in need of repair) should be rated, with a transitory rate free period of six months (to allow for ownership changes) and a further six months at half rate.

19. From the DFP/UU evidence the Committee notes that there are impediments to the implementation of this option, in that Land and Property Services (LPS) would need to obtain details of every vacant house in NI and charge accordingly as the current taxation system is occupier based. The Committee was advised that this could not be done prior to April 2009 and that further research is planned on this option, including the second phase of UU research to identify the causes of identified vacancies. DFP has committed to bringing more information to the Committee on proposed implementation but, given the issues to be resolved, the Committee questions whether it is realistic to include this as a Strand 1A option, whereby the necessary changes need to be in place by April 2008.

20. The IRRV recommended to the Committee that this option should be implemented as soon as possible but also emphasised the considerable practical issues involved for LPS in identifying vacant homes, checking their status and commencing a billing and checking process. LPS has already undergone enormous change and the IRRV recommended a lead in time of at least a year to allow LPS to prepare for the administration of the policy. The Committee discussed the possibility of phasing in the rating of vacant properties, initially on higher value properties and then subsequently lowering the threshold. This would have the advantage of allowing policy implementation to begin as soon as possible. DFP has confirmed to the Committee that the enabling powers in the primary legislation do not inhibit such an approach.

21. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

22. The Committee recommends that rating of vacant domestic properties should be introduced as soon as possible, as this would help to address the present shortage in housing supply, whilst also raising revenue. The Committee also believes that the Department should consider both phasing the implementation, starting with the properties with higher value, as a means of expediting the policy, and providing initial exemption and concessionary periods to allow for ownership changes.

(d) Amendments to the Rate Relief Scheme

23. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For (Amendments)	Arguments Against
Assist ratepayers in low income households just beyond the social security housing benefit threshold or receiving partial housing benefit as their income exceeds amounts allowed.	Rates relief scheme paid from NI block. Increased reliefs will be revenue foregone or lead to increased bills for others.
Focus on ability to pay rather than membership of a group.	Taking housing benefit and the local rate relief scheme together, NI already has a more generous level of support than is available in GB.
System needs to be simplified, with less means testing and the possibility of automatic entitlement, especially for pensioners.	Further amendments should not contravene the ‘parity principle’, that the burden on UK taxpayers should not be added to by local schemes that are more generous than those available in GB.
Current system does not alleviate the disparity between rates and pension rises.
The savings/capital limit applied under housing benefit/rate rebate and rate relief schemes could be increased as recommended in the Lyons report. Could boost take-up.
Benefit recipients not passported onto Rates Relief scheme, although some benefits already provided a passport to full housing benefit.
Amendments to the existing scheme could be delivered by April 2008.

24. In the evidence provided to the Committee it was explained that the rates relief scheme sits above the housing benefit system and therefore provides relief over and above that available through housing benefit. It was also pointed out that choices were made to enhance certain elements for 2007/08 and the flexibility of the scheme means that these can be revised to target particular groups, without becoming indiscriminate. The Fair Rates Campaign has lobbied for the savings limit under the rate relief scheme to be increased to £50k for pensioners (as recommended in the recent Lyons report) and the Department has confirmed to the Committee that this will be given serious consideration (although there is no movement in Whitehall at present), along with the possibility of enhanced relief for people with a disability and carers.

25. In its evidence, the IRRV pointed out that the current capital limit (£16k) has been in place for at least 20 years, assumes a 20% return on capital, and significantly affects take-up in NI, where levels of savings are high. Whilst IRRV recommended that the capital rule/derived income rule should be lifted, it argued that this should be done, and funded, by central government. The IRRV also sounded a note of caution regarding the effect on other taxpayers from a dramatic rise in the level of take-up. The Committee was also advised by IRRV that indiscriminate discounts on rates bills affect the calculation of benefits, with a resultant reduction in the Annually Managed Expenditure (AME) funds accruing to NI. On a separate point, ERINI emphasised the risks of further reliefs contravening the ‘parity principle’, which dictates that the burden on UK taxpayers should not be added to by local schemes that are more generous than those available elsewhere.

26. The Committee noted that approximately 20% - 25% of rates issues raised with Citizens Advice are about the new relief scheme. The Consumer Council has argued that assistance should be targeted at those on, or near, the vulnerable threshold but that more work is needed to help the ‘average consumer’ above the benefits threshold, but facing significant hardship due to rates increases and planned water charges. The Committee agrees with the Council’s view that it is vital that changes do not create a new category of vulnerable consumers who fall into the poverty trap.

27. The Committee also noted the Consumer Council’s argument that relief should be provided by way of social policy and not a cross-subsidy on other householders, so that the majority do not bear the burden of a large minority. This view was borne out by the Council’s October 2004 research where 79% agreed that Government should pay the costs of providing relief for vulnerable customers. The Committee recognises however that, in the context of the recent CSR announcement and other budgetary pressures facing the Executive, it will be difficult to find the resources to fund additional reliefs to avoid these being a cross-subsidy on other householders.

28. The Committee recommends that any amendments to the rate relief scheme need to be encapsulated in a simple, straightforward process to ensure that the advantages of potential savings in rates bills are not lost in an increased administrative burden, leading to a further deterioration in the take-up rate due to the degree of complexity.

The Committee also agrees that the scheme could be re-branded, in that the current title of low income rate relief scheme may have a psychological effect on take-up. In its evidence, IRRV highlighted the poor take-up amongst owner-occupiers and emphasised the need for improved data sharing. The Committee concurs with this and has considered the issue in more detail later in this report.

29. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

30. The Committee recommends that the Department considers amendments to the rates relief scheme on the basis of sound cost-benefit analysis of the options. In particular, the Committee considers that the case is well made for an increase in the upper threshold for savings above £16k, which would help to boost the uptake of relief. The Committee also believes that careful judgement will be required as to the level to which the upper threshold for savings should be raised, as this will have a bearing on other NI ratepayers if the increase is not funded by the UK Government as part of a wider reform of housing benefit. On the issue of funding uplift, the Committee calls on the Department to ensure that, by introducing this locally, NI would not subsequently lose out if the UK Government follows suit.

