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

Table of Contents

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

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

141. The Committee recognises that the general concept behind land value tax is that it applies to the ‘highest and best use’ value of the land rather than that of any buildings and is payable by the owner not the occupier. The rationale is that it encourages optimal use of land as the tax liability will be the same whether the land is left derelict or fully utilised. The Committee is aware that one argument against property tax is that, when faced with penal tax rates, owners often find it easier to make the property derelict rather than bringing it back into use.

142. Research commissioned by the Committee highlighted Pittsburgh as an interesting example of a seemingly successful regime. The Committee noted that fifteen Pennsylvania cities now use a two-rate approach to property tax: the tax on buildings is decreased, thereby providing an incentive to build and improve properties; the levy on land is increased, thus discouraging land speculation and encouraging development. There has been a considerable expansion in building activity and 85% of homeowners pay less with this policy than they do with the traditional approach. Those who do pay more tend to be wealthier homeowners. The research also suggests that this policy could result in a redistribution of the tax burden from residential ratepayers towards commercial and agricultural land-owners and that appropriate exemptions would be required to protect conservation areas.

143. The Committee has been briefed on the ongoing research by UU on the potential for land value taxation and agrees that the planned pilot study of the Belfast area will influence decisions as to whether this is worth considering as a policy option and examining in greater detail next year. DFP has agreed to provide the Committee with a report on the completed UU research and has confirmed that consultation and a full impact assessment would be completed before possible implementation.

144. In its evidence, ERINI contended that this was an effective way of curbing speculation and its introduction should be a gradual process working in tandem with a property tax. Care would need to be taken, however, on the extent to which the tax could be transferred, as the tax could affect local business if landowners passed on costs. IRRV considered that it would be much easier to impose this tax on the domestic sector, but in a mature city such as Belfast, non-domestic land (which would yield most revenue) could be owned by as few as fifteen landowners, resulting in the need for a high tax rate, which could potentially be passed on to the public.

145. The Committee also considered the fact that registration of land ownership is more complex in NI and that this could cause further problems. The Committee acknowledges that a tax on land value would restrict the tax base and that a more logical approach might be to introduce such a tax in conjunction with a property tax, which would widen the tax base and facilitate charging more people less tax.

146. The Committee had some concerns around the inclusion of agricultural land for taxation and considered that the tax should have an urban focus – especially on derelict land. Uncertainty in relation to planning and lack of current area development plans are, in the view of the Committee, a major impediment in developing this option.

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

148. 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.

(j) Derelict Land Taxation

149. 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:

150. In his evidence to the Committee, John Simpson pointed to the logic of rating derelict land at least on the capital value of the site and raised the related question of the possibility of placing a rates demand on land zoned for development which is being held without action. Mr Simpson also argued that land zoned with planning approval for residential development should be rated on its enhanced capital value with ‘use it or lose it’ approaches to planning permission. IRRV was also in favour of this option, but stated that the definition of ‘derelict’ land would need careful consideration.

151. In considering this option, the Committee has also taken account of further analysis from DFP, which was provided to the Committee on a restricted basis (see Annex B)

152. 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.

Other Issues

Transparency and Rates Bills

153. The Committee concurs with the Consumer Council’s view that this review provides an opportunity for steps to be taken to give consumers a clearer understanding of what they are paying for and that a lack of public debate and understanding of the issues related to paying for public services through rates or other methods has led to a decline in public confidence and buy-in. The Committee notes that Consumer Council research has shown that consumers are confused over what rates pay for and particularly by the regional/district rate split in their bills. 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.

154. The Committee notes that many of the respondents to the DFP consultation expressed the view that there should not be a separate charge for water as it should be, and already was, included in rates bills. The Consumer Council supported the Minister of Finance and Personnel’s view that rating reform must be viewed in the context of Executive decisions on the funding of water and sewerage charges and is of the view that a holistic approach needs to be taken to total household bills, instead of looking at the impact of rates reform in isolation. The Consumer Council argued in its submission that the amount already paid for water through the rates should be deducted if a new water charge is introduced, in order to overcome the belief amongst consumers that they are being asked to pay twice. The Council calculated the amount to be between £160 and £165 per household in 2007. The Committee notes that the recent recommendations from the Independent Review of Water Reform, led by Professor Paddy Hillyard, include measures to address this anomaly. On this point, however, the Committee is also aware that the Committee for Regional Development is seeking assurance on the feasibility of the Land and Property Services agency assuming the additional responsibilities in respect of billing. Whilst welcoming the approach of the Executive in recognising the existing contribution from ratepayers towards the cost of water services, 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. The Committee’s comments in this section are limited to the matter of transparency, and are made without prejudice to wider discussion on the recommendations of the Independent Review of Water Reform.

Effect of Future Revaluation

155. Concerns were expressed in the consultation about the impact of a future revaluation if the existing system were to be retained. Such concerns were also discussed during the evidence session with Citizens Advice and it became clear to the Committee that there was a misunderstanding amongst the public at large around the effects on rates bills following the next revaluation. 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.

Uptake of Reliefs/Benefits

156. In its evidence to the Committee, DFP revealed that significantly less than 50% of those eligible under the rate relief scheme are actually claiming relief, with take-up in the owner occupied sector significantly lower (42%), and that this was partly due to misconceptions about the support available to them. The Committee requested further information on take-up from the Department, including how it may be affected by the level of relief received, to determine whether take-up was extremely low amongst those entitled only to low rates of relief. DFP responded by advising that detailed information on the level of take-up of rate rebate/rate relief in NI was not readily available and that how it may be affected by the level of relief received was also unavailable at present.

157. The Committee heard evidence of the various reasons for poor take-up including lack of communication, cultural issues, people making the wrong assumptions and groups that are hard to reach. Citizens Advice informed the Committee that very often people are simply unaware of benefit entitlement, especially owner occupiers and people over 60, and it called for more publicity, targeted especially at older people. Other potential factors include literacy and sensory impairment and the possibility that the anti-fraud campaign may have an adverse impact through intimidating older people out of claiming means-tested benefits as they fear there is going to be an overpayment for which they will be subsequently liable.

158. Whilst explaining the impediments to increasing take-up of reliefs, DFP has outlined for the Committee a number of options which could be considered, including streamlining the application process, data sharing with other agencies and working in partnership with third party organisations to raise awareness and to target difficult to reach groups. The Committee has obtained a commitment from DFP to examine the report by the House of Commons Select Committee on Communities and Local Government on the take-up of council tax, for issues relevant to NI.

159. The Committee considered how the public could be made more aware of benefit entitlement and especially the role which organizations, such as Citizens Advice, can play in this regard. The forthcoming NI Direct system may, in the view of the Committee, provide an initial contact point through which callers could be referred to a more localised voluntary organisation or agency. The Committee acknowledges that government departments are reliant to some extent on organisations, such as Citizens Advice, to perform this informative role and believes that such organisations therefore need to be resourced accordingly. Also, the Committee is concerned that the current drive for benefit take-up is being adversely affected by cuts in the number of Social Security Agency benefit advisors and that this is placing increasing pressures on voluntary organisations providing information and advice.

160. When the Committee was finalising this report members received correspondence from the NI Fair Rates Campaign, which provided information relating to the uptake of housing benefit and rate rebate claims from owner occupier ratepayers (Appendix 4). Members agreed to seek clarification from the Department on the issues raised in this correspondence and the response from DFP has also been included as an appendix to this report (Appendix 5).

161. 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.

IT Deficiencies

162. Members also took evidence from Citizens Advice regarding the problems generated by incompatible IT systems in the public sector. The Committee was advised that the system used for rate collection does not interact correctly with those used for the payment of housing benefit and rate reliefs, with the result that rate reliefs are being manually processed. Citizens Advice also advised that this is not due to be fixed until sometime in 2008 and suggested one of the first outputs from any new system should be an all-in-one letter to claimants incorporating housing benefit and rate relief. The Committee also heard evidence of sixteen page computer-generated letters sent to inform claimants merely of the amount of housing benefit awarded, whilst manual letters were found to be succinct and easy to understand.

163. In view of the aforementioned difficulties, 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 applications process faster and more efficient. Whilst recognising that provision for increased data sharing in NI may require primary legislation, the Committee considers that such impediments can and should be overcome when the purpose is to share data for the common good.

164. For ratepayers struggling with debt, Citizens Advice has advocated a role for an intermediary, similar to the partnership which the organisation has with the Housing Executive for tenants who fall into arrears. The Committee believes that the Department should give this proposal consideration.

Equality Impact Assessment (EQIA)

165. The Committee sought clarification from the Department on the equality impact assessments to be carried out prior to implementation of any of the options. The Department has explained that most of the strand 1A and many of the strand 1B options are mitigating measures which address shortcomings, and therefore will not be subjected to the full 7-stage EQIA. However, the Department has assured the Committee that it is actively considering all measures for likely differential impact on Section 75 groups and that all strand 2 proposals must be subjected to full EQIA before any legislation can be presented to the Assembly.

166. The Committee recognises that no such assessment was carried out on the creation of a maximum cap and that any further proposals on this option may require full EQIA.

Rural Proofing

167. The Committee received further information from the Rural Community Network (Appendix 4) in relation to its submission to DFP’s consultation. The Network expressed some concern at the lack of reference to its submission in the consultation report and, in particular, highlighted the following recommendations to the Committee:

• an annual rural proofing analysis of the impact of rates bills, comparing rural and urban areas;
• regular analysis of rates relief uptake on a geographic basis linked to an analysis of low income earners with output areas;
• regular report on the use of and satisfaction with the appeal process on an urban and rural basis; and
• ensuring that all District Councils and other bodies, funded through rates, provide full and accurate information on their income and expenditure and how they have used our money.

The Committee calls upon the Department to respond to these recommendations.

Conclusion

168. The Committee has carefully considered all the policy options set out in the terms of reference for the Review of the Domestic Rating System and, based on the information and evidence available, has recommended a number of options for the Department to pursue, whilst ruling out others. The Committee recognises that, in the short to medium term, the scope for reform of local taxation in NI is constrained by the present legislation, in particular Paragraph 9 of Schedule 2 to the Northern Ireland Act 1998, which classifies as excepted matters both UK-wide taxes and duties and taxes and duties which are ‘substantially of the same character’. However, the Committee has been advised that, even within existing legislative parameters, there are opportunities to create a more progressive system of regional taxation that would not adversely affect economic development.

169. The Committee looks forward to further engagement with the Department on the options which will be subject to further research and consideration, including the strand 2 issues which would require primary legislation. In the more immediate term, the Committee will welcome early sight of the proposals for subordinate legislation to implement the reforms to be in place by April 2008. The Committee will also welcome engagement with the Department on the potential reforms to non-domestic rating, including industrial derating and the case for a small business rates relief scheme, and considers that these reforms cannot be considered in isolation to the other areas of local taxation.

Annex A –
DFP Summary Analysis of Strand 1 Options

Strand 1a
Changes to the Level of the Maximum Capital Value

Background

A maximum capital value was introduced into the domestic rating system in April 2007 as part of the rating reforms following representations made by the local political parties at the St Andrews negotiations in late 2006. The current maximum capital value was set at properties with a capital value of £500,000. This level was chosen so as to ensure that the highest domestic rates bills in Northern Ireland were similar to the highest that existed in Great Britain at that time under the council tax system.

Options

The options examined were:

• Reduce cap to £400,000
• Reduce cap to £300,000
• Reduce cap to £300,000 for pensioners and keep at £500,000 for others

Impact

The table below shows the cost of a maximum cap at each level, in terms of revenue loss, as well as the number of properties likely to benefit and the increase in the average rates bill as a result.

Wider Impact

The vast majority of properties which benefit from this maximum capital value are in a small number of council areas. For example, at the current £500k level, 48% of beneficiaries are in Belfast and 27% are in North Down.

71% of those benefiting from a £500,000 cap were in the highest “Managerial/Professional” socio-economic classification used in the Census. Even at a £300,000 cap, some 64% are still in this category.

The policy tends to have a more negative impact on rural wards, although this effect decreases as the cap level falls.

Initial analysis of the impact on Section 75 groups suggest that a maximum capital value is more likely to benefit males, those with dependents, those without a disability, married persons and those from a Protestant community background.

Legislative implications

Subordinate legislation would be required to change the level at which the maximum capital value is set. The relevant regulations would be subject to the affirmative in draft procedure of the Assembly. This option is therefore legislatively possible by April 2008 although it is uncertain whether it would gain the support of the Assembly.

Administrative implications

Operationally, changing the level of the maximum capital value is viable for April 2008.

Consultation

42 responses referred to the maximum capital value issue. 18 individuals and 6 organisations supported it; 3 individuals and 15 organisations opposed it. A number of responses to the consultation suggested that capital values should be capped at £300,000. This was also the view of the Fair Rates Campaign.

Introduction of Minimum Capital Value

Background

While the domestic rating system is considered to be purely a property tax, the introduction of a minimum capital value would recognise the fact that there is a minimum limit to the level of local and regional government services that can be consumed by a household. As with the maximum capital value, the minimum capital value would be set in terms of capital values. That is, once the limit is chosen, any property with a capital value below that limit would be rated as if its capital value is at that limit.

Options

The options examined were:

• Introduce a minimum capital value at £75,000 (the lowest such council tax bill in 2007/08 is £454. Based on the average rate in Northern Ireland, this would relate to a property with a capital value of approximately £75,000)
• Introduce a minimum capital value at £50,000 (this relates to the lowest council tax band which exists in Wales, uplifted to January 2005 values)
• Introduce a minimum capital value at £62,500.

Impact

The following table shows the revenue gain associated with a minimum capital value and the number of properties faced with a higher rate bill as a result:

Wider Impact

Belfast is the council area with the highest number within each limit, although not disproportionately so. Craigavon, Derry, Lisburn and Newtownabbey also appear to be the councils most impacted. There is also a fair degree of concentration of affected properties at ward level. For example, around 14.8% of properties adversely affected are in just 10 wards.

A minimum capital value is more likely to affect properties in urban wards

There is a link between the proportion of properties in a ward affected by a minimum limit and the level of deprivation in a ward. For example, the bottom decile of wards in terms of deprivation contains just under 25% of all affected properties, while the least deprived decile has only around 1.7% of all such properties, at all minimum cap levels.

Initial section 75 impact analysis suggests that the measure would tend to have a greater impact on those over 60, females, those without dependents, those with a disability, single persons and persons from a Protestant community background. The degree of differential impact reduces as the minimum level increases.

Legislative implications

The introduction of a minimum capital value would require subordinate legislation. The relevant regulations would be subject to the affirmative in draft procedure of the Assembly. This option is therefore legislatively possible by April 2008 although it is uncertain whether such a measure would gain the support of the Assembly.

Administrative implications

The development and testing of IT systems necessary to introduce this measure may push implementation beyond April 2008.

Consultation

13 responses referred to the issue of a minimum capital value, with 12 organisations against and 1 ratepayer in favour.

Introduction of the Rating of Vacant Domestic Property

Background

Under the current domestic rating system, no rates are paid on properties which are deemed to be vacant. This is unlike the situation in GB under Council Tax, where vacant domestic properties are liable for taxation at 50%, following an initial six month exemption period.

Options

The review examined the option of matching the approach taken under Council Tax. That is, an initial 6 month exemption followed by 50% liability.

Other options include 100% rating of vacant properties or only rating those properties above a certain capital value. These have not been examined here, although other analysis has been carried out by the University of Ulster which has been made available to the Committee.

Impact

It is estimated that there are some 50,159 vacant domestic properties in Northern Ireland of which 10,597 are classed as never having been occupied.

In the first year of rating, applying a six month exemption and a rate of 50% the maximum rate revenue that could be collected from these properties is £7.7m, based on 2007/08 poundages. This is the total rate revenue, combining district and regional rates. Thus, £4.46m of this would consist of regional rate revenue.

Without the exempt period, the maximum potential revenue is £15.4m.

Wider Impact

Around 20% of the domestic vacant properties are in Belfast. Next highest is Newry (5.87%) and Derry (5.1%). Lowest proportions are in Moyle (1.33%) and Ballymoney (1.34%).

Urban wards have a higher level of vacant properties than their proportion of the overall population would suggest. Rural wards are marginally under-represented.

One of the main reasons why vacant rating was not introduced previously was the perceived high administrative costs, compared to the potential revenue (running costs at the time of the 2004 policy paper were estimated by RCA at around £0.5m, compared to a potential revenue in the first year of £2.55m. More recent cost projections are not yet available but it is expected to be significantly more given the Agency’s recent experience of non domestic vacant rating).

Legislative implications

The introduction of the rating of vacant domestic property would require subordinate legislation. The relevant regulations would be subject to the affirmative in draft procedure of the Assembly. This option is therefore legislatively possible by April 2008.

Administrative implications

Given the need to develop systems to take account of likely exemptions and the need to establish a robust database of ownership details, it is unlikely that implementation of this measure could be achieved by April 2008.

Consultation

27 (6 ratepayers and 21 organisations) responded in relation to vacant rating with 21 in favour, including 4 ratepayers.

Amendments to the Rate Relief Scheme

Background

The low income rate relief scheme was introduced in April 2007. The scheme was based on the housing benefit rate rebate scheme, which was the main form of relief available for ratepayers in Northern Ireland prior to April 2007. The rate relief scheme sits above the housing benefit system and therefore provides relief over and above that available through housing benefit.

Figures available from LPS, which relate to claimants who are owner occupiers, show that there are 5,136 awards of rate relief in 2007/08. 2,110 of these rate relief claimants are getting full relief and 3,046 partial. For those receiving full rate relief, the average award is £99.88; for those on partial rate relief, it is £183.14.There are also 54,203 ratepayers being awarded housing benefit rate rebate in 2007/08 and the average award of those in receipt of housing benefit is £515.61.

Information available from the Northern Ireland Housing Executive, which administers the schemes for those in the social and private rented sectors, show that of 19,243 tenants eligible for rate relief (i.e. who are not getting full housing benefit), 12,587 are in receipt of rate relief. The average annual award for these recipients is £100.36.

Options

There are a wide range of variables which contribute to the calculation of an award within the scheme. The table below lists the options and variations which have been examined:

Wider Impact

Derry and Belfast have the highest proportion of claimants, followed by Strabane. The lowest proportions are in North Down and Castlereagh.

As the level of deprivation in a ward increases, so does the proportion of persons in a ward in receipt of Housing Benefit.

Receipt is most prevalent in urban wards.

Legislative implications

Amendments to the existing rate relief scheme would require subordinate legislation. The relevant regulations would be subject to the negative resolution of the Assembly. This option is therefore legislatively possible by April 2008.

Administrative implications

Operationally, amendments to the existing rate relief scheme could be delivered by April 2008.

Consultation

A number of the consultation responses referred to the issue of rate relief for pensioners. Some of these contained a request for a substantial non-means tested allowance for pensioner occupiers or a permanent or automatic discount.

Twenty responses supported increasing the savings/capital limit; four responses supported passporting onto the Rate Relief Scheme those on other benefits. Two respondents were against means testing.

Revise the Existing Provision for Education and Training Relief

Background

The reforms which accompanied the 2007 revaluation included a relief for those in full time education and training. Specifically, this measure formed part of a provision providing 100% relief from rates where a dwelling is occupied wholly by certain eligible persons. Those eligible persons consisted of those in full time education, those in full time training, persons under 18 and young people leaving care. In addition, the scheme also included an exemption from rates for university halls of residence.

Options

In the short term, the whole relief scheme (or those elements pertaining to education and training) could be revoked so that it no longer operates within the Northern Ireland rating system. Some saving provision may have to be made for those that have already taken up the scheme.

In the longer term, the scheme could be changed so that the relief is targeted differently, for example it could be targeted at those households where the head of household or their partner is in full time education. Alternatively, the target for relief could be those households where the student resides in the parental home. (Both of the above options could also be linked to the level of household income, although this has not been analysed).

Impact

Current scheme

It had been estimated that there were between 3 and 4,000 eligible properties. Thus, providing a 100% relief from rates would lead to a revenue loss of around £2.5 - £3m. The numbers associated with the reliefs for other young people were considered to be low. However, the exemption for university halls of residence was estimated to cost a further £1m per annum in lost revenue. Thus, while take up at present is low, the scheme could in total potentially cost £3.5 - £4m each year. The rate of application has been low so far (only 338 applications by 2 Sept 2007), although the start of the new academic year may change this.

Alternative Options

Looking at the alternatives identified, analysis of the census data suggests that there are approximately 5,000 households in Northern Ireland in which the head of household or their partner is in full time education. Awarding such households a 25% reduction in their bill would cost £900,000 - £1m per annum. A 100% reduction would in itself cost £3.5 - £4m. It is likely that, with any such scheme, the exemption for halls of residence as well as the relief for other young persons would remain. The cost of these would therefore have to be added.

At the time of the last census, there were 18,960 full time students living in the family home. This represented 53% of all FT students. There may have been some over-estimation due to mis-reporting but this is difficult to estimate. Using this figure and the average rate bill for NI, a 25% discount for all households where a FT student resides in the parental home would cost £3.335m in 2007/08.

Wider Impact

Information from the census is not reliable, making the wider impact difficult to examine. Using available data there is a suggestion that the lowest proportion of FT students over 19 living at home is in Coleraine, followed by Belfast and that the highest proportion is in Dungannon and Magherafelt.

Legislative implications

Revocation of the existing relief would require subordinate legislation. The relevant regulations would be subject to the negative resolution of the Assembly. This option is therefore legislatively possible by April 2008. Savings provisions would be required for those already in receipt of the relief.

Amendments to the existing relief would however require primary legislation which means that this would not be legislatively possible by April 2008.

Administrative implications

Operationally, revocation of the scheme would be possible by April 2008. Delivery of amendments to the scheme would depend on the nature of the amendments.

Consultation

Many of the consultation responses, while not favouring the format of this relief scheme, did feel that there was some merit in providing support for those in full time education.

Of those responding to the consultation, 38 (18 ratepayers and 20 organisations) raised the issue of rate relief for full time students. 36 responses were opposed to the relief. Many responses were concerned that the blanket relief was not targeted at other more ‘worthy’ groups such as pensioners.

Introduction of Deferment Scheme for home owning Pensioners

Background

Deferment schemes exist in order to provide relief to homeowners through allowing them to defer their property taxes until the house is sold. In most cases where this exists, the relief is usually confined to the elderly and the disabled. The scheme is not usually means tested and could prove particularly attractive to those with a low or fixed income occupying a high valued property.

Options

As part of this review, the option has been considered of introducing a rates deferment scheme for pensioners. Under such a scheme, home owning pensioners (that is, those owning their home outright or with sufficient equity) could choose to defer all or part of their annual rate bill. They could do so until such times as the property on which the bill is being deferred is then sold. A rate of interest would be applied to the ongoing deferred amount.

Impact

The impact of such a scheme would depend both on the criteria established to determine eligibility as well as the rate of take up by ratepayers. For example, in British Columbia, where such a scheme exists, it is restricted to those who are 55 or older and who have a minimum equity of 25% in their homes. Elsewhere in Canada, in Prince Edward Island, the comparable scheme sets the minimum age at 65 and includes a further criterion that the household income is less than $30,000.

Evidence is available to suggest that many pensioners who own their homes have either paid out their mortgage in full or have very low mortgage costs. Thus, given the data that was available on pensioner home owning households, it was assumed that 75% of these would have sufficient equity to join the scheme. Then, based on the levels of take up experienced internationally, it was decided to test the scheme at various levels of take up. The table below records the results of this analysis:

Estimated Annual Revenue Loss Associated with a Deferment Scheme

It is important to note, though, that the net cost of the scheme each year will, of course, be lower than this as the properties which are part of the scheme are sold and deferred bills are then paid, with interest. The scale of any net cost will depend on the rate of repayment compared to the rate of take up as well as the comparative rate bill of those joining and those leaving the scheme.

Wider Impact

The cost of the scheme in lost revenue is highly sensitive to the rate of take-up. It is also dependent on the level of take-up across councils. The above estimates assume a uniform rate across the country. Thus, a higher take-up rate in, for example, Belfast, which has 18.12% of pensioner home owning properties and 20.73% of the eligible tax base, would have a more significant impact on overall cost than in other council areas.

The average capital value of the home owning pensioner properties from the (matched) census sample is just over £120,000. However, the average capital value of non-home owning pensioner properties is just £86,779.

In terms of the equality impact, the census analysis suggests that the policy is more likely to benefit persons who are female, without dependents, with a disability, widowed or divorced and of a Protestant background. Such a result is unsurprising and reflective of the demographic profile of this section of the population.

Legislative implications

The introduction of a deferment scheme would require subordinate legislation. The relevant regulations would be subject to the affirmative in draft procedure of the Assembly. This option is therefore legislatively possible by April 2008. The provisions are however likely to be complex and may require considerable research which may be difficult to complete within the short space of time available.

Administrative implications

In operational terms delivery by April 2008 is difficult to assess at this point but given its likely complexity, April 2009 is considered a more viable date. Further work would be required to determine how exactly the scheme would operate.

Consultation

Nineteen respondents referred to the issue of a deferment scheme for pensioners. Of those who responded 4 organisations and one individual ratepayer were in favour of its introduction and 12 organisations and one ratepayer were against. One organisation was undecided.

Revise the Early Payment Discount

Background

Under the current arrangements for the payment of rates, a discount of 4% is available to those that pay in full within one month of the issue of their bill. Otherwise, payment can be made in monthly instalments over 10 months.

The level of discount was last reviewed in 1983, at which time the rate was increased from 2.5% to 4%. In 2006/07, there were 134,389 ratepayers that took advantage of the early payment discount. This represents around 19% of all domestic ratepayers. The total value of this discount in 2006/07 was approximately £3.87m.

Options

The options examined were:

• Abolish the discount
• Reduce the discount to pre-1983 level of 2.5%
• Retain the discount but target differently, at those who pay by Direct Debit (not examined below)

Impact

The regional rate bears the total cost of the discount. There is therefore no impact on the amount of rate revenue District Councils receive. The 4% discount is currently accounted for in the regional rate calculations through the adjustment factor. The removal of the discount would therefore mean an increase in the collection rate and, as a result, the adjustment factor.

Were the same households to benefit in 2007/08, the revenue loss would be in the region of £4.69m. Removing this lost revenue from the adjustment factor has only a marginal impact on the regional rate that could have been set. That is, average bills could have been around £3 lower this year as a result.