(e) Revision of Existing Provision for Education and Training Relief

31. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For (revision)	Arguments Against (revision)
Unfair to provide blanket relief for students but not to other more ‘needy’ groups such as pensioners. Students earn considerably more over their working lives than others in society.	Mitigates against the gaps that existed in relation to students in the housing benefit system and the rate relief scheme, introduced in April 2007.
More effective ways of helping students such as reducing tuition fees.
Concerns that the landlord, who pays the rates, may benefit from this policy. Also, potential for fraud as no incentive for landlord to inform authorities if residence later occupied by employed persons.
A crude form of support with high potential for deadweight and distortion.
Hard to administer given student mobility.
Could be targeted differently (e.g. households where a student lives with parents).

32. In his evidence to the Committee, John Simpson considered this to be unpopular with other ratepayers partly due to the questionable merits of the policy and partly because it is administered through landlords. Whilst highlighting that there was no evidence to date on the impact of the relief (i.e. whether students or landlords benefited), he also pointed out that, if student tenants became liable for domestic rates, collection costs would be high due to changing tenancies and the default rate might also be high. The Committee, therefore, recognises that the continuation of this relief, and the passive role of landlords in administering it, may be justified on the grounds of cost effectiveness rather than social policy. The IRRV recommended research to determine whether rents for students have reduced as a result of this scheme, but believed that there were better ways to target students for assistance.

33. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

34. The Committee has concerns over whether the existing education and training relief genuinely targets students or whether landlords are the real beneficiaries. The Committee, therefore, calls on the Department to establish the extent to which there is evidence to prove that the scheme has resulted in reduced rents for students. In the event that this cannot be established, the Committee would recommend that the existing provision is replaced by more targeted support for students.

(f) Introduction of Deferred Payment Scheme for Pensioners

35. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Safety net to help to ensure that home owners are able to retain their homes, especially those with high property tax burdens and with no eligibility for other forms of relief.	High take-up could cause cash flow problems/revenue shortages and other ratepayers may be expected to cover deficit.
Many jurisdictions in USA recently adopted property tax deferral programmes.	Would cause concerns amongst pensioners about what they are leaving for their families and about going back into debt for a home paid for over a working lifetime.
Could be attractive to those with a low or fixed income occupying a high value property.	Concerns around the legal and logistical implications.
Would provide pensioners with additional choice.	May not need government involvement as a secured loan could be taken with a bank in a private transaction with capital and interest paid on the sale of the home.
	Adds both to the growing number of ‘death’ taxes placed on consumers in this age range and to debt culture generally.
	May be seen as a substitute for a fair and sustainable rating policy.
	Implications for the property market if this acts as a deterrent to sell (if liability is realised on the sale of property) as supply could be restricted causing price increases. This was the impact of ‘Proposition 13’ in California.
	Would impact on existing demands on property equity (e.g. long-term care costs) and balancing these factors will require careful analysis.
	Experience in USA is that specific reliefs or limits are preferred to deferrals (i.e. gifts preferred to loans).

36. DFP officials confirmed that this option is on the statute book but had not been introduced to date. In his evidence to the Committee, John Simpson described this as a safety device for reassurance rather than an attraction for potential users and concluded that the scheme should not be introduced. IRRV, on the other hand, supported its introduction and raised the possibility of involvement from the private financial sector, especially if the scheme proved so popular as to cause initial cash flow problems. Following up on this issue, DFP informed the Committee that the intention of the legislation was that the scheme would be Government-run and that third party involvement was considered but ruled out for a number of reasons, including the fact that financial services are a reserved matter under the Northern Ireland Act 1998. Any proposal to involve a third party would therefore require new primary legislation.

37. The Committee recognises that if interest is levied on the deferred amount it may prove unpopular and be perceived as regressive as this would add to the actual (long-term) burden on pensioners. The Committee also considers that, given the potential impacts, the consistency of this scheme with policy on addressing housing shortages may be questionable. That said, whilst acknowledging the potential social resistance within a family at seeing an inheritance progressively eroded, the IRRV pointed out that this could be controlled by using an advantageous interest rate and allowing pensioner households to annually review the decision to defer.

38. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

39. The Committee recommends the introduction of a deferred payment scheme for pensioners and considers that, even if only a small number of pensioners were to benefit, the choice of deferment should be available and that it should be provided on the basis of an advantageous interest rate and with an annual review facility.

(g) Revision of the Early Payment Discount

40. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
There is a cost factor and an alternative would be to impose a penalty for paying by instalment (e.g. as can apply with private sector motor insurance policies).	Providing an incentive for consumers to pay in advance for services encourages household budgeting and reduces debt.
	Scheme tends to be more popular with pensioners.
	Previous attempts in the 1980s to abolish it were met with considerable opposition.
	Has worked well for a number of years with approximately 20% take-up.

41. In its evidence to the DFP consultation, the Consumer Council argued that a discount for full early payment must remain, regardless of the payment method and that the discount must fairly reflect the savings made when the consumer pays by the preferred method. It advocates extending the early payment discount to those who pay by direct debit, given the associated reduced administration costs and the non-requirement for debt collection. The Committee considers that some cost in the scheme is inevitable (i.e. discount provided cannot be fully recovered by interest earned on early payment) but that a reduction in discount will have an obvious effect on take-up.

42. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

43. The Committee recommends that the early payment discount should be retained and that the Department should consider the case for extending the scheme to those who pay by direct debit.

(h) Reprofiling the Existing Transitional Relief Scheme

44. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
The relief over a 3-year period for households whose rates bills have increased by more than 33% may need to be extended to 5 years to cover the life of the new valuation list.	Resultant loss in revenue paid for by passing the burden for a period to other ratepayers or foregoing revenue and trimming public services.
Some areas more adversely affected by revaluation than others (e.g. Stranmillis Residents Association reported a 5-fold increase in house values). Transitional Relief could be revised to account for such variances.	Change in midstream would add to administrative burden on LPS who would need additional resources to implement change.
There is no sliding scale and an increase of even 20% can be substantial for some people.	If there is a revaluation in 2012, reprofiling could mean that eligible ratepayers would not pay their full bill.
Would reduce the cost of housing benefit and rate relief.	Would be a matching reduction in AME to the reduction in housing benefit costs.