Wider Impact

The council area with the highest proportion of households in receipt of the discount are in Moyle and Ballymena. Lowest proportions are in Belfast and Derry.

Analysis carried out at ward level suggests that as the level of deprivation in a ward increases, the rate of early payment discount reduces.

The discount is more likely to be claimed in rural and mixed urban/rural wards.

There is some evidence that those over 60 are more likely to avail of the discount.

Legislative implications

Changing the level of the discount awarded for early payment would require subordinate legislation. The relevant order would be subject to the affirmative resolution of the Assembly. This option would therefore be legislatively possible by April 2008. Assembly support would however be difficult to predict. Attempts in the 1980s to abolish it met with considerable opposition.

Changing the purpose of the discount for example to incentivise direct debit payment would however require primary legislation which would mean that this option would not be legislatively possible by April 2008.

Administrative implications

Operationally, changing the level of the discount would be possible by April 2008.

Consultation

Eight respondents commented on the early payment discount with two organisations for and one ratepayer and 5 organisations against. The 5 organisations against revision of the early payment discount scheme were however in favour of retaining the current discount.

Re-profile the existing Transitional Relief Scheme

Background

The move from rental to capital values which formed part of the domestic rate reforms had resulted in many ratepayers facing significant increases in their rate bills. In response, Direct Rule Ministers decided to provide transitional relief to those ratepayers that were most affected. This relief was awarded automatically to those households whose bill increased by 33% or more than it would otherwise have been this year under the old NAV system.

Options

The options for amending the scheme relate to the level of increase at which the relief would apply and to the rate at which the increase is phased in.

The most realistic option to allow a change to be made in time for bills issuing in April 2008 would appear to be to increase the time over which eligible ratepayers’ bills are phased in. The option examined here is to phase in bills over 5 years instead of 3. That is, while the relief would still only be awarded to those households whose bills increased by 33%, it would be phased in over an additional 2 years.

Impact

Just under 100,000 households would benefit from this scheme. The cost in lost revenue would be as follows:

Wider Impact

An analysis of the breakdown of benefiting households by council area also shows that Belfast is by some way the largest beneficiary, with 29% of all such properties, despite only having a 17.6% population share.

The average capital value of eligible households is approximately £140,000. This is substantially above the average capital value for Northern Ireland as a whole, which is close to £111,400. The average capital value of properties that are not eligible for this relief is £107,000.

The table below compares the distribution of those eligible for transitional relief across socio-economic group with the distribution for the entire population. As the table shows, those in the “Managerial/Professional” category are more likely to be eligible for relief while those in “Routine Occupations” are less likely.

Detached and terraced properties are also more likely to be eligible, as are those in rural wards

The policy has a slightly more beneficial impact on those over 60, those with dependents and single people. This outcome, though, may be as a result of the fact that these groups are over-represented in council areas such as Belfast which are more likely to be eligible for transitional relief.

Legislative implications

Changes to the existing scheme would require subordinate legislation. The relevant regulations would be subject to the negative resolution procedure of the Assembly. This option is therefore legislatively possible by April 2008.

Administrative implications

Operationally, changes to the existing scheme could be delivered by April 2008. However, awareness raising would be essential given that this is currently one of the biggest sources of enquiries from ratepayers.

Consultation

A total of 10 respondents commented on the issue of transitional relief. All of those were organisations and were in favour of the relief. Five of the 10 suggested an extension or a re-profiling of the scheme.

Strand 1B Graduated Tax System

Background

A graduated tax system establishes a standard rate up to a certain threshold of capital value, which every property pays. Properties whose capital value exceeds the threshold then pay an alternative rate. The graduated rate could either be upward, so that those above the threshold pay a higher tax rate, or it could be a downward system. A graduated system reflects the argument over the need to balance ability to pay with payment for services. In other words, a downward graduated system would support the view that there are limits to the consumption of government services from those in the highest valued properties.

Options

The options examined were:

• Reduced regional rate for those in the upper quartile (CV above £135,000)
• Reduced regional rate for those in the upper two quartiles (CV above £95,000)
• Increased regional rate for those in the upper quartile
• Increased regional rate for those in the upper two quartiles
• In terms of the change in rate for those above the threshold, the option chosen was a 35% change.

Impact

The table below looks at the percentage change in average rates bill for those in each quartile as a result of the various options:

As the table shows, the impact of a downward graduation is of most benefit to those in the upper quartile. Note that even with a downward graduation for the top 50% of properties, because of the need to ensure revenue neutrality, those in the third quartile end up paying a higher bill. Similarly, with an upward graduation applied to the top 50%, those in the third quartile have a reduced bill.

Wider Impact

The councils with the highest proportion of properties in the upper quartile are Castlereagh (44.81%) and North Down (44.50%). The council areas with the lowest proportion are Omagh (10.2%) and Strabane (17.58%). Belfast has a fairly even distribution of capital values across the quartiles.

Legislative implications

The introduction of a graduated tax system would require primary legislation.

Consultation

Three organisations commented on a graduated tax system and all were against its introduction. One organisation made reference to work carried out in this area which suggests an increased tax burden on the lowest three quarters of properties when compared to a discrete capital value system.

Single Person Discount

Background

A single person discount operates within the context of the Council Tax system in Great Britain but not within the domestic rating system in Northern Ireland. The rationale for a single person discount under Council Tax is based on the fact that the tax is part personal and part property tax. The personal element assumes that there are two adults residing in the property. Where this is not the case, a 25% discount applies.

It is not based on ability or inability to pay and there is evidence of widespread abuse (fraud) in GB with up to 33% of households in some local authorities claiming single person discount for Council Tax.

Options

The options considered were:

• 25% discount for all ratepayers
• 25% discount for single pensioners only
• 25% discount for single pensioners over the age of 75 only

Impact

Using analysis from the census, it is possible to estimate the number of single persons that occupy properties in Northern Ireland and thus would be eligible for a discount, as well as the total cost in lost revenue, as highlighted in the table below:

Recovering the £28m from ratepayers would add around another £40 to the average bill. It is worthwhile noting also that the average capital value of single adult households is £90,969 which is well below that for non-single adult households (£120,106) so the bills for this group would generally be lower anyway.

Wider Impact

Almost one quarter of single person households are in Belfast. The policy would also tend to benefit urban areas most.

A single person discount would have a broadly positive socio-economic impact.

The groups that are most likely to benefit are those over 60, females, those without dependents and, of course, those who are not married. Persons with a Protestant community background also tend to benefit more. This trend is repeated when the discount is targeted at those over 60 and 75, although persons with a disability are also more inclined to benefit.

A single person discount would be applied prior to any assessment for housing benefit or rate relief. Thus, clearly, any decision to provide such a discount could have a significant impact in terms of the cost of these reliefs.

Alternative Option – One-off Payment for Single Pensioners over 75

Another alternative, certainly in the interim period prior to the implementation of a single person/pensioner discount, is to award the group a one-off reduction in their rate bill, for example £200. A similar award was made to all pensioner households throughout the UK recently. Thus, there is some precedent for such an approach. Based on the estimates reported earlier, a £200 payment to single pensioners over 75 would cost in the region of £9.2m, which is higher than the cost of a 25% discount for this group. Again, there would be an impact on other reliefs, since much of this cost to pensioners may currently be being met by either housing benefit or rate relief.

Legislative implications

The introduction of a single person discount would require primary legislation. However, it would be possible to introduce a single pensioner discount for over 75s through subordinate legislation, subject to further consultation on the matter, which means that legislatively it could be introduced in April 2008.

Consultation

Of those who responded to the consultation, 50 (29 ratepayers and 21 organisations) specifically referred to the issue of a Single Person Discount and 49, including all the ratepayers, were in favour of its introduction. One organisation was opposed to it.

11 (4 ratepayers and 7 organisations) specifically referred to the issue of a single pensioner discount. Ten of these, including all the ratepayers, supported the introduction of this measure. 16 (7 ratepayers and 9 organisations) specifically referred to an automatic discount for pensioners. Fourteen were in favour, including all the ratepayers, and 2 were against the introduction of this measure.

Broadening of the existing Disabled Persons Allowance provision

Background

The Disabled Persons Allowance scheme currently provides a 25% rate rebate for ratepayers whose homes have been adapted to meet the needs of a disabled resident.

It is a simplification of the existing DPA scheme, to speed up the process and is more generous than the previous scheme in terms of average award. It is modelled on the GB scheme but is also more generous (equivalent DPA scheme under Council Tax provides for a 20% reduction).

Rationale is not to disadvantage those who have had to make modifications to their home (or buy or rent a specially designed home) to meet their (or a member of the household’s) particular needs.

Ratepayers with disabilities who receive rate relief will be eligible for enhanced relief under this scheme

Options

A number of responses to the consultation suggested that the DPA scheme should be changed so that award of the relief is not dependant on adaptation to the property but rather should be available to all persons with a disability. To test this, the review therefore also examined the impact of using receipt of Disability Living Allowance (DLA) as a passport for eligibility for a new Disabled Persons Relief scheme. The options examined were:

• Increase allowance under current scheme to 30%
• Provide 25% discount to all on DLA
• Provide 25% discount to those on higher rate DLA (variations)

Impact

Wider Impact

12.78% of current DPA recipients reside in Belfast, although this is an under-representation compared to its population share. The highest proportions of population share are actually in Armagh, Craigavon and Cookstown.

With DLA, however, around 20% of all cases are in the Belfast council area. Derry is next highest with 8%. Thus, receipt of DLA appears to match trends for wider benefit uptake, whereas the distribution of DPA awards seems to be more evenly spread.

At ward level, the rate of DLA uptake in a ward increases as the level of deprivation in a ward increases. Again, the relationship between deprivation and DPA is not as direct.

DLA tends to favour urban wards but only slightly.

Legislative implications

Broadening the existing Disabled Persons Allowance scheme would require primary legislation.

Consultation

There were 34 responses in total which related to the Disabled Persons Allowance scheme, 16 of which were from individuals and 18 from organisations. One issue which was raised repeatedly was the belief that any allowance should be awarded on the basis of disability rather than simply because a house has bee adapted to suit the needs of a resident with a disability. Several respondents commented that, for example, some, such as those who are blind or mentally impaired, might not have such adaptations and therefore would not currently qualify.

Circuit Breakers

Background

Circuit Breakers are a method of targeting tax breaks at particular groups and are widely used in the US. A circuit breaker limits the percentage of income that is spent on property taxation. 18 US states deliver around $3 billion of relief per year through circuit breaker programmes. The maximum income level for circuit breaker varies significantly across states ranging from $200,000 in New Jersey (in 2004) to $5,500 in Arizona (in 2004). Every state that uses circuit breakers has set a cap on the amount of relief awarded, which varies between $1,530 in Minnesota to $250 in New Mexico. The percentage of income threshold amount also varies from 1% to 9%.

An important consideration is that these jurisdictions do not provide the safety net of a centrally funded housing benefit scheme, which currently supports 25% of the lowest income households in NI (the majority of whom pay no rates)

Analysis

Analysis has been carried out using the Family Resources Survey which examined the proportion of income spent on rates by various groups. While this does not show what the cost would be of a circuit breaker type scheme in Northern Ireland, it does show what proportion of income is spent on rates by different groups.

As can be seen from the tables below, it is clear that the award of rebate/relief has a dramatic impact on this proportion.

Legislative implications

The introduction of circuit breakers into the Northern Ireland rating system would require primary legislation.

Consultation

While not referring specifically to the option of a circuit breaker, some respondents did suggest that there should be a cap set on the proportion of a person’s income which is spent on rates. These suggestions ranged from a cap at 3.5% to 8%. Of those responding to the consultation, 3 (one ratepayer and two organisations) specifically referred to circuit breakers.

Enhanced Discount for Farmers

Background

Under the current system, properties that are held with agricultural land and are occupied by a person whose primary occupation is farming are valued on the basis that they will always be used and occupied as such. The purpose of this measure is to ensure that the potential impact of any speculative interest on the value of a farmhouse such as, for example, if it is close to a major tourist or urban area, is disregarded. It is also intended to take account of the fact that, due to their occupation, farmers tend to live on the land and have limited mobility because of this. The effect of the rule is that the capital value of farmhouses in Northern Ireland are typically reduced by 20% for rating purposes

There have been some calls, prior to and during the recent consultation, that the capital value placed on farmhouses should reflect the planning restriction that is normally placed on them and which, therefore, inhibits their true market value. That is, current planning policy is that permission will only be granted for a dwelling house on a farm if a number of criteria are met, such as that its construction is essential to the needs of the farm, that the farm business is established and viable and so on. Those highlighting this have therefore suggested that this restriction is taken in account when properties are valued.

Options

A number of options therefore exist to reform the way in which agricultural properties are valued for rating purposes. The following have been examined for the purposes of the review:

• Increase valuation reduction, for example to a standard 25%. This would mean that the current situation would apply, whereby those properties that are deemed to be tied to agricultural land and in which the occupier’s main employment is on the adjoining farm would have an increased reduction in the value of their property.
• Change legislation so that valuation reduction only applies to those properties which have an agricultural occupancy clause.
• Change legislation so that valuation reduction applies to those properties that are either classified as agricultural properties for the purposes of rating or have an agricultural planning restriction.
• Change legislation so that an additional valuation reduction is applied to those properties that have an agricultural occupancy clause as well as a valuer reviewed reduction.