45. In its evidence to the Committee, Citizens Advice argued that the transitional relief should be more generous as those with large increases in their bills are struggling, even given the transitional relief currently available. John Simpson took the view that the need for reprofiling was a matter for Ministerial judgement as to whether the speed of adjustment is causing any undue hardship where bills have increased most. He also argued that, given the delay in water charges, the case for extended relief could be considered as weak but, should water charges be introduced in April 2008, an extended relief period could be argued as a small offset to the combined impact.

46. In its evidence, ERINI considered a relief period of not more than 5 years as ample time for household budgets to adjust. IRRV took the view that any change to the transitional period must be kept within the life of the exiting valuation period.

47. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

48. The Committee considers that the Department should establish whether there is sufficient evidence of need which would justify the significant administrative burden and revenue loss associated with an extension of the transitional relief scheme beyond the present 3-year period.

Strand 1B Options (options for change in the context of the existing system which would take longer to implement – i.e. require primary legislation)

(a) Graduated Tax System

49. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Downward graduated tax system viewed as one way of balancing ‘ability to pay’ with the provision of services or ‘benefit principle’.	Downward graduated tax system results in a loss of tax revenue from highest capital value properties which is foregone or recouped by further increasing the tax rate below the threshold.
Upward graduated tax system would align with ‘ability to pay’ principle.	Age Concern is aware of research suggesting that this system increases the tax burden on the lowest three quarters of properties.
Graduated tax system would address arguments for banding of capital values.	Other consultees stated that it will simply increase the tax burden on the less well off.

50. The Committee notes that this option would mean either that the charge per unit of capital value would:

be marginally lower for more expensive properties (avoiding large, allegedly excessive charges); or
would start at a lower level and rise as the property became more valuable (making the charges more progressive and easing the cost on less expensive property).

51. John Simpson pointed out to the Committee that these alternatives met entirely different objectives and that there would be vocal winners and losers depending on which graduated system was applied. He suggested that the second option might be considered if the rates system is judged to contain socially inequitable outcomes. IRRV commended this policy and agreed that there would be winners and losers from its introduction. It also recommended further investigation of models produced by the University of Ulster.

52. In its evidence to the Committee, DFP advised that, whilst its introduction would make the current system more complex and would need recalibrated following each property revaluation, a graduated tax system was an alternative to banding and was possibly the best mechanism for making the current system more progressive.

53. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

54. The Committee recognises that there is no clear consensus in the evidence on the merits of a graduated tax system and recommends that this option should not be taken forward as part of the current review as this would result in the domestic rating system being more complex and less transparent.

(b) Single Person Discount

55. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Fairer and would provide a better link to ability to pay and parity with GB (though also argued that the case for the single person discount in GB is based on lower use of services and not ability to pay).	Loss of revenue, which would result in other householders facing higher rate bills.
Lone parents and pensioners at greatest risk of poverty.	Indiscriminate and not based on ability to pay.
Single person households also more likely to suffer fuel poverty.	Blanket discount to single people will have an element of deadweight. A more targeted solution is needed.
	Fraud levels as high as 25% in relation to the Council Tax single person discount in GB, due to failure to report change of circumstances.
	Unless means tested, will provide discount to potentially high net worth/ high earning individuals living alone.
	Would lead to a reduction in NI’s AME funded housing benefit budget.
	Account needs to be taken of the level of services provided to each household.
	Bills for single adult households may be lower anyway.

56. The Committee noted that, whilst this is a feature of council tax in GB, it was a contentious issue in the consultation report and in the evidence to the Committee. In its evidence, Citizens Advice argued that the absence of a single person discount was the biggest problem with the changes introduced in April 2007 as many such people are not eligible for any means tested benefit and will struggle to cope with large increases in rates bills.

57. Alternatively, John Simpson saw little justification for this concept, questioning why a wealthy single person household should get a discount when a poorer two person household pays the full bill. He pointed out that domestic rates are essentially a property tax used to provide public services in an unhypothecated manner, whereas the argument that a single person consumes less public services rests on the view that rates are partly a hybrid tax.

58. In its evidence, IRRV advised that if a decision was taken to pursue the proposal then further research would be required and there would be a need for a rigorous policy with clear procedures and penalties for abuse, given the very high fraud levels in GB (£1.4m in one London borough). IRRV preferred the use of the relief scheme which could be used to target single person households if required. On the issue of fraud, DFP advised that the potential for this could be combatted to an extent by data matching between government agencies.

59. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

60. Having considered the available evidence, the Committee recommends that a single person discount is not taken forward as part of the Review, given that this form of relief would be a blunt instrument, which would fail to target those most in need, and would be subject to potentially high levels of fraud as well as being costly in terms of revenue loss.

(c) Single Pensioner Discount

61. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Pensioners susceptible to hardship under the new capital value rating system.	Enhanced rate relief for single pensioners on lower incomes already introduced in April 2007.
	Increases in rates bills for pensioners should instead be linked to inflation or increases in state pension payments.
	Blanket discount to single pensioners is indiscriminate and could benefit those not in need. A more targeted solution needed.
	Would lead to a reduction in NI’s AME funded housing benefit budget.

62. The Committee noted the view that, whilst the single person discount could be described as a blunt instrument, a discount for single pensioners would be more targeted. John Simpson drew attention to the fact that pension incomes tend to lag behind other changes such as average earnings, thus pensioner living standards in retirement are likely to be eroded. He argues, however, that low income pensioner households already qualify for partial relief via the increase in the savings disregard and raises the option of broadening the existing 15% relief to include pensioner households, and subsequently raising the relief to 35% for pensioners over 75 and granting a full exemption for those over 85. The IRRV stated that the issue of take-up of pension-related benefits needed to be addressed before this discount could be introduced, but preferred the use of the relief scheme which could be used to target single pensioner households if required, including the possibility of an age-related automatic discount. The Committee agreed that the option of an age-related automatic discount should be carefully explored and that the potential for fraud was reduced if the discount was targeted at pensioners.

63. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

64. The Committee recommends that a single pensioner discount should be introduced, subject to the outcome of further analysis by the Department of the affordability and feasibility.

(d) Automatic Pensioner Discount

65. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Gives dignity and security to those who have worked and saved throughout their lives.	Blanket reliefs are an indiscriminate use of resources and do not take account of need. Some pensioners could have substantial savings and/or income and might not need rate relief.
Offers protection to pensioners who are likely to reside in high value properties but have a reduced income.	Could have a negative impact on those on low incomes.
	May fail the equality impact assessment as it favours a select group of ratepayers.

66. In its evidence DFP suggested that there may be some justification for automatic discounts because of issues arising from take up. The Committee took evidence from Citizens Advice and also considered the Consumer Council response on the issue of take-up and considers this in greater detail later, in the ‘Other Issues’ section of the report.

67. ERINI pointed out to the Committee that any automatic scheme assumes that everyone in the group that benefits needs assistance and that this is not the case for pensioners, many of whom have substantial assets and incomes. ERINI argued that, as a general principle, automatic tax reliefs should be avoided.

68. The Committee supports the case for an automatic discount for pensioners over the age of 75. In addition, the Committee recommends further analysis by the Department of the affordability, in terms of revenue loss and the potential impact on other taxpayers, of introducing an automatic pensioner discount in general. The Committee considers that this reform should be introduced if the further analysis indicates that it would be affordable.

(e) Broadening of Existing Disabled Persons Allowance Provision

69. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For (broadening)	Arguments Against
Allowance should be on basis of disability rather than simply because a house has been adapted to meet disability needs. The blind or mentally impaired might not have such adaptations and therefore would not currently qualify.	Rationale of existing provision not based on level of disability but instead on need to ensure disabled persons not penalised by the move to capital value system (i.e. adaptations to meet disability needs may increase the capital value of the property).
Scheme needs to be more flexible with higher rates of allowance depending on the degree of disability and the level of accommodation works required.	Concerns around who should qualify as a person with a disability.
Scheme needs more effective promotion to ensure that those entitled are able to apply.	Modelled on the GB scheme but already more generous (i.e. 20% reduction in GB, whereas 25% in NI).
	Current low income rate relief scheme provides reliefs for the disabled.

70. The Committee noted that some respondents to the consultation argued for an extension to the allowance provision to cover disabilities other than physical handicaps. It was pointed out that some people with disabilities, such as the visually or mentally impaired, who have not made the necessary adaptations to their properties would not currently qualify for the allowance. The Committee, therefore, believes that there may be a need to raise awareness of the allowance amongst some groups and for greater clarity on eligibility.

71. ERINI explained to the Committee that this allowance attaches to the property (not to the disabled person) on the assumption that property modifications to facilitate the disabled make it more valuable than an unmodified property of similar character, with a subsequent rise in rates. The rationale behind this scheme, therefore, is that the owners of such properties would not be disadvantaged during the move to a capital value system as opposed to a focus on the disabled person. The Committee raised this issue with DFP who agreed that there was a considerable amount of confusion in the consultation as to the objectives of this scheme. In response, DFP undertook to consider the potential for renaming the scheme to reflect the current focus on adaptations.

72. Also in its evidence, ERINI questioned whether this scheme provided value for money and stated that it might be better channelled through a specific enhancement to the low income relief scheme for the disabled. IRRV contended that research was needed on the current impact of the scheme.

73. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

74. The Committee considers that there is a need to promote understanding and awareness of the existing Disabled Persons Allowance, both in terms of its rationale and the eligibility. The Committee recommends that the Department undertakes further analysis to establish the impact of the existing Disabled Persons Allowance before giving further consideration to the merits of the various options for broadening the provision.

(f) Circuit Breakers

75. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Aligns the system more closely to ‘ability to pay’ based on income.	Whilst income is an indicator of wealth, other factors should be taken into account such as capital values and savings.
Could potentially offer an alternative to some existing/proposed reliefs/caps.	International experience is that these are often limited to particular groups due to the potential for fraud. Policing difficulties are formidable.
Provides a safety net for unexpectedly high rates bills as a proportion of household income.	May lead to increased bureaucracy with more forms and declarations.
Use in USA indicates potential (however US does not provide a centrally funded housing benefit scheme which currently supports 25% of the lowest income households in NI).	Difficult to administer as verification processes required from HM Revenue and Customs, who are reluctant to share such information.
Enable more targeted as opposed to blanket relief (e.g. often designed to benefit pensioners and those on fixed incomes).	Problems in alignment with housing benefit – could reduce the gross liability meaning housing benefits will lower and HMT will benefit.
Targeted approach can make circuit breakers less costly than caps.	Extensive relief scheme in NI negates need for this option.

76. The Committee noted the limited response on this option in the consultation and the explanation from DFP that this may be due to lack of available information. In his evidence, John Simpson pointed out that there is no immediate case for what would be an extra and complicated adjustment to the regulations in the absence of case studies where existing reliefs and benefits still leave people at a serious disadvantage. The IRRV considered circuit breakers to be crude and foresaw massive administrative difficulties determining the family make-up of every household and in gathering information from the Inland Revenue (especially on the self-employed) and agreeing a definition of income. IRRV also contended that there is no need for this type of provision, given that an effective rate relief scheme is already in place in NI.

77. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits. (see Annex A)

78. Whilst, on the face of it, circuit breakers have the attraction of apparent fairness and transparency, the Committee, having considered the available evidence and research, recommends that this option should not be pursued, given the likely difficulties in administering and policing such a system and also in view of the extensive relief scheme already in place in NI.

(g) Enhanced Discount for Farmers

79. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Reflects the fact that farmers and farm workers must live beside the farm and therefore have limited mobility.	Speculative interest on the value of a farmhouse (e.g. if it is close to a coastal or urban area) is disregarded.
Encourages a sustainable industry which constitutes a significant section of the NI economy.	This is likely to benefit only the more modern properties.
Some farmhouses, especially those built in the last 25 years, are subject to agricultural planning restrictions, affecting their open market value.
Capital taxes office state that the agricultural value of a farmhouse is around two-thirds of its market value so current system does not go far enough.
Restrictions on use imposed by agricultural planning rules could be reflected by valuing farmhouses at market rates and discounting directly by 20% or 25%.