Impact

LPS provided information on 39,386 properties which their records showed were in receipt of a 20% reduction in capital value because of their farmhouse status. The average capital value of these properties prior to the allowance being applied was £133,436. Following the reduction, the average capital value falls to £106,749. The impact on rate revenues of this reduction in capital values in 2007/08 is £6.63m.

Increasing the allowance to 25% would obviously increase the overall revenue loss associated with this relief. The additional cost associated with the level of relief in 2007/08 would have been £1.68m.

Wider Impact

The reduction in the value applied to farmhouses will also have an impact on the district rate, since the tax base on which rates are set will obviously be lower. Those council areas most affected include Armagh, Cookstown, Dungannon, Fermanagh, Magherafelt, Newry and Omagh. Those least affected councils include, not surprisingly, those which centre around major urban areas, such as Belfast, Castlereagh, Derry, Lisburn and North Down.

The geographical distribution of those properties in receipt of the allowance is interesting, given the perceived rationale for the policy which is to protect those farmhouses which are near high demand areas. That is, the number of properties in locations such as the North Coast and the Belfast hinterland which have been awarded the allowance is relatively low.

The average ward NIMDM score of those properties in receipt of this relief is 18.85, compared to a NI average of 22.18. A higher NIMDM score indicates a higher level of deprivation. 45% of benefiting households are classified as “Intermediate/Small employer” by the census.

The census analysis also suggested that any policy to extend the relief available to this group would have a more positive impact on males, those over 60, those who are married and those without dependents, which perhaps reflects the profile of the farming community in Northern Ireland.

There is a suggestion that the occupancy clause is more likely to have been placed on to more modern properties and, therefore, any policy to limit the discount solely to those that have this clause would discriminate against older farmhouses. The average year of build of those farmhouses which are currently in receipt of the allowance is 1928. In addition, around 72% of these properties were built in 1930 or earlier. Therefore, if the assumption is correct and only more modern properties are subject to this clause, then the option of including only those properties which are bound by the clause obviously has the potential to exclude a large number of farmhouses currently in receipt.

Legislative implications

Increasing the valuer based reduction would not require any legislative change as this would be done at an operational level by LPS.

The option of changing the valuation assumptions to take into account agricultural planning restrictions would however require primary legislation.

Consultation

Eight responses (one ratepayer, one MLA and 6 organisations) specifically referred to the issue of enhanced discount for farmers. All were in favour. They were also keen to encourage a sustainable industry.

Discount for Owner Occupiers

Background

Discounts for owner occupiers are popular within the property taxation systems of many parts of the United States, where it is known as a ‘homestead allowance’. The level of discount varies, as does eligibility, with some administrations restricting the allowance to the elderly and disabled.

Options

Options exist around the level of discount that should be awarded and the groups that should receive it. In many states in the U.S., the allowance represents a standard reduction in the actual valuation, rather than a percentage decrease. However, in this analysis, a percentage reduction only has been applied. A reduction of 10% in capital value has been chosen to illustrate the impact.

In terms of who should be eligible for the relief, two options have been examined. These are:

• Apply the relief to all owner-occupiers
• Apply the relief only to pensioner owner-occupiers.

Impact

It has been estimated, using the census match, that there are approximately 511,000 properties in Northern Ireland which are owner-occupied. The average capital value of these properties is £127,000. A 10% discount in the valuation for these properties would therefore result in a revenue loss of somewhere in the region of £40m per annum. This would add around £59 to the average bill, if the lost revenue was recovered from ratepayers.

A discount for pensioner homeowners only would benefit around 132,000 households. The total cost, had it been introduced this year, would have been £9.8m in lost revenue.

Wider Impact

Belfast has the lowest proportion of owner-occupiers amongst all the councils, although the average capital value of these properties in Belfast is quite high (£140,100). North Down has both the highest proportion of properties in this sector (82%) and the highest average capital value for this type of property (£166,730).

In terms of a pensioner discount, North Down would be the council area most affected, along with Castlereagh.

An assessment of the socio-economic status of those benefiting, based on the census indicates that those in the ‘Managerial/Professional’ and ‘Intermediate/Small Employer’ categories are most likely to benefit. As the table below indicates, though, the measure, while benefiting these groups, the tendency is not an overwhelming one:

Analysis at ward level using the NIMDM score does present a clearer indication. This analysis involved breaking down wards in Northern Ireland in terms of the proportion of a ward which is made up of owner occupied properties. These are then separated into deciles, with decile 1 having the lowest proportion of owner occupiers. The table below then shows the average ward NIMDM score of each decile.

here are no significant equality concerns related to a general owner occupier discount. There is a tendency for the policy to be more likely to benefit Married persons, which is not an unsurprising outcome.

A discount for pensioners only has a more significant differential impact, with those over-represented also including Females, those without dependents and persons with a disability. As with other policies which are targeted at the elderly, this outcome reflects the demographic profile of this population.

Legislative implications

The introduction of a discount for owner occupiers would require primary legislation.

Consultation

In total 6 organisations responded, one in support, one qualified support and 4 opposed. One organisation opposed what it called ‘a crude blanket relief system’, to which people in rented property are excluded, and it would result in a lower tax base and a higher tax rate.

WWF Proposal – Rate Rebate for Household Energy Efficiency Improvements

Background

During the consultation process, WWF (the World Wide Fund for Nature) put forward a proposal for a rate rebate proposal to be awarded to households that installed energy efficiency measures in their homes. Specifically, the proposals related to the installation of loft and cavity wall insulation. The proposal referred to a similar scheme which operates under the Council Tax and which is part funded by one of the utility companies in GB. WWF therefore suggested that a Northern Ireland based scheme could equally be part financed through the voluntary Energy Efficiency Levy, which NIE contribute to.

Options

The WWF proposals have been examined as part of the review. It is also possible to think of a wide range of other energy or environmental improvements which households could make and which could then be subject to a rebate. For example, relief could be targeted at zero carbon or low carbon households. These have not been examined in detail as yet though.

Impact

The level of rebate available in GB ranges from £50 to £100. As mentioned above, this tends to be funded partly by British Gas and partly by the local authority. The NIE Energy Efficiency Levy referred to by WWF is a potential source of funding, although this is a voluntary levy. However, advice received from NIE is that, from this levy, the amount of funding available for projects of this type is limited and, in addition, any application would face strong competition from other sources. Thus, there can be no guarantee that any of this funding could be available and certainly not for next April.

What also needs to be noted is that similar financial incentives are also available for households in Northern Ireland that carry out either loft or cavity wall insulation. For example, NIE currently provide up to £150 cash back to homes that carry out either of these improvements. In addition, NIE will also, for free, fit both cavity wall and loft insulation into any owner-occupied or private rented house, where the household is on a low income. Free insulation is also available through the DSD funded ‘Warm Homes Scheme’ to applicants on certain qualifying benefits. The WWF view is that both schemes could continue to operate in order to encourage maximum take-up.

WWF, in their proposal, state that there are around 70,000 homes in Northern Ireland without cavity wall insulation and 500,000 homes that have either no loft insulation or, if they do, are of poor quality. Their view is that the scheme should be available to those with some as well as no loft insulation. They do not say what they expect the number of applications for the proposed rebate might be or estimate the cost, although point to similar study carried out by the Energy Saving Trust in terms of Council Tax which pointed to an 8% take up rate.

The DSD Warm Homes Scheme awarded over 11,300 grants in 2005/06, the last year for which figures are available. NIE have advised that the rate of applications for its cash-back scheme runs at around 1,000 to 1,500 per year. The cost of a £100 rebate would depend on how the scheme is funded (either through the Energy Efficiency Levy, district rate or regional rate), what the level of take up might be and what groups of ratepayers would be able to apply.

Legislative implications

The introduction of a rate rebate for households that make energy efficiency improvements would require primary legislation.

Rating of Second Homes

Background

Concern has been expressed previously that the ownership of second homes by individuals, particularly in high demand areas such as in popular tourist locations or near universities, is inflating the value of all properties in that area and thus the rate liability. This has lead to calls for the introduction of special rating measures to support long term residents in locations such as the North Coast in order to reflect this inflationary impact of this second home ownership.

The table below attempts to present some of the evidence behind this. This shows the average capital value in several wards in the Coleraine district, as well as the average capital value for the district as a whole. The table also shows the average change in rate bill as a result of the revaluation. That is, it compares capital value based bills with what they would have been had the previous NAV system continued.

There are a few points to note from the results summarised in the table above. Firstly, the average capital value in some wards is well above the average for the council area as a whole, as well as that for Northern Ireland (around £112,000). However, this is not true in all cases (University and Royal Portrush, for example). Also, looking at the average change in bill as a result of the revaluation, it is clear that, while some wards do appear to have experienced a sharp rise since the previous valuation in the 1970’s, in other cases this is not the case.

Options

There are obviously a wide range of options in terms of where any scheme such as this would be applied, as well as the criteria used for assessment. However, in terms of the actual operation of a scheme, the two main approaches are to either:

• Provide a discount for permanent residents
• Rate second homes at a higher rate

Impact

Based on initial analysis of the North Coast area and using research carried out by the University of Ulster for the NIHE, a 20% discount for permanent residents could cost in the region of £1m - £1.5m each year in lost revenue.

This research also indicated, however, that second home owners were not significantly affected by concerns about taxation issues or the level of rates payable.

Legislative implications

The introduction of a discount for permanent residents or a higher rate on second homes would require primary legislation.

Increasing Take-up

Background

Concerns have existed for some time about the perceived low level of take up of housing benefit / rate relief, particularly in the owner occupied sector. For example, analysis using the Family Resources Survey suggests that the overall take up rate of this benefit in Northern Ireland among this sector is around 42%. This is not an issue which is limited to just this benefit, as other benefits have also suffered from poor take up. Nor is the problem higher in Northern Ireland. The Lyons Review of Local Government Finance in England and Wales, for example, addressed this problem and suggested a number of steps for improving take up of Council Tax Benefit.

Options

The approach taken in the review has been to examine the recommendations made by both the Lyons Review, as well as the Burt Report in relation to local taxation in Scotland, in order to determine if there are any measures which can be replicated in Northern Ireland. The review has also looked at best practice among local authorities in Great Britain, again to see if there are any relevant lessons to be learned.

From this review, a number of potential measures have emerged which could be considered for Northern Ireland. These include:

Streamline and simplify the application process – the complexity of the benefits system as a whole is viewed as a deterrent by some to application.

Raise awareness and encourage take-up – there is a consistent need to raise awareness of the availability of reliefs, particularly to certain, difficult to reach groups. Any measures along these lines should also be targeted to the relevant audience where possible.

Involve external agencies – other Government agencies have employed third party organisations, such as Citizens Advice, for example, to carry out the awareness raising on their behalf. These organisations are often viewed as more independent and have a higher degree of trust among the public.

Involve other Government Agencies – much of the data collected on individuals for the purpose of assessing eligibility for benefits is common to a number of these benefits. There are therefore opportunities for enhanced data sharing among these Agencies to improve take up. For example, a scheme within the Pension Service in GB, makes use of the information collected on an individual to determine their eligibility for Pension Credits, then uses the same information on income and savings to assess the applicant for Council Tax benefit. A pilot scheme is being considered as to whether this approach can be extended so as to provide an automatic assessment of Council Tax benefit eligibility for this group. A similar approach could therefore be adopted in Northern Ireland although primary legislation may be required to facilitate this in light of data protection rules.

Amend the Rate Relief Scheme – there is evidence that individual perceptions of eligibility for rate relief through this scheme deters applications, particularly given the complexity of the scheme. Increasing the capital threshold, whilst having limited effect on actual eligibility for relief (see earlier analysis) may though encourage take up.

Impact

As the analysis around circuit breakers has indicated (see earlier analysis) steps towards increased take up of benefits can have a significant impact on poverty levels.

Annex B – DFP Summary Analysis of Strand 2 Options

Local Income Tax

Local income taxes are a relatively widely-used source of local government funding in other countries and it is relatively uncommon for local government to be entirely dependent on a single local tax whether property based or otherwise. Back in 1976 the Layfield Committee concluded that should Government judge that new sources of income for local government are necessary then the only feasible major sources would be Local Income Tax (LIT). The much more recent Balance of Funding Review also saw a Local Income Tax as the main alternative option arguing that it provides the opportunity for revenue to be raised and spent locally making Councils more directly responsible for their finance.

The Scottish Parliament has recently decided that they want to abolish council tax and replace it with a local income tax based on ability to pay. Their proposal is that it will be set at 3% across Scotland and that HMRC will be involved in its administration and they intend launching a consultation on their proposals later this year.

Tax Varying Powers

The devolved Scottish Parliament has the power to increase or decrease the basic rate of income tax set by the UK Parliament by a maximum of 3p.

Under Schedule 2, paragraph 9 of the Northern Ireland Act 1998 (‘the 1998 Act’), most issues of taxation are excepted matters. If however, following consideration of alternative forms of taxation by the Northern Ireland Assembly a system emerges that requires tax varying powers and therefore the consent of Parliament then the UK Government would have to be lobbied to change this aspect of the 1998 Act.