80. In its evidence to the Committee, ERINI contended that agriculture is already very highly subsidised and therefore proposals for further subsidies need to be carefully examined. ERINI also suggested the possibility of considerably widening the tax base by extending rating, or some other tax form, to land in general and agricultural land in particular, with the effect of lowering rates generally.

81. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

82. Whilst there was no clear consensus in the evidence as to the merits of an enhanced discount to farmers, the Committee, nonetheless, recommends that the Department considers the option further in the context of its decisions on the other reforms.

(h) Introduction of Discount for Owner Occupiers

83. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For Discount for Owner Occupiers	Arguments Against Discount for Owner Occupiers
Would mitigate against the high cost associated with home ownership.	Relief already available to owner occupiers in the form of a discount for prompt payment.
Popular in parts of USA though some States limit the allowance to the elderly or the disabled.	A crude and regressive blanket relief system which applies to all eligible households irrespective of income or need.
	Inequitable as people in rented property are excluded.
	Will result in a lower tax base and a higher tax rate.
	Existence of housing benefit and the low income relief scheme render this unnecessary.
	Difficult to argue that owner occupiers (but not second home owners) in selected areas should get a subsidy when they are the primary beneficiaries of local services.
	Difficult to identify homeowners in an occupier based system.
Arguments For Rating of Second Homes	Arguments Against Rating of Second Homes
Targeting of second home owners would address community imbalance from the spread of holiday homes and private student accommodation.	Potential problems with definition and policing. Difficult to administer scheme where owners of second homes charged a supplementary rate or a discount applied to permanent residents.
Ownership of second homes, especially in high demand areas, inflating the value of all properties in the area and thus the rate liability.	No consensus on how second homes should be treated (i.e. higher rates as an owner has 2 or more properties or lower rates due to limited occupancy).
	University of Ulster research indicated that second home owners were not significantly affected by concerns over tax or level of rates payable.

84. In his evidence to the Committee, John Simpson took the view that, in respect of discount for owner occupiers, on an ability to pay argument, there is a case for treating all residential properties on the same basis until a justification for variations emerges. The IRRV questioned the policy objectives of the discount for owner occupiers option and argued that, if it was an attempt to prevent second home ownership, it would be better to examine the level of charge on second homes. DFP confirmed to the Committee that the main objective of the option was to address the issue of second homes.

85. ERINI, on the other hand, raised the question of whether it is a good idea to discriminate against asset investment and contended that any decision in this area involved weighing up rising property values against use of services (i.e. ability to pay and the benefit principle).

86. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

87. The Committee considers that the option of introducing discount for owner occupiers should instead be framed in terms of applying an additional rate on second homes. Having considered the available evidence, the Committee believes that a fuller assessment of the potential administrative impediments to introducing a rating on second homes, together with the associated costs and benefits, will be required before this option can be considered further.

(i) Rates Credits

88. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Consistent with active climate change policies.	NIE already provides cash back if a home installs cavity wall or loft insulation. Also provided free to low income households.
Investment in specified energy saving improvements and potential part-funding from energy producers.
Similar scheme operates under Council Tax in GB and partly funded by one of the utility companies.

89. The Committee noted that, in responding to the consultation, the World Wide Fund for Nature made a proposal for a rate rebate for household energy efficiency improvements, specifically in relation to the installation of loft and cavity wall insulation. The Committee was informed that DFP is thoroughly investigating this option, along with other environmental options such as charging for refuse collection or awarding tax credits and will engage further with the Committee on this policy area. Whilst the form and scale of such credits has yet to be actively explored, the Committee believes that the issue should be on the Executive’s agenda.

90. The Committee is aware, nonetheless, of the argument put forward by ERINI that, when rates are used to induce changes in behavior or investment in property for particular functions, there should be both a market failure argument in favour of the intervention and evidence that this is the most cost effective way of achieving the desired objective. The Committee agrees that any new scheme would need to complement the existing schemes for low-income groups and address existing access difficulties.

91. In considering this option, the Committee has also taken account of DFP’s summary analysis of the associated costs, benefits, and impacts. (see Annex A)

92. The Committee considers that the option of rates credits for environmental measures, including energy efficiency improvements in the home, is deserving of careful consideration and calls on the Department to engage further with stakeholders, including the Committee, to establish the potential of this option.

Strand 2 Options (wider options for reform that consider ways of replacing or supplementing the new capital value system with alternative ways of raising revenue)

Case for Considering Alternatives to Property Tax

93. The Committee has considered the relative merits of property tax and the alternative and complementary systems of taxation. On the one hand, property tax can be seen as inherently regressive – representing a larger burden for low-income taxpayers. The Committee noted from research which it commissioned, that recent criticism of property tax has prompted many USA states to limit property tax revenues. Also, local governments have been increasingly relying on other broad-based taxes to finance local spending; income taxes and retail sales taxes have been used in this regard. Closer to home, the Scottish National Party (SNP) has announced that it intends to introduce a capped local income tax by 2010.

94. On the other hand, the Committee recognises that, due to visibility and immobility, property tax is hard to avoid, stable and easily enforceable. Also, the Committee is aware that the choice of tax can also creates incentives and can cause tax competition between regions, and this is a consideration in terms of any proposal to move away from the present property-based system in NI.

(a) Banding of Capital Values (Council Tax Type System)

95. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Conclusions in University of Ulster research (2003), which found against banding, may be different based on today’s property values.	University of Ulster research and DFP impact assessments show that a discrete capital value system for NI would be more progressive, more new TSN positive and easier to understand.
Eight banded model may enable an equitable distribution.	NI already in advantageous position of having completed valuation process and has established information base. Current NI system gives wider spread and avoids tensions of setting band boundaries which subsequently need to be updated regularly.
Properties of a similar value have a similar tax burden.	Tax burden is increased on lower value properties and reduced on higher value properties, thus inherently regressive in nature.
Facilitate parity with GB.	Caps liability at top end of property market.
	Artificially restrained so that those at the bottom pay no more than one third of those at the top.
	Graduated tax system is a more viable option.

96. ERINI pointed out to the Committee that NI currently has a dual system with individual capital values and rate liabilities up to £500k and a zero rate band thereafter, meaning that until the cap is reached, households with property of different capital value pay a different amount for the same services. ERINI also explained that, as with any tax, people of high net worth, who are extremely valuable to the community and the economy, can and will adjust their affairs, including residency, when marginal tax rates become punitive.

97. In its evidence, IRRV explained that banding was introduced in GB as the quickest way of replacing the poll tax and led to imprecise ‘front door’ valuations, whereas much more precise information is now held on properties in NI. They stated that the system was hopelessly out of date in GB and that the introduction of a graduated tax would render the banding system irrelevant.

98. In considering this option, the Committee has also taken account of further analysis from DFP. (see Annex B)

99. The Committee recommends that the option of banding capital values is not ruled out until the Department establishes whether the conclusions of the University of Ulster research in 2003, which found against banding, would be different, based on present property values.

(b) Local Income Tax

100. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Could replace the regional rate, with the district rate continuing to be property based, thereby reducing administrative impediments.	Considerable operational/administrative difficulties and costs (e.g. issues around self-employed, unearned income, avoidance).
Taxing income fairer than taxing property as it is a truer reflection of ability to pay.	Would penalise hard working families and act as a disincentive to work (thereby exacerbating economic inactivity).
Significant redistribution of tax burden from retired households to working age population.	Not truly accountable nor transparent.
The SNP decision to introduce a capped local income tax by 2010 may provide a model for NI to follow.	Potential economic consequences would disadvantage NI as a tax competitor and may act as a disincentive for people to locate here (inc. NI-born graduates). High earners and large companies may relocate.
Some of the drawbacks of a local income tax could be mitigated to an extent through the application of the option at a NI-wide level.	International experience of reluctance of central government to share this tax base with local government.
There are several international examples of an income tax funding local or regional services.	Could represent a considerable additional administrative burden on local employers.
	In the most extreme case of local income tax replacing a property tax, there could not be a housing benefit element related to rates. Unless rents fell on a £ for £ basis with rate decrease low income households would be worse off.
	May impact on wage inflation especially minimum wage.

101. The Committee noted that the majority of respondents supported further work being carried out in this area. During the Committee’s considerations, the view was expressed that it should be considered only in respect of the regional rate, and not the district rate, due to administrative difficulties if applied at a local level. John Simpson argued that a local supplement to income tax, as an alternative to part of the domestic rates, has attractions, especially if the domestic rates on property values are considered too high and are generating objections as being inequitable or insufficiently progressive. This raised the possibility of an income tax supplement accruing to the Executive, with domestic rates remaining as the main source of income for local government reshaped under RPA, allowing a single standard rate to be applied and avoiding the need to attribute the supplement to local authorities.

102. The Committee noted from the research, however, that whilst less regressive than property tax and better linked with ‘ability to pay’, a specific criticism of local income tax is based upon the ‘Tiebout hypothesis’. This states that an individual chooses where he/she wants to live, at least in part, by weighing costs (taxes) against associated benefits (public services) – known as “voting with feet”. This may be a particularly important consideration for NI, given the land border with RoI and given the economic benefits of attracting NI-born graduates back from GB.

103. In its evidence, ERINI stated that virtually all taxes have disincentive effects that can be hard to comprehend. A tax on capital values is a disincentive to acquire larger houses and taxes on income are a disincentive to work. Income tax rises may encourage workers to work less hours or try to pass on the tax to the employer.

104. IRRV contended that this option would completely restructure the tax system and had concerns that the quality of information held by the Inland Revenue was unknown. They also raised accountability and transparency issues given that the public generally know their rates bill but do not know the amount which they pay in income tax. In response to questioning from the Committee, IRRV argued that to replace just the regional rate with a local income tax would be less complex to administer and that potential replacement of the district rate could be further complicated by implementation of the RPA and what this may mean for council responsibilities.

105. The Committee is aware of the SNP proposals to replace council tax (and council tax benefit) with a local income tax, with the aim of introducing a regime which is based intrinsically on ability to pay. Current estimates are that this policy would leave a £450m revenue shortfall, which the SNP argues could be absorbed from efficiency savings in local authority councils of 1.5% per annum for 3 years. The Committee recognises that, should this policy come to fruition in Scotland, NI will have a test bed for local taxation close at hand. On this point, ERINI advised that, rather than rushing into such fundamental change, in the absence of evidence the Executive may wish to monitor the outcome of the Scottish experience.

106. In considering this option, the Committee has also taken account of further analysis from DFP.
(see Annex B)

107. Having considered the available evidence, the Committee recommends that the option of a local income tax should not be considered further at this stage, but that the option should be reviewed in the longer term and in light of any future experience of a local income tax operating in Scotland.

(For amendments moved to the Report and not agreed and for details of divisions see the Minutes of Proceedings of 24 October 2007 in Appendix 2).

(c) Income Tax Varying Powers

108. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Assembly could have the ability to modify or supplement income tax within certain parameters.	UK government would need to change Northern Ireland Act (1998).
Progressive and aligns closely with ‘ability to pay’ (depending on model).	Although Scottish Parliament has similar powers it has been reluctant to use them.
	Costs Scotland approx. £8 million a year to keep the necessary systems in place to allow the option to be used. Will also cost them about £10 million to activate those systems.
	Scottish model (assuming the same model for NI) could be perceived as regressive as it relates only to the basic level of income tax.
	As with local income tax, could present a tax disadvantage for NI economically.

109. The Committee is aware that the Scottish Executive has the power to adjust income tax by a maximum of 3p, a power which they have not exercised to date. This power, for whatever reason, applies only to income earned at the basic rate, with earnings above this effectively protected from local tax. This characteristic of the system has been widely criticised and, in the view of the Committee, may partly explain why the power has not been used.

110. In considering this option, the Committee has also taken account of further analysis from DFP.
(see Annex B)

111. Having considered the available evidence, the Committee recommends that the option of income tax varying powers should not be considered further at this stage.