Local Sales Tax

A tax on transactions can be applied as a general sales tax that applies to most or all goods and transactions as VAT presently does. Internationally, sales taxes are used but generally in combination with other taxes. For example in federal countries such as Australia, Austria, Canada, Germany and the United States they tend to form a significant share of tax revenues for state government but considerably less for local government. Amongst unitary countries they make a small contribution to local tax revenues in France, Italy, Japan, Korea and New Zealand but substantially more in Spain and especially the Netherlands at around 40%.

In any debate about whether to introduce a local sales tax in Northern Ireland consideration would have to be given to the fact that the Republic of Ireland does not currently impose such a tax. This is likely to encourage cross-border shopping which could have a significant detrimental impact on businesses in Northern Ireland, particularly those in the border areas and the Northern Ireland economy as a whole.

Poll Tax

In1986 the Government published its Green Paper which paved the way for the introduction of the Community Charge or the Poll Tax as it was more commonly known. The central argument in the Green Paper was the need to strengthen local accountability and that one of the problems was that only a minority of electors paid rates and also that bills did not reflect the variation in households’ consumption of local services.

The recommended alternative to domestic rates was a per capita community charge (poll tax) which was introduced in Scotland in 1989, one year earlier than in England and Wales.

In any consideration of this issue consideration must be given to its great unpopularity and ultimate failure in GB.

Banding

The 1991 consultation paper ‘A New Tax for Local Government’ paved the way for a transition to the council tax system, introduced in 1993, following the decision to scrap the Poll Tax. Although fairness was identified as an underlying principle, this was not perceived simply in terms of ability-to-pay but also that most adults should make some contribution in order to try to ensure that the public perception was that the system was fair. The argument that all electors should pay something towards the cost of local services was scrapped in favour of a tax that would take account of most adults in a household but providing a reduction of 25% for single-person households. A banding system was introduced so the tax varied within a limited range according to property values. The banding system with an upper limit prevents very high bills falling on a minority of properties and meant there was a reduced need for regular and frequent valuations of properties.

As part of the previous Review of Rating Policy taken forward by Direct Rule Ministers a decision was taken that the outdated current rental based system should be replaced with a capital value system in respect of domestic properties. The Government commissioned further work to inform which type of capital value based system should be introduced. This work was undertaken by the University of Ulster, and together with a range of impact assessments carried out by the Department, showed that, taking account of Northern Ireland’s circumstances, a discrete capital value system rather than a banded system (as used to determine council tax liability) would be more progressive, more New TSN positive and easier to understand than the alternatives and this system has been introduced with effect from 1 April 2007.

Road Charging

Road Charging is a combination of three slightly different but related initiatives. These initiatives are Congestion Charging, Tolling and National Road Pricing.

Powers to operate congestion charging in London were granted by the Greater London Authority Act 1999 and the Transport Act 2000 extends these powers to outside London with the proviso that any charging would support the Local Transport Plan. These powers remain largely untested with the notable exception of London’s congestion charge.

The Transport Act 2000 and the draft Local Transport Bill which is currently out for consultation are aimed at encouraging Local Authorities in GB, through the Transport Innovation Fund to submit local transport plans which include an element of congestion charging. The need for approval from the Secretary of State for Transport has also been removed so that local decisions can be made locally. A number of authorities have submitted bids, the most notable probably being Manchester City Council which has attracted significant media attention recently. Income from such schemes can be hypothecated and used to develop other transport measures such as improving public transport.

DRD response

The Transport Act 2000 and draft Local Transport Bill do not apply to Northern Ireland and so in order to take forward congestion charging, additional powers would be required. The Minister for Regional Development has confirmed that

(i) the Roads Service officials should not pursue further the introduction of the necessary powers to introduce congestion charging schemes and that the policy position should revert to that stated in paragraph 7.27 of the Belfast Metropolitan Transport Plan (reproduced below); and

(ii) agreed that Roads Service officials pro-actively review developments in congestion charging schemes in GB, and further afield, to inform future policy decisions.

Paragraph 7.27

The 2015 Plan does not propose the implementation of congestion charging within the Belfast Meropolitan Area (BMA). Congestion charging, however, is an evolving area and it will be reviewed further within the Plan period, drawing upon experience from other parts of the UK. The review will consider different types of charging systems and if they would benefit the BMA. The various types of congestion charging for possible consideration, include cordon-based systems focused on central Belfast (similar to that in use in London) and area-wide schemes using Global Positioning Systems (GPS) which could be likened to a nationwide charging scheme currently being examined by government as a more flexible alternative to the existing system of road tax and fuel duty.)

Road Tolling

A Road Tolling Consultancy commission to look at the feasibility of introducing tolling on the 5 key transport corridors in Northern Ireland has recently been completed and the results of that study will be factored into the Roads Service submission under ISNI 2 for the further development of the Strategic Road Network. The study has identified that the income from tolling the 5 key transport corridors in Northern Ireland would amount to approximately 16% of the cost of providing and maintaining the infrastructure over a 25 year period. The highest % contribution would come from the eastern corridor with 40% of the costs recovered and the lowest % contribution would be on the Northern Corridor with only 10% of the costs recovered.

Green Taxes

Though local councils have the right to charge businesses for the collection of waste they may not at present, charge for the collection and disposal of household waste. There are some exceptions however, for example, the collection of bulky items and they also have powers to fine residents if they contaminate recycling or do not comply with compulsory re-cycling schemes. Waste policy in the future will have to meet the challenge of reducing the volume of biodegradable municipal waste sent to landfill in line with EU legislation.

The Northern Ireland Landfill Allowance Scheme is one of the key measures to reduce the amount of biodegradable municipal waste going to landfill and was introduced on 1 April 2005 (similar schemes were introduced in the rest of the UK). The Scheme sees progressive reductions in the amount of biodegradable waste – such as paper, food and garden waste – that Councils can landfill.

Landfill allowances have been allocated to each council in Northern Ireland for each year to 2019/20 at a level that will enable Northern Ireland to meet its targets, as a contribution to the UK targets, under the Landfill Directive. Each allowance permits one tonne of biodegradable municipal waste to be land-filled and the allowances allocated to each council reduce over time to force compliance with the Landfill Directive targets. The DOE’s Environment and Heritage Service monitors the Scheme.

Another way in which Northern Ireland might contribute to environmental improvement is to consider seeking to introduce a tax or levy in Northern Ireland on the use of plastic bags which would correspond to that deployed so successfully in the Republic of Ireland which has cut plastic bag use by approximately 90%, and proved to be a very useful income stream with €75m will being raised since its introduction in 2002 and €18.8m raised in 2006.

DOE response

Defra is currently seeking views on giving local authorities in England discretionary powers to introduce domestic waste charging. The Executive could certainly consider whether it would be appropriate to introduce a similar scheme in Northern Ireland. Indeed the Northern Ireland Waste Management Strategy 2006-2020, published in March 2006, commits DOE, by March 2009, to bring forward for public consultation, detailed proposals to give councils powers to charge for the collection of residual wastes from householders. However it should be noted that policy development in this area is at a very early stage.

It should also be noted that the scheme currently being considered by Defra is revenue neutral ie any money raised has to be returned in full to local residents.

At present the Department of the Environment is considering ways to tackle a number of local environmental problems such as litter, including plastic bag litter. In the Republic of Ireland the levy on plastic bags has changed consumer behaviour. However, it is interesting to note that after detailed consideration, Scotland decided against such a tax. Alternatives to plastic bags often entail their own environmental problems and all of the issues need to be considered before deciding on the most appropriate way forward for Northern Ireland.

Land Value Taxation

The case for taxing land as an alternative to taxing buildings is a well established concept that is promoted by such organisations as the Henry George Foundation. At its core such a system would involve an annual charge on a property based on its land value (ideally based on the concept of highest and best use including its development potential) rather than based solely on the rental or capital value of the buildings in their existing use. Advantages claimed for the system include its potential for encouraging urban renewal, reducing dereliction and redistributing wealth.

The Ulster University were commissioned to investigate the experience of other jurisdictions that have used Land Value Taxation as a revenue raising measure. They recently provided their draft report and the findings are currently under consideration. Their main conclusion is that to introduce Land Value Taxation to replace the current domestic and non-domestic rating systems would be difficult and not in line with international trends and, amongst other things, cite uncertainty in relation to planning and lack of current development plans as a major impediment.

Derelict Land Taxation

Land that is not capable of beneficial occupation is not currently taxed through business rates. Dereliction, therefore, is an attractive route for some owners to avoid taxation and so the potential exists to close this loophole by introducing derelict land taxation.

The University of Ulster are currently carrying out a pilot study in the greater Belfast area in relation the rating of derelict land and they hope to report within the next couple of weeks. If it was decided to introduce this measure it would be as a supplement to the current rating system and in addition to raising revenue there are potential benefits for housing affordability.

Tourist Tax

Accommodation charges have been deployed in a number of places around the world. For example, in France, a charge is levied on all overnight stays and the charge is largely left to be determined locally. Additionally other types of tourist tax such as airport taxes and departure fees are often used in other cities and countries are used in particular to assist the promotion of tourism locally.

Under the North/South Ministerial Council there are six North/South Implementation Bodies which implements policies agreed by Ministers in the North/South Ministerial Council. The bodies and Tourism Ireland Limited (i.e. the Northern Ireland Tourist Board and Bord Failte) are funded from grants made by the relevant government departments, North and South. Current policy is for Tourism Ireland Ltd to jointly promote tourism on the island of Ireland as a means of mutually maximising the economic benefits of tourist activity. As no tourist tax is imposed in the Republic of Ireland the introduction of such a tax in Northern Ireland would conflict with the aforementioned joint approach.

DETI response

DETI would concur with the findings/views in the Lyons report. Tourism in Northern Ireland is competing not only in an all Ireland or indeed British Isles context, but in a global context. Anything which makes the industry less competitive will have a negative impact on future growth.

Whilst the Northern Ireland tourism sector is showing significant growth it should be noted that this growth is from a very low base which has been suppressed by years of conflict and a tourism tax could have a detrimental effect. It is also a growth which is biased strongly towards the Belfast marketplace. Whilst it might be considered that Belfast could carry such a tax it is highly unlikely that other areas would.

Appendix 1

Terms of Reference for the Review

Domestic Rating Policy Review – Terms of Reference

Background

1. A new domestic rating system came into operation on 1 April 2007 following a review of rating policy commissioned in 2000 by the then Executive and taken forward by Direct Rule Ministers after the suspension of the Assembly in October 2002.

2. On the 15 May 2007, during the first debate about the new system since the Assembly was restored on 8 May 2007, the Minister of Finance and Personnel, Peter Robinson MP, MLA (who is responsible for rating policy) said:

“I am committed to reviewing the arrangements for domestic rates in Northern Ireland. I intend, in the next few weeks, to bring a paper before the Executive setting out the steps that I propose to take. I agree with the Chairperson of the Finance and Personnel Committee that it is important that rating reform be viewed in the context of how the Executive intend to address the funding of water in Northern Ireland.

In the past five years in Northern Ireland, extensive research and consultation has been conducted on the rating issue. In Great Britain, Sir Michael Lyons has recently conducted a lengthy review of local government finance. What is needed now in Northern Ireland is not a lengthy analysis but a short-term review that can deliver changes by next April and consider what further long-term steps should be taken”.

Aim

3. The aim of this further review of rating policy is twofold:

(i) to identify ways of improving the new system that can be implemented in April 2008; and

(ii) to examine alternatives to the new system as a means of identifying options for longer term change.

4. As the Minister said during the Assembly debate on 15 May 2007:

‘As well as mapping out the long-term options for raising revenue in the Province, it is essential that short-term measures be considered in any review. As I said, I intend to carry out an early review of the domestic rating system. As part of that review, the effectiveness of the new relief packages, which are already on offer, will be examined. There are better ways of delivering relief to those who are most deserving, and we need to examine the options for doing so’…… Whatever the possibilities for change in the longer term, we must be able to make changes that can be in place for next April.’

5. In carrying out this further review, the overall objective will be to assist the Executive to put in place arrangements which ensure that:

• there is an equitable distribution of the rate burden on households in Northern Ireland and effective reliefs are provided so that those who are less able to pay are protected
• the system is sustainable and provides an appropriate means of financing regional and local government;
• the system should be transparent and readily understood, both in its methodology and in how the proceeds are used, thereby improving local accountability.
• the system is accepted by the majority of people in Northern Ireland.

Policy

6. Details of the changes to the domestic rating system introduced in April 2007 are outlined in Annex B. They emanated from a policy paper published in July 2004 ‘Reform of the Domestic Rating System in NI’ by Direct Rule Ministers and were announced in March 2005 in a report published following a 16 week consultation period. Subsequent changes were also announced in March 2007 following the St Andrews Agreement. These related to the maximum payment or cap and enhanced relief for pensioners.

7. A range of enabling powers also came into effect on 1 April 2007 that would allow the Assembly via subordinate legislation to change the scope of the new system by:

• introducing a scheme to allow home owning pensioners to defer payment of their rates;
• introducing the rating of vacant domestic property;
• targeting the low income relief scheme in a different way (in much the same way that the enhanced relief for pensioners has done);
• changing the cap on rates; and
• introducing a minimum payment.

8. Although this is something that can be done relatively easily, it would not be possible to introduce any of these changes during the current financial year.

9. As the Minister stated in the Assembly on 15 May 2007, this further review of rating must also be considered in the context of how the Executive plans to address the funding of water and sewerage services in Northern Ireland. Although it was separated out in 2002 from the review of rating policy commissioned by the previous Executive, this issue has been perceived throughout by the public to be interlinked with the reform of the domestic rating system. Water reform has been a highly contentious issue in its own right and, as a result of intensive lobbying, plans to introduce water charging in April 2007 were postponed by Direct Ministers just prior to the restoration of the Assembly in May 2007.

Legislative

10. Rating is entirely a devolved matter and is principally governed by the Rates (Northern Ireland) Order 1977 as amended. The changes introduced in April 2007 were contained in the Rates (Amendment) (Northern Ireland) Order 2006. An Order made in March 2006 (The Rates (Capital Values, etc) (Northern Ireland) Order 2006) provided for the new capital values to the determined and published in advance of the new system coming into operation so that ratepayers could find out more about them and query them if necessary before rates bills issued.

11. The wider legislative context is also important for the purposes of this further review. Under Schedule 2, paragraph 9 of the Northern Ireland Act 1998 (‘the 1998 Act’), most issues of taxation are excepted matters. The reference in the 1998 Act applies to taxes or duties of substantially the same character as a UK wide tax. This meant that the review commissioned in 2000 by the previous Executive restricted itself to consideration of property based taxes. This further review is not so constrained and the Minister made it clear to the Assembly during the first debate that if an alternative system emerges that requires the consent of Parliament then the Government will be lobbied to change this aspect of the 1998 Act. Broad consideration can therefore be given in this further review to other alternative forms of taxation such as a local income tax.

Key Considerations

12. There are a number of overarching principles of effective taxation that any review of local taxation must take into consideration. These principles are set out in Annex A and will guide the development of options during this further review.

13. Other considerations that must guide the review process in a Northern Ireland context include:

(i) the impact on revenue levels to support public expenditure;

(ii) the relationship between the rates and how we pay for water

(iii) implications for the funding of local government/district council services both now and following any restructuring under the Review of Public Administration;

(iv) the impact on housing benefit income;

(v) the ease of administration and cost of implementation; and

(vi) statutory obligations.

14. A further important consideration is the balance that has to be struck when deciding whether to extend existing reliefs and exemptions or introduce new reliefs or exemptions bearing in mind that this would either reduce the amount of revenue generated by the rating system to spend on public services in Northern Ireland, or impose a greater burden on other ratepayers.

15. Looking further field, this further review should also consider the considerable research and analysis that has been carried out in England as part of the Lyons Review into local government funding there. Northern Ireland is not bound by the findings of that review but there are issues that are common to both jurisdictions that are worth examining.

Scope of Review

16. In line with the aim set out in paragraphs 3 to 5, the review will initially be divided into two parallel strands. The first strand will examine the options for change in April 2008 which could include the following measures relating to both the tax base and reliefs:

17. Tax base options

• Lower cap
• Minimum payment
• Rating of empty homes

18. Tax reliefs

• retargeting of the new lower income relief scheme (one option would be to raise the savings threshold)
• revise the scheme providing for those engaged in full time education and training
• introduce a deferment scheme for home owning pensioners
• re-profile the transitional relief scheme
• revise the early payment discount

19. The following is a list of measures which could be re-examined in the context of reforming and improving the existing system. Other ways may emerge as the review progresses. All of these listed measures would require new primary legislation. Therefore, it would be most unlikely that they could be put in place for April 2008, given the requirements of the process:

• The introduction of graduated tax rates at different levels of value (eg first £150k at £7per ‘000, £150k to £300k at £6, £300k upwards at £5)
• single person discount
• single pensioner discount
• automatic pensioner discount
• broadening the Disabled Persons Allowance Scheme
• introduce circuit breakers for particular groups (so that there is an income cap)
• provide discount for owner occupiers
• enhanced discount for farmers

20. In putting forward options to the Executive the following matters will be addressed:

(1) Where possible use existing data to identify the potential number of applicants and revenue implications.

(2) Engage with Land and Property Services (incorporating VLA and RCA) and other agencies (eg NIHE, SSA) to assess and advise on implementation issues..

(3) Identify the legislative changes required (all the measures described in paras 16 and 17 are considered to be within the scope of the existing primary legislation).

21. The second strand of the review will examine possible longer term options for more fundamental change, all of which would require new primary legislation and in some cases (eg income tax and sales tax) a change to the 1998 Act.

22. Such options may include but not be confined to:

• Banding of house values (a Council Tax type system)
• local income tax
• income tax varying powers (as per Scotland)
• local sales tax
• poll tax
• tourist tax (as recommended in the Lyons Report)
• road charging
• green taxes (as recommended in the Lyons Report)
• land value taxation
• derelict land taxation (as recommended in the Lyons Report)

23. These options will be examined in outline, drawing as much as possible from existing research, with a view to quickly identifying any that offer the prospect of a realistic and broadly acceptable alternative (or in some cases as a supplement) to the rating system. It is not intended to mount a major public consultation process on such a wide range of options.

24. As noted above, a distinction will need to be drawn between those long term changes that can be made through primary legisaltion passed by the Northern Ireland Assembly and changes that would require amendment of primary legislation at Westminster. While the latter options can be identified, it would be important to determine the likelihood and timescales for any such changes at national level.

25. Furthermore, such changes could affect the fiscal relationship between NI and the rest of the UK to reflect changes (upwards or downwards) to local revenue levels.

Key Stages and Timetable

26. The review will be taken forward in a series of key stages initially encompassing both of the strands referred to in paragraph 3. The initial stages and associated completion dates are set out in Table 1 below.

Table 1

* To run concurrently

Engagement with Key Stakeholders

27. There will be a need throughout the review process to engage with key stakeholders. The exact nature and timing of these engagements will evolve as the review progresses. Therefore, the broad outline provided below covers the core elements of the strategy and will be subject to development and further refinement at each key stage.

28. There will be a public consultation running from mid-June 2007 until the end of August 2007. To ensure that changes can be made in time for next year’s bills (and allowing time for new subordinate legislation to be passed), the consultation cannot extend beyond this period.

Executive Liaison

29. As each strand of the two strands to this review are completed, the outcomes or findings will be presented to the Executive and decisions sought as appropriate. Updates will also be provided when requested.

30. In view of the wider context in which rating reform must be considered, there will also be a need to consult regularly with Ministerial colleagues responsible for issues such as water reform, the Review of Public Administration, local government, social security benefits etc.

Assembly Liaison

31. The Committee for Finance and Personnel will also be consulted throughout and consideration will be given to the need to consult with other Assembly Committees.

32. In addition, the Terms of Reference will be placed in the Assembly Library and the outcomes of Stage 3 will be the subject of a Ministerial Statement to the Assembly.

Contacts:

For further information on these Terms of Reference, please contact

Brian McClure,
Rating Policy Division ,
Department of Finance and Personnel,
Rathgael House,
Bangor.

Annex A

Model criteria for local taxation systems

Adequate revenue yield: The various types of local tax are merely different mechanisms for sharing, usually among local residents, a proportion of the cost of providing local services. However, if yields are to be sufficient to ensure real political autonomy and meet future demands placed upon it, the tax base needs to be sufficiently robust, broad based, up to date and discriminating to both command widespread support and be credible.

Equity of distribution: Those in the same circumstances within the same district/jurisdiction should be equally taxed. Those receiving benefit from public expenditure should contribute through taxation according to their ability to pay.

Minimum interference in markets: Taxes can influence how taxpayers behave. Ideally, according to market theory, taxes should be neutral i.e. they should not distort how taxpayers behave. When taxes are neutral, market-pricing mechanisms produce the most efficient allocation of resources. Furthermore, the incidence of any tax is important in terms of ability to pass on the liability to others through rents and additional charges.

Stability and certainty: The local taxation base needs to be predictable in order to underpin the provision of public services. Furthermore, from an individual taxpayer/ratepayer’s perspective, this is an important factor in budgeting. Stability and certainty are key considerations both in the choice of system and maintaining it as a sustainable source of revenue.

Should support/not interfere with policy objectives: The tax structure should not threaten overall fiscal targets and its impact on benefit and rebate expenditure should be taken into account.

Non-arbitrary administration: This relates to the objectivity and consistency of assessment of liability.

Transparent and easily understood by taxpayer: The local tax should seek to encourage and strengthen local democracy requiring it to be easily understood and responsive to the demands of taxpayers. Taxpayers need to be able to understand their assessments and associated bills.

Low administration and compliance costs: This relates to ease of administration by government and the cost to the taxpayer in complying with the system.

Difficult to evade: This is important because it refers to the efficiency of a tax and evasion inevitably leads to an increasing burden on honest taxpayers.

Annex B

Domestic Rate Reform

Key reforms

1. The key reforms in the domestic sector that took effect on 1 April 2007 include:

• the introduction of a discrete (rather than banded) capital value system;
• the introduction of a new low income rate relief scheme, which will sit above and be additional to the existing housing benefit system;
• the provision of 100% relief where properties are occupied solely by full time students and trainees, ratepayers aged less than 18 and young people leaving care;
• the provision of transitional relief over a three year period for those most adversely affected by the move to capital values;
• amendments to the existing disabled persons allowance scheme to simplify the process of making awards and introduce a standard 25% reduction;
• the standardisation of rates in the social rented sector; and
• the establishment of a new independent valuation tribunal.

2. A range of enabling powers also came into effect on 1 April 2007 that would allow the Assembly to change the scope of the new system by subordinate legislation through:

• introducing a scheme to allow home owning pensioners to defer payment of their rates;
• introducing the rating of vacant domestic property;
• targeting the low income relief scheme in a different way (in much the same way that the enhanced relief for pensioners has done);
• changing the cap on rates; and
• introducing a minimum payment.

3. However, if the Executive were to decide to make use of any of these powers, further consultation would be required and the cost and operational implications would have to be considered. In addition, it would not be possible to introduce any of these changes in the current financial year.

4. In addition, following the St Andrews Agreement, two further measures were introduced in April this year:

• a cap set at properties valued at £500,000 which equates with the highest council tax bill in England; and
• the provision of further relief to pensioners on low incomes, costing in the region of £4m, through the new rate relief scheme mentioned above.

Committee for Finance and Personnel

Room 428
Parliament Buildings
Stormont
BELFAST
BT4 3XX

Tel No: 028 90521843
Fax No: 028 90520360
E-mail: committee.finance&personnel@niassembly.gov.uk

27 June 2007

Rt Honourable Peter D Robinson MP MLA
Minister for Finance and Personnel
Craigantlet Buildings
Stoney Rd
Belfast BT4 3SX

Domestic Rating Review

Dear

Thank you for arranging for the Terms of Reference for the Rating Review to be sent to the Committee in advance of your statement to the Assembly on 11 June 2007. The Committee considered the options in both Strands 1 and 2 of the Terms of Reference and is content with the range of issues to be examined. Members particularly welcomed the broad scope of the review and the fact that ‘nothing has been ruled in or out’ at this stage.

On behalf of the Committee I also welcome your commitment to engage as the Review continues, including sharing the consultation responses, providing a report on the consultation and reporting back to the Committee before finalising your proposals. The Committee has agreed that its main role will be one of monitoring the consultation process and examining the findings and recommendations emanating from the consultation. The Committee also considers that its main input to the Review will therefore be in September, following the end of the consultation process in August and before any recommendations are finalised.

I would be grateful if your officials could therefore build sufficient time (we suggest a four-week period) into the process to allow the Committee enough time to consider both the consultation report and the draft recommendations to be put to the Executive.

Your officials informally requested the Committee’s research paper on the Long-Term Alternatives to Domestic Rates. The Committee agreed to this request at its meeting on 27 June 2007 and the paper is annexed to this response.

Yours Sincerely

Mitchel McLaughlin MLA

Chairperson
Committee for Finance and Personnel

Appendix 2

Minutes of Proceedings Relating to the Report

Wednesday, 5 September 2007
Room 152, Parliament Buildings

Present: Mitchel McLaughlin MLA (Chairperson)
Mervyn Storey MLA (Deputy Chairperson)
Roy Beggs MLA
Dr Stephen Farry MLA
Simon Hamilton MLA
Fra McCann MLA
Adrian McQuillan MLA
Declan O’Loan MLA
Dawn Purvis MLA
Peter Weir MLA

In Attendance: Alan Patterson (Principal Clerk)
Shane McAteer (Assembly Clerk)
Vivien Ireland (Assistant Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Paula Sandford (Clerical Supervisor)
Paul Woods (Clerical Supervisor)
Mary Thompson (Clerical Officer)

Apologies: Jennifer McCann MLA

The meeting commenced at 10.06am in open session.

6. Correspondence

Members noted the following correspondence:

- DFP: Update on Rating Reviews;

- Minister, Finance and Personnel: Rate Relief for Small Businesses;

Agreed: that members would consider this issue following the update from DFP officials at next week’s meeting.

Mitchel McLaughlin, Chairperson,

Committee for Finance and Personnel.
12 September 2007.