(For amendments moved to the Report and not agreed and for details of divisions see the Minutes of Proceedings of 24 October 2007 in Appendix 2).

(d) Local Sales Tax

112. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Widely used elsewhere but usually as a modest supplement to other sources of finance.	Regressive – fall most heavily on those least able to pay – and untested.
	Previous studies have eliminated this as a long-term option.
	Burt Review queried whether a local sales tax may be incompatible with EU law.
	Administrative impediments. Also, feasibility may be limited if the goods could be purchased tax free in RoI.
	Globalisation of market place and rise in internet buying limits effectiveness.

113. Both the Burt Review and the evidence from IRRV questioned the legality of this policy under EU law and the IRRV also explained that a sales tax would have a complicated relationship with VAT.

114. In considering this option, the Committee has also taken account of further analysis from DFP.
(see Annex B)

115. Given its limited feasibility and the potential impracticalities and administrative difficulties, the Committee agreed that a local sales tax should not be pursued as an option for raising revenue in NI.

(e) Poll Tax

116. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Fairer to tax all adults rather than just householders.	Failed in GB.
	No relation to property.
	Does not relate to ability to pay.
	Historical evidence suggests significant difficulties in collection in an era where people can and do move around.

117. The Committee noted the failure of this policy in GB and the historical evidence of significant collection difficulties. The option also does not relate to the guiding principle of ‘ability to pay’ and members therefore agreed that this option should not be considered further.

118. In considering this option, the Committee has also taken account of further analysis from DFP.
(see Annex B)

119. The Committee recommends that the option of a poll tax is ruled out, not least because of the failure of the policy in GB and the fact that it does not relate to ability to pay.

(f) Tourist Tax

120. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Lyons Report concluded that local authorities should be given discretion to levy a tourist tax.	Tourist industry in NI needs room to grow.
Works best when tourist demand is little affected by price.	NI economy becoming more dependent on tourism and this would be detrimental.
Infrastructure built around visitors should be paid for by tourists.

121. The Committee agrees with the view expressed in the consultation report that this could be detrimental to the tourist industry and have a subsequent effect on the economy as a whole, at a time when the industry needs to be encouraged to expand. The Committee takes the view that, before any decision is taken to pursue this option and to add to tourism costs, further study and consultation with stakeholders is required.

122. One issue to be considered is whether the tax would be localised, in which case those district councils with the most popular tourist attractions would benefit most, or regionally taxed and distributed to councils via a mechanism such as population.

123. Regarding possible collection difficulties, the Committee heard evidence from IRRV that it would be relatively easy to add a charge to hotel bills which would subsequently be paid to a central fund and arguably that a 1% surcharge would not deter tourists.

124. The Committee agreed that the option should be kept on the agenda, with further research on the economic impacts and with consideration given to the possibility that any revenue raised could be ringfenced to develop tourist facilities.

125. In considering this option, the Committee has also taken account of further analysis from DFP.
(see Annex B)

126. Having considered the available evidence, the Committee recommends that the option of a tourist tax should not be taken forward at this time as this could adversely affect NI’s tourism industry at a critical stage in its development. The Committee also considers that if a local tourist tax was to be introduced in the longer term, following consultation with stakeholders, there would be merit in the resultant revenue being ringfenced for further enhancement of the tourist product.

(g) Road Charging

127. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Will become more prominent with diminution of fossil fuels and impact of global warming.	Federation of Small Businesses highlighted that the Scottish Government recently published a Bill to abolish road tolls across Scotland and is of the opinion that tolls and congestion charges are stealth taxes dressed up as tackling climate change.
Adheres to principle of ‘polluter pays’.	Potentially unacceptable to general public.
Road space limited and therefore a valuable commodity which needs to be rationed to obtain maximum value.	Could have disproportionate impact on those with lower incomes.
Technology available to give options for revenue raising.	Expensive to police, which would need to be accounted for in calculating net benefit.

128. In giving evidence, John Simpson argued that charging for access to town centres and use of new roads and bridges must be on the agenda if this access is to be manageable, but questioned current planning policy in Belfast which reduces access by denying planning permission for car parks. Mr Simpson also argued that it should be left to retailers to judge the economics of building car parks, with Government and local authorities developing counter-congestion policies.

129. In its evidence, IRRV explained that policy decisions in this area depended on policy objectives (to raise revenue or manage congestion) and on political decisions on the treatment of motorists. IRRV gave the example of congestion charging in London as evidence that such a policy can work administratively, but questioned whether it was meeting its policy objectives.

130. The Committee received information of a survey recently conducted by the Federation of Small Businesses which found that vehicles are crucial to over 90% of NI businesses and 70% could not reduce their usage. The survey also concluded that NI businesses, which regularly trade with, or make deliveries to Belfast city centre, would face a considerable burden with the introduction of a congestion charge for Belfast and many of these businesses are already paying extremely high insurance, energy and rates bills.

131. The Committee notes that further ideas are needed on how congestion or access charges might be levied. The Committee considers that detailed research needs to be undertaken on the potential economic impact of such a policy and the number of businesses which could potentially relocate (e.g. from Belfast) if charges were introduced.

132. In considering this option, the Committee has also taken account of further analysis from DFP.
(see Annex B)

133. Whilst recognising that there was no clear consensus in the evidence as to the merits of road charging, the Committee recommends that the Department considers the option further, particularly in terms of its potential economic impact, costs and benefits, feasibility, effectiveness in reducing road congestion and in the context of decisions on the other rating reforms.

(h) Green Taxes

134. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Lyons Report called for local authorities to be empowered to charge for domestic waste collection in a way that reflects community preferences.	Disproportionate impact on those with lower incomes.
Environmentally friendly.	Potentially unacceptable to general public.
Stable and certain revenue stream.
Difficult to evade and quite enforceable.
RoI policy on plastic bags has worked effectively. It has cut plastic bag use by approximately 90%, and proved to be a very useful income stream, with €75m being raised since its introduction in 2002 and €18.8m raised in 2006.