Wednesday, 12 September 2007
Room 152, Parliament Buildings

Present: Mitchel McLaughlin MLA (Chairperson)
Roy Beggs MLA
Dr Stephen Farry MLA
Simon Hamilton MLA
Fra McCann MLA
Jennifer McCann MLA
Adrian McQuillan MLA
Declan O’Loan MLA
Dawn Purvis MLA
Peter Weir MLA

In Attendance: Shane McAteer (Assembly Clerk)
Vivien Ireland (Assistant Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Paula Sandford (Clerical Supervisor)
Mary Thompson (Clerical Officer)

Apologies: Mervyn Storey MLA (Deputy Chairperson)

The meeting commenced at 10.07 am in open session.

4. Review of Rating Issues: Domestic Rates, Rates Relief for Small Businesses and Industrial Derating

Assembly Research provided background briefing to the Committee on the Small Business Rate Relief Scheme.

Agreed: that Assembly Research will follow up on a number of issues raised by members.

The Committee was briefed by Brian McClure and Patrick Neeson, DFP Rating Policy Division, on Domestic Rates, Rates Relief for Small Businesses and Industrial Derating.

Mr McClure advised members that the forthcoming consultation report on the review of the Domestic Rating System will be made available to the Committee for its consideration by 26th September 2007.

Members were advised that in relation to Industrial Derating, the ERINI report is due to be received by DFP at the end of September. However, DFP will need to carry out its own analysis of this report and update the Committee by October/November. It is envisaged that the Executive will make any decisions before Christmas to allow for subordinate legislation to be in place for April 2008.

Mr McClure referred to the Minister’s letter of 6 July 2007 asking for the Committee’s views on the draft terms of reference on the review of rate relief for small businesses in Northern Ireland.

Agreed: response to the Minister regarding DFP’s draft terms of reference in respect of the review of rate relief for small businesses.

Mitchel McLaughlin, Chairperson,

Committee for Finance and Personnel.
19 September 2007

Wednesday, 26 September 2007
Room 152, Parliament Buildings

Present: Mervyn Storey MLA (Deputy Chairperson)
Roy Beggs MLA
Dr Stephen Farry MLA
Simon Hamilton MLA
Jennifer McCann MLA
Adrian McQuillan MLA
Declan O’Loan MLA
Dawn Purvis MLA
Peter Weir MLA

In Attendance: Alan Patterson (Principal Clerk)
Shane McAteer (Assembly Clerk)
Vivien Ireland (Assistant Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Paula Sandford (Clerical Supervisor)
Mary Thompson (Clerical Officer)

Apologies: Mitchel McLaughlin MLA (Chairperson)
Fra McCann MLA

The meeting commenced at 10.06 am in open session.

5. Review of Domestic Rating Reform – Consultation Report – Evidence Session

Agreed: Official Report (Hansard) to be made of the evidence session with DFP officials on the Review of Domestic Rating Reform and that this will be published on the Assembly website.

The Committee was briefed by the following DFP officials: Brian McClure, Head of Rating; Patrick Neeson, Rating Policy Division and Alison McCaffrey, Rating Policy Division on the Review of Domestic Rating – Consultation Report.

Brian McClure outlined the responses received to the consultation on the Review of Domestic Rating Reform. The DFP officials agreed to provide follow up information, including details of the costs and benefits of the various options and on the uptake of existing reliefs.

Members were advised that the Committee needs to agree a formal response on the Review of Domestic Rating by the end of October.

Members were advised that Assembly Research will be providing a paper on international comparators for the meeting on 10 October.

Agreed: that Citizen’s Advice will be invited to give evidence at next week’s Committee meeting.

Agreed: that further consideration will be given at next week’s Committee meeting to agree other witnesses to give evidence on 10th and 17th October, including other umbrella groups, and professional and academic bodies.

Mervyn Storey, Deputy Chairperson,

Committee for Finance and Personnel.
3 October 2007

Wednesday, 3 October 2007
Room 152, Parliament Buildings

Present: Mitchel McLaughlin MLA (Chairperson)
Mervyn Storey MLA (Deputy Chairperson)
Roy Beggs MLA
Dr Stephen Farry MLA
Simon Hamilton MLA
Fra McCann MLA
Adrian McQuillan MLA
Declan O’Loan MLA
Dawn Purvis MLA
Peter Weir MLA

In Attendance: Shane McAteer (Assembly Clerk)
Vivien Ireland (Assistant Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Mary Thompson (Clerical Officer)

Apologies: Jennifer McCann MLA

The meeting commenced at 10.04 am in open session.

4. Review of Domestic Rating Reform – Evidence Session with Citizens’ Advice

Agreed: that an Official Report (Hansard) would be made of all the evidence taken by the Committee in relation to its consideration of the domestic rating review and that the finalised transcripts will be published on the Assembly website.

Mr Hamilton joined the meeting at 10.14am.

Mr Storey joined the meeting at 10.14am.

The Committee took evidence from Lucy Cochrane, Information and Policy Officer, Citizens’ Advice. The session was recorded by Hansard.

Ms Purvis joined the meeting at 10.30am.

Mr Beggs left the meeting at 10.50am.

The Committee considered the key issues from the evidence session which could be included in its response to the Minister.

9. Review of Domestic Rating Reform

Members noted that DFP officials will update the Committee at next week’s meeting and that they will be accompanied by representatives from the University of Ulster, who will brief the Committee on the ongoing research into land value taxation and the rating of vacant domestic properties. In addition, Assembly Research will also brief members on the paper requested on potential international comparators.

Members considered other potential witnesses to be invited to provide oral evidence to the Committee on 10th and 17th October.

Agreed: that representatives from the Institute of Revenues Rating and Valuation will be invited to attend on 17 October.

Agreed: that evidence is required from economists, such as John Simpson, Mike Smyth or ERINI, on the longer-term strand two options and that the Clerk will arrange appropriate sessions.

Members noted the submission to the Department’s review from Professor Derek Birrell, Professor of Social Administration & Policy School of Policy Studies, University of Ulster

Agreed: that Professor Birrell will be asked whether he has undertaken any further research in this area which he would be prepared to share with the Committee and whether he would be prepared to provide a written response to any further queries arising from the Committee’s considerations.

Agreed: that University of Ulster officials attending on 10 October will also be asked to brief the Committee on the issue of banding versus individual valuations.

Agreed: that the General Consumer Council will be asked whether it wishes to submit evidence which is additional to that contained in its submission to the recent DFP consultation and, if so, the Committee will consider the possibility of an oral evidence session.

Members were referred to a paper from DFP, containing an initial analysis of the costs and benefits associated with the various options under consideration in the review. Members noted that this information was restricted to the Committee at this stage and considered the Department’s request that discussion on this paper should be held in closed session.

Agreed: that consideration of the DFP paper will be held in closed session.

The meeting continued in closed session at 12.10pm.

Agreed: a draft structure for the Committee response to the Minister.

Agreed: a list of options for which further information will be requested from DFP.

Agreed: that the restricted papers will be returned to Committee staff.

Mitchel McLaughlin, Chairperson,

Committee for Finance and Personnel.
10 October 2007

Wednesday, 10 October 2007
Room 152, Parliament Buildings

Present: Mitchel McLaughlin MLA (Chairperson)
Mervyn Storey MLA (Deputy Chairperson)
Roy Beggs MLA
Dr Stephen Farry MLA
Simon Hamilton MLA
Fra McCann MLA
Jennifer McCann MLA
Adrian McQuillan MLA
Declan O’Loan MLA

In Attendance: Shane McAteer (Assembly Clerk)
Vivien Ireland (Assistant Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Paula Sandford (Clerical Supervisor)
Mary Thompson (Clerical Officer)

Apologies: Dawn Purvis MLA
Peter Weir MLA

The meeting commenced at 10.08 am in open session.

3. Matters Arising

Members noted the outstanding requests for information from the Department of Finance and Personnel (DFP).

Members noted that evidence on the Review of Domestic Rating Reform was not expected from the General Consumer Council or from Professor Birrell, University of Ulster, additional to that which had been provided to the DFP consultation.

4. Evidence Session on the Review of Domestic Rating Reform

Agreed: that an Official Report (Hansard) will be made of all the evidence taken by the Committee in relation to its consideration of the Review of Domestic Rating Reform and that the finalised transcripts will be published on the Assembly website.

The Committee received oral and written evidence from John Simpson, Economist on the Review of Domestic Rating Reform.

Mr Farry joined the meeting at 10.14am.

Agreed: that any follow up questions will be sent to John Simpson for written response.

5. Assembly Research Briefing on the Review of Domestic Rating Reform

Members received a briefing by Assembly Research on a research paper, entitled An International Comparison of Local Government Taxation.

Mr O’Loan left the meeting at 11.07am.

Mr Beggs left the meeting at 11.19am.

Agreed: that Assembly Research will follow up on whether international evidence suggests a relationship between the degree of home ownership and the basis of local government taxation.

6. Evidence Session on the Review of Domestic Rating Reform

The Committee received evidence on research into the options of land valuation taxation and of rating vacant domestic property. The witnesses included Brian McClure and Alison McCaffrey, DFP Rating Division and Peadar Davis and Dr Jasmine Lim, School of the Built Environment, University of Ulster.

Mr Hamilton left the meeting at 11.50am.

Mr O’Loan returned to the meeting at 11.50am.

Mr Hamilton returned to the meeting at 11.55am.

Mr McCann left the meeting at 11.55am.

Mr McCann returned to the meeting at 11.57am.

Mr Storey left the meeting at 12.10pm.

Ms McCann joined the meeting at 12.17pm.

Members noted that, whilst more detailed research is to be undertaken into both of these options, DFP will shortly provide preliminary research findings to help inform the Committee’s considerations.

Agreed: that once the remaining evidence has been received, members will identify the Domestic Rating options which should be given particular consideration.

Mitchel McLaughlin, Chairperson,

Committee for Finance and Personnel.
17 October 2007

Wednesday, 17 October 2007
Room 152, Parliament Buildings

Present: Mitchel McLaughlin MLA (Chairperson)
Mervyn Storey MLA (Deputy Chairperson)
Roy Beggs MLA
Dr Stephen Farry MLA
Simon Hamilton MLA
Fra McCann MLA
Jennifer McCann MLA
Adrian McQuillan MLA
Declan O’Loan MLA
Dawn Purvis MLA
Peter Weir MLA

In Attendance: Shane McAteer (Assembly Clerk)
Vivien Ireland (Assistant Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Paula Sandford (Clerical Supervisor)
Mary Thompson (Clerical Officer)

Apologies: None

The meeting commenced at 10.09 am in open session.

3. Matters Arising

Members noted the following:

• outstanding requests for information from the Department of Finance and Personnel (DFP);
• the Land Value Taxation Campaign response to Review of Domestic Rating Reform; and
• follow up Assembly research on international comparators for local taxation and on the Scottish National Party proposal for a local income tax.

Agreed: that DFP’s evidence on the Review of Domestic Rating Reform will be held in closed session, as this had been requested by the Department on the basis that the information under discussion was not yet ready for publication and should be restricted.

4. Evidence Session on the Review of Domestic Rating Reform

Mr Beggs declared an interest as a resident of a working farmhouse and someone who provides assistance on a family farm.

The representatives from Institute of Revenues, Rating and Valuation (IRRV) declared an interest in respect of ongoing work for the Belfast City Council on an aspect of rating and explained that they previously carried out consultancy work for DFP on rate reliefs and, prior to that, had acted as specialist advisers to the previous Committee for Finance and Personnel.

Members received oral evidence from David Magor and Pat Doherty, IRRV in relation to the different policy options identified in the Review of Domestic Rating Reform.

As previously agreed by the Committee, an Official Report (Hansard) was made of the evidence taken, which will be published on the Assembly website.

Ms Purvis joined the meeting at 11.02am.

Mr McCann joined the meeting at 11.10am.

Agreed: that the representatives from IRRV will provide the Committee with a paper on Green Taxes in due course.

5. Evidence Session on the Review of Domestic Rating Reform

The Committee received oral and written evidence from Victor Hewitt, Director of the Economic Research Institute of Northern Ireland, on the different policy options identified in the Review of Domestic Rating Reform.

When discussing the option of discount for owner occupiers, Mr Hewitt declared an interest in owning a second home.

Agreed: that any follow up questions will be sent to Victor Hewitt for written response.

The meeting continued in closed session at 12.39pm.

6. Evidence Session on the Review of Domestic Rating Reform

The Committee received evidence from Brian McClure, Patrick Neeson and Alison McCaffrey, DFP Rating Policy Division, in relation to the Department’s summary analysis of the policy options in the Review of Domestic Rating Reform.

Mr Hamilton joined the meeting at 12.45pm.

Meeting adjourned at 1.06pm.

The meeting continued in closed session at 1.20pm.

7. Review of Domestic Rating Reform – 2nd Draft of Committee Response

Mr O’Loan left the meeting at 1.50pm

The Committee considered a paper from the Rural Community Network on the Review of Domestic Rating Reform.

Agreed: that the Rural Community Network’s key recommendations will be noted in the Committee’s response to DFP.

Members noted the correspondence from the Consumer Council on the Review of Domestic Rating Reform.

Agreed: that the Committee will advise the Consumer Council that transcripts of evidence and the Committee’s response to the Review will be placed on the website as soon as possible and that the Committee will continue to be involved in aspects of domestic rating, both in scrutinising any legislation arising from the Review and in giving further consideration to the longer-term options.