135. The Committee notes that present thinking in this area is on charging for waste collection or disposal. In his evidence, John Simpson highlighted the dilemma of devising a charging mechanism which does not incentivise ‘fly-tipping’ or other types of fraud.

136. The IRRV gave evidence to the Lyons Review on this policy area and, in its evidence to this Committee, emphasised the need to incentivise recycling, rather than penalise it as part of the tax raising process. IRRV also explained that it was logical to start in the home with such policies and then move to industry and raised the possibility of householders being issued with ‘green cards’ and receiving credits for environmentally friendly actions. In the view of IRRV, there was little research to date on how policies in this area could be implemented and not enough work being undertaken to forge partnerships with the private sector. IRRV has agreed to submit a further policy paper to the Committee and members have agreed that this should be shared with the Department to inform further considerations in this area.

137. In its evidence to the Committee, ERINI agreed that incentives worked better than penalties, provided that the correct incentives were introduced and stated that the policy objectives needed to be agreed from the start – whether to raise revenue or modify behaviour.

138. In considering this option, the Committee has also taken account of further analysis from DFP.
(see Annex B)

139. The Committee concludes that the option of green taxes/credits warrants careful consideration and looks forward to engaging with the Department and with other stakeholders to examine the range of possible approaches in this area and the associated merits.

(i) Land Value Taxation

140. The Committee identified the following views on this option from the Department’s report on the consultation and from the evidence provided to the Committee:

Arguments For	Arguments Against
Encourages urban renewal, reduces dereliction and redistributes wealth.	May encourage over-development of valuable land along the coast, inappropriate development of the countryside and cramming property into city/town centres.
Free of the problems of avoidance and evasion.	Narrower tax base and would not be transparent.
Existing property taxes create a disincentive to developing land and improving properties as this results in tax.	Previous instances of land taxation in the UK were not significantly successful.
Research suggests that current UK fiscal policy is actively undermining attempts to increase housing supply.	Advocates referred to Denmark and New Zealand as examples of potential success. Both countries have recently removed major forms of LVT.
Applicability to shortage of housing in NI as it could motivate development. Pittsburgh (USA) case indicates success in this area.	Could be issues regarding fluctuations in land values and interactions with the planning system – e.g. would speculators be awarded a Land Value credit if the value of their land fell?
Cannot be avoided by keeping land unused.	Could affect pensioners with very low incomes but valuable land.
	Represents a major shift in the local taxation burden from those who own property to those who own land.

Session 2007/2008

Second Report

Committee for Finance and Personnel

Report on the Committee's Reponse to the 2007 Executive Review of the Domestic Rating System

Membership and Powers

Powers

Membership

Table of Contents

Report

Appendix 1 Terms of Reference for the Review. Correspondence between the Department and the Committee

Appendix 2 Minutes of Proceedings (Extracts)

Appendix 3 Minutes of Evidence

Appendix 4 Written Submissions

Appendix 5 Memoranda and Papers from Department of Finance and Personnel

Appendix 6 Northern Ireland Assembly Research Papers

List of Abbreviations used in the Report

Executive Summary

Key Conclusions and Recommendations

Introduction

Background

Guiding Principles

The Committee’s Approach

Consideration of the Options

Strand 1A Options (changes that can be made to the existing system by April 2008 via subordinate legislation).

(a) Changes to the Level of Maximum Cap

Arguments For (Cap/Reduction)

Arguments Against (Cap/Reduction)

(b) Introduction of a Minimum Payment

Arguments For

Arguments Against

(c) Introduction of Rating for Vacant Domestic Properties

Arguments For

Arguments Against

(d) Amendments to the Rate Relief Scheme

Arguments For (Amendments)

Arguments Against

(e) Revision of Existing Provision for Education and Training Relief

Arguments For (revision)

Arguments Against (revision)

(f) Introduction of Deferred Payment Scheme for Pensioners

Arguments For

Arguments Against

(g) Revision of the Early Payment Discount

Arguments For

Arguments Against

43. The Committee recommends that the early payment discount should be retained and that the Department should consider the case for extending the scheme to those who pay by direct debit.

(h) Reprofiling the Existing Transitional Relief Scheme

Arguments For

Arguments Against

48. The Committee considers that the Department should establish whether there is sufficient evidence of need which would justify the significant administrative burden and revenue loss associated with an extension of the transitional relief scheme beyond the present 3-year period.

Strand 1B Options (options for change in the context of the existing system which would take longer to implement – i.e. require primary legislation)

(a) Graduated Tax System

Arguments For

Arguments Against

54. The Committee recognises that there is no clear consensus in the evidence on the merits of a graduated tax system and recommends that this option should not be taken forward as part of the current review as this would result in the domestic rating system being more complex and less transparent.

(b) Single Person Discount

Arguments For

Arguments Against

(c) Single Pensioner Discount

Arguments For

Arguments Against

64. The Committee recommends that a single pensioner discount should be introduced, subject to the outcome of further analysis by the Department of the affordability and feasibility.

(d) Automatic Pensioner Discount

Arguments For

Arguments Against

(e) Broadening of Existing Disabled Persons Allowance Provision

Arguments For (broadening)

Arguments Against

(f) Circuit Breakers

Arguments For

Arguments Against

(g) Enhanced Discount for Farmers

Arguments For

Arguments Against

82. Whilst there was no clear consensus in the evidence as to the merits of an enhanced discount to farmers, the Committee, nonetheless, recommends that the Department considers the option further in the context of its decisions on the other reforms.

(h) Introduction of Discount for Owner Occupiers

Arguments For Discount for Owner Occupiers

Arguments Against Discount for Owner Occupiers

Arguments For Rating of Second Homes

Arguments Against Rating of Second Homes

Report on the Committee's
Reponse to the 2007 Executive
Review of the Domestic Rating System

Appendix 1
Terms of Reference for the Review.
Correspondence between the Department and the Committee

Appendix 2
Minutes of Proceedings (Extracts)

Appendix 3
Minutes of Evidence

Appendix 4
Written Submissions

Appendix 5
Memoranda and Papers from Department of Finance and Personnel

Appendix 6
Northern Ireland Assembly Research Papers

List of Abbreviations
used in the Report