Members noted the correspondence from the Communication Workers Union (NI Regional Advisory Committee Retired Members) and were advised that the Union had been informed of the Committee’s approach to taking evidence on the Review of Domestic Rating Reform.

Agreed: that the IRRV paper on Green Taxes will be copied to DFP when available.

Agreed: that any follow up questions will be sent to DFP for written response.

Members considered the second draft of the Committee’s response to DFP on the Review.

Agreed: that an updated version of the draft response will be issued to members on Monday 22 October both electronically and in hard copy. Members will forward any proposed amendments to the Clerk before the meeting on Wednesday 24 October.

The meeting continued in open session at 2.14pm.

Mitchel McLaughlin, Chairperson,

Committee for Finance and Personnel.
24 October 2007

Wednesday, 24 October 2007
Room 152, Parliament Buildings

Present: Mitchel McLaughlin MLA (Chairperson)
Roy Beggs MLA
Dr Stephen Farry MLA
Simon Hamilton MLA
Jennifer McCann MLA
Adrian McQuillan MLA
Peter Weir MLA

In Attendance: Shane McAteer (Assembly Clerk)
Vivien Ireland (Assistant Assembly Clerk)
Colin Jones (Assistant Assembly Clerk)
Paula Sandford (Clerical Supervisor)
Mary Thompson (Clerical Officer)

Apologies: Mervyn Storey MLA (Deputy Chairperson)
Fra McCann MLA
Declan O’Loan MLA
Dawn Purvis MLA

The meeting commenced at 10.11 am in open session.

8. Consideration of Draft Committee Response to the Review of Domestic Rating Reform

Agreed: that the consideration of the Committee’s draft response to the Review of Domestic Rating Reform will be held in closed session, which is in line with normal practice for consideration of draft committee reports.

Members considered a response from DFP to queries raised at the Committee meeting on 17 October 2007.

Members noted a paper on congestion charges and road tolling, which had been received from the Federation of Small Businesses. This was included with the other written evidence received by the Committee.

Members also noted written comments on the draft response from Mr O’Loan and Dr Farry, which had been circulated in advance of the meeting.

The Committee undertook a paragraph-by-paragraph consideration of the 3rd draft of the Committee response as follows:

Paragraphs 1 – 4 were agreed.

Paragraph 5 was agreed subject to a minor addition.

Paragraphs 6 – 7 were agreed.

Paragraph 8 was agreed subject to minor amendment.

Paragraphs 9 – 11 were agreed.

Members deliberated on paragraphs 12 -16.

Agreed: To select paragraph 14 for the Committee’s recommendation on the option of ‘Changes to the Level of Maximum Cap’.

Paragraphs 17 - 19 were agreed.

Paragraph 20 was agreed as the Committee’s recommendation on the option of an ‘Introduction of a Minimum Payment’.

Paragraphs 21 – 25 were agreed.

Members deliberated on paragraphs 26 -27.

Dr Farry: I beg to move

That paragraph 26 is selected for the Committee’s recommendation on the option of an ‘Introduction of Rating for Vacant Domestic Properties’, subject to inserting ‘starting with the properties with higher values’ after ‘implementation’ in line 5.

Question put and agreed to.

Paragraphs 28 – 32 were agreed.

Paragraph 33 was agreed subject to minor amendment.

Paragraph 34 was agreed.

Members deliberated on paragraphs 35 – 36.

Agreed: To select paragraph 35 for the Committee’s recommendation on the option of ‘Amendments to the Rate Relief Scheme’ subject to the following being added to the end of the paragraph:-

‘…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’.

Paragraphs 37 – 39 were agreed.

Members deliberated on paragraphs 40 – 41.

Agreed: To select paragraph 40 for the Committee’s recommendation on the option of ‘Revision of existing provision for education and travelling relief’.

Paragraphs 42 – 45 were agreed.

Members deliberated on paragraphs 46 – 47.

Agreed: To select paragraph 46 for the Committee’s recommendation on the option of an ‘Introduction of deferred payment scheme for pensioners’.

Paragraphs 48 – 50 were agreed.

Members deliberated on paragraphs 51 – 52.

Agreed: To select paragraph 51 for the Committee’s recommendation on the option of a ‘Revision of the early payment discount’.

Paragraphs 53 – 56 were agreed.

Members deliberated on paragraphs 57 - 58 and noted the written comments on these paragraphs which had been received from Mr O’Loan.

Agreed: To select paragraph 58 for the Committee’s recommendation on the option of ‘Reprofiling the existing Transitional Relief scheme’, subject to this paragraph being amended to read as follows:-

‘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.’

Paragraphs 59 – 63 were agreed.

Members deliberated on paragraphs 64 - 66.

Agreed: To select paragraph 66 for the Committee’s recommendation on the option of a ‘Graduated Tax System’, subject to minor amendment.

Paragraphs 67 – 71 were agreed.

Members deliberated on paragraphs 72 – 73.

Agreed: To select paragraph 73 for the Committee’s recommendation on the option of a ‘Single Person Discount’.

Paragraphs 74 – 75 were agreed.

Members deliberated on paragraphs 76 – 77.

Agreed: To select paragraph 76 for the Committee’s recommendation on the option of a ‘Single Pensioner Discount’.

Paragraphs 78 – 80 were agreed.

Members deliberated on paragraphs 81 - 82 and noted the written comments on these paragraphs which had been received from Mr O’Loan.

Agreed: To select paragraph 81 for the Committee’s recommendation on the option of an ‘Automatic Pensioner Discount’, subject to this paragraph being amended to read as follows:-

‘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 of 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.’

Paragraphs 83 – 87 were agreed.

Members deliberated on paragraphs 88 – 89.

Agreed: To select paragraph 88 for the Committee’s recommendation on the option of ‘Broadening of Existing Disabled Persons Allowance Provision’, subject to this paragraph being amended to read as follows:-

‘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.’

Paragraphs 90 – 92 were agreed.

Members deliberated on paragraphs 93 – 94.

Agreed: To select paragraph 94 for the Committee’s recommendation on the option of ‘Circuit Breakers’.

Having declared an interest, as someone who provides assistance on a family farm, Mr Beggs did not take part in the deliberations on the option of ‘Enhanced Discount to Farmers’.

Paragraphs 95 was agreed subject to minor amendment.

Paragraphs 96 – 97 were agreed.

Members deliberated on paragraphs 98 – 99.

Agreed: To select paragraph 98 for the Committee’s recommendation on the option of ‘Enhanced Discount for Farmers’.

Paragraphs 100 – 103 were agreed.

Members deliberated on paragraphs 104 – 105.

Agreed: To select paragraph 105 for the Committee’s recommendation on the option of an ‘Introduction of Discount for Owner Occupiers’, subject to the following sentence being added at the beginning of the paragraph:-

‘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.’

Paragraphs 106 – 109 were agreed.

Members deliberated on paragraphs 110 – 111.

Agreed: To select paragraph 110 for the Committee’s recommendation on the option of ‘Rates Credits’.

Paragraphs 112 – 113 were agreed.

Paragraphs 114 – 117 were agreed.

Members deliberated on paragraphs 118 – 119.

Agreed: To select paragraph 119 for the Committee’s recommendation on the option of ‘Banding of Capital Values (Council Tax type system)’.

Members deliberated on paragraph 120.

Dr Farry: I beg to move

That the following additional points be included in the table under ‘Arguments For’ the option of a ‘Local Income Tax’:

(a) ‘Some of the drawbacks of a Local Income Tax could be mitigated to an extent through application of the option at a Northern Ireland wide level.’

(b) ‘The application of Local Income Tax could be simpler than a series of rates reliefs.’

(c) ‘The Tax and Benefits system already takes families/dependents into account.’

(d) ‘There are several international examples of an income tax funding local or regional services.’

Question put and after further deliberation it was agreed: That the proposed points at (a) and (d) will be added under ‘Arguments For’ in the table at paragraph 120.

Paragraphs 121 – 126 were agreed.

Members deliberated on paragraphs 127 – 129, which included the following options for a Committee recommendation on ‘Local Income Tax’:

Paragraph 127 – ‘The Committee recommends that the Executive should take steps to introduce a local income tax, in particular as a replacement for regional domestic rates, as this would align local taxation more closely with the ‘ability to pay’ principle.’

Paragraph 128 – ‘Whilst recognising that there was no clear consensus in the evidence as to the merits of introducing a local income tax, the Committee recommends that the Department considers this longer-term option further in the context of the decision of the Scottish National Party Coalition to introduce a capped local income tax by 2010. In particular, the Committee believes that this further consideration should focus on the potential of a local income tax as a replacement for regional domestic rates, with the district rate continuing as a property tax based on capital value.’

Paragraph 129 – ‘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 could be reviewed in the longer term and in light of any future experience of a local income tax operating in Scotland.’.

As a consensus could not be reached on any one of the options, the Chairperson, Mr McLaughlin, proposed:

That paragraph 129 is selected as the Committee’s recommendation on ‘Local Income Tax’, subject to substituting ‘could’ with ‘should’ in line 3.

Question put.

The Committee divided: Ayes 4; Noes 2; Abstentions 1.

AYES
Mr Beggs, Mr Hamilton, Mr McQuillan, Mr Weir.

NOES
Dr Farry, Ms McCann.

ABSTENTIONS
Chairperson (Mr McLaughlin)

Question accordingly agreed to.

Agreed: that a reference will be made in the Committee’s response to refer the reader to the relevant Minutes of Proceedings for details of amendments moved and not agreed and of divisions.

Paragraphs 130 – 132 were agreed.

Members deliberated on paragraph 133, which read as follows:

‘The Committee’s recommendation on local income tax also applies to the option of income tax varying powers.’

As a consensus could not be reached on this paragraph, the Chairperson, Mr McLaughlin, proposed:

That the recommendation in paragraph 133 is agreed subject to being amended to read as follows: ‘Having considered the available evidence, the Committee recommends that the option of income tax varying powers should not be considered further at this stage’.

Question put.

The Committee divided: Ayes 4; Noes 2; Abstentions 1.

AYES
Mr Beggs, Mr Hamilton, Mr McQuillan, Mr Weir.

NOES
Dr Farry, Ms McCann.

ABSTENTIONS
Chairperson (Mr McLaughlin)

Question accordingly agreed to.

Agreed: that a reference will be made in the Committee’s response to refer the reader to the relevant Minutes of Proceedings for details of amendments moved and not agreed and of divisions.

Paragraphs 134 – 136 were agreed.

Paragraph 137 was agreed as the Committee’s recommendation on the option of a ‘Local Sales Tax’.

Paragraphs 138 – 140 were agreed.

Paragraph 141 was agreed as the Committee’s recommendation on the option of a ‘Poll Tax’.

Paragraphs 142 – 147 were agreed.

Paragraph 148 was agreed as the Committee’s recommendation on the option of a ‘Tourist Tax’.

Paragraphs 149 – 154 were agreed.

Members deliberated on paragraphs 155 - 157 and noted the written comments on these paragraphs which had been received from Mr O’Loan.

Agreed: To select paragraph 156 for the Committee’s recommendation on the option of ‘Road Charging’, subject to the paragraph being amended to read as follows:

‘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.’

Paragraphs 158 – 162 were agreed.

Members deliberated on paragraphs 163 – 164.

Agreed: To select paragraph 163 for the Committee’s recommendation on the option of ‘Green Taxes’, subject to substituting ‘taxes’ with ‘taxes/credits’ in line 1.

Paragraphs 165 -172 were agreed.

Members deliberated on paragraphs 173 – 174.

Agreed: To select paragraph 174 for the Committee’s recommendation on the option of ‘Land Valuation Taxation’.

Paragraphs 175 – 177 were agreed.

Members deliberated on paragraphs 178 – 179.

Agreed: To select paragraph 178 for the Committee’s recommendation on the option of ‘Derelict Land Taxation’, subject to the deletion of the last sentence.

Members deliberated on Paragraph 180.

Dr Farry: I beg to move

That paragraph 180 is agreed subject to the following being added to the end of the paragraph:

‘The Committee recommends that the Regional Rate and District Rate element of rates bills should be clearly differentiated on household rates bills, including through specifying the precise sum that is being allocated to each.’

Question put and agreed to.

Members deliberated on Paragraph 181.

Dr Farry: I beg to move

That paragraph 181 is agreed subject to the following being added to the end of the paragraph:

‘The above comments of the Committee are limited to the matter of transparency, and are made without prejudice to wider discussion on the recommendation of the Independent Review of Water Reform.’

Question put and agreed to.

Paragraphs 182 – 186 were agreed, subject to adding an additional paragraph to explain that, when finalising the response, the Committee had received correspondence from the NI Fair Rates Campaign relating to the uptake of housing benefit and rate rebate claims from owner-occupier ratepayers.

Agreed: that a reply to the correspondence from the NI Fair Rates Campaign will be sought from DFP and that both pieces of correspondence will be included as appendices to the Committee’s response.

Paragraphs 187 – 193 were agreed.

Paragraph 194 was agreed subject to the third and forth sentences being amended to read as follows:

‘However, the Committee has been advised that, even within existing legislative parameters, there are opportunities to create a more progressive system of regional taxation that would not adversely affect economic development.’

Paragraph 195 was agreed.

Agreed: That the amended Committee response to the Review of Domestic Rating Reform will be sent to the Department as soon as possible.