Official Report: Minutes of Evidence
Committee for Finance, meeting on Wednesday, 11 January 2017
Members present for all or part of the proceedings:Mrs E Little Pengelly (Chairperson)
Ms C Hanna (Deputy Chairperson)
Mr J Allister
Mr P Girvan
Mr P Smith
Mr J Wells
Witnesses:Mr Andrew McAvoy, Department of Finance
Mr Brian McClure, Department of Finance
Rates Orders and Regulations: Department of Finance
Mr Brian McClure (Department of Finance): Thank you, Chair. Perhaps the most important of the statutory rules (SRs) that we have presented SL1s on is the Rates (Regional Rates) Order (Northern Ireland) 2017, which is an outworking of the Budget. I heard the discussions about the Budget earlier. The order is predicated on agreement about the Budget. It is, however, a separate legislative process from the Budget. We take through a separate statutory rule on that. That simply translates whatever is settled in the Budget for the regional rate for the forthcoming year, and, as you mentioned, it requires affirmative resolution of the Assembly to be passed. Bills will not issue until that happens. That is probably the most important one. The others, such as the extension of the small business rate relief or the back in business scheme, can be taken forward in advance of that because the procedure is simpler, as they are subject to negative resolution. The big issue is the regional rates order.
The Chairperson (Mrs Little Pengelly): I want to tease that out a little. Setting the regional rate and the fundamental problem to one side for a moment, you have indicated that the small business rate relief SL1, as outlined, is subject to negative resolution. That still requires it to be laid before the Assembly: is that correct?
Mr McClure: Yes, that is right. It would be by negative resolution. There would not be a debate unless somebody prayed against it.
The Chairperson (Mrs Little Pengelly): Obviously, there are ongoing issues in relation to a potential election being called next week, but when do you intend to lay that SL1? How quickly can it be done?
Mr McClure: They are all predicated on decisions arising from the Budget. There is an £18 million price tag associated with continuing small business rate relief in terms of revenue forgone. That needs a Budget decision, so that will not be taken forward until we have a settled Budget.
The Chairperson (Mrs Little Pengelly): Obviously, rates, generally, require affirmative resolution and agreement by the Assembly. In the case that that does not happen and there is simply no rate, what will be the impact?
Mr McClure: If that does not happen because the Assembly has been dissolved, it will have to wait until the next mandate. The authority of the Assembly is required to set the rate.
Mr Andrew McAvoy (Department of Finance): It is affirmative and requires a cross-community vote.
Mr McClure: That is right. The regulations for the regional rate for this financial year, as happens every year, are only for the forthcoming financial year. There is no carry forward on this.
Mr Smith: Obviously, the regional rates bill is roughly £600 million, give or take a few million each way. That goes into abeyance until legislation or an order can be brought before the Assembly. If that does not happen, if we go into a situation where there is no Executive in existence a number of months down the line and if we are in the situation where the permanent secretary is taking forward the Budget, as we discussed earlier when you were here, what will that mean for the regional rate?
Mr McClure: The permanent secretary does not have the authority to strike the regional rate; it would have to be the will of the Assembly.
Mr Smith: Basically, then, there is a £600 million funding hole in the Budget.
Mr McClure: There will be a delay in getting rate bills out. The liability will be retrospective for the entire year, but the bills will go out later than would have been the case otherwise. That is the problem.
Mr McAvoy: This is assuming that there is no suspension. If there were suspension and direct rule, it would be done through negative resolution at Westminster.
Mr McClure: It would be done quite simply through Westminster. I do not know; we are speculating here.
Mr Smith: I am thinking in simple, practical terms about people who pay these things by direct debit, for example. If rate bills are postponed for two or three months, for example, that would put the whole process into a bit of a spin.
Mr McClure: We are looking at the practicalities of that. I had a meeting with the Minister at 12.00 noon today to talk about the practical outworking of that issue.
Mr Smith: Moving away from the regional rate to the small business rate relief, which you mentioned, if there is no action at this stage, will the rates bill for the small business on the high street go up by 50% or 25% come 1 April?
Mr McClure: They will not get a bill because the regional rate will not have been struck. Small business rate relief operates as a discount on the bill. You need a bill before you can give a discount. It will not have the effect that was reported in the media this morning, because the bill will simply not issue. As I explained a moment ago, it is an easier process for us to take through the regulations or the statutory rule on the extension of small business rate relief than the regional rate, so the reasonable expectation is that we will have fixed that before the regional rate.
Mr Smith: So the worst-case scenario in all this is just a postponement.
Mr Smith: And then, regardless of who is making the decision, whether it is the Secretary of State or the Executive, it will happen in due course a number of months down the line.
Mr McClure: The Assembly either has to strike it or Westminster has to go through that process through an Order in Council.
Mr Smith: In your opinion, what will be the impact of all this? What does it mean for the —
Mr McClure: It makes it more difficult to collect rates over a shorter period, and it could impact on bad debt levels.
Mr McAvoy: It effectively compresses the recovery time into a shorter period than 12 months.
The Chairperson (Mrs Little Pengelly): I want to pick up on some of the points raised by Philip and some of your answers. You indicated that you met the Minister at 12.00 noon today to talk about the outworkings of this: had the Minister had any conversations with you prior to today about the possible very detrimental impacts of not having a rates system in place?
Mr McClure: Sorry, I missed that last part.
The Chairperson (Mrs Little Pengelly): I am asking about the Minister's contingency planning. Obviously, there has been some instability, but had the Finance Minister had conversations with you about what would happen in this situation?
Mr McClure: He has done so today, and further meetings are planned for tomorrow as a matter of urgency.
Mr McClure: There was correspondence before that. That was the first meeting, but there were paper exchanges on the issue before that.
Mr McClure: Yes, and he has been briefed on that.
Mr McClure: He is aware of the consequences, yes.
Mr Allister: I have a quick point. There is no quick fix, because you cannot issue rates bills until you have a Budget and until you have approval in the Assembly.
Mr McClure: That is correct.
Mr Allister: Am I right to recollect that rates bills normally go out at the start of April?
Mr McClure: Yes, that is right.
Mr Allister: And they are payable at the start of May; is that right?
Mr McAvoy: If you want to avail yourself of the 4% discount that is on offer.
Mr McClure: That is the early payment discount.
Mr McAvoy: At the start of May, they start to come out.
Mr Allister: If you lose three or four months or whatever it is, the full rates bill will still be due but instead of within 10 months —
Mr McClure: Within a shorter period. That is correct. Rates bills tend to be paid in 10 instalments, not 12, so there would be a shunting effect. It will lead to delay, yes.
Mr Allister: You mentioned the adverse impact on arrears. I saw figures recently that showed that arrears were nudging £30 million.
Mr McClure: That is correct. That is the current bad debt figure. You would maybe expect that figure to grow as a consequence of seeking payment over a shorter period.
Mr Wells: That is at one end. The rates money, when it is collected in May, is fed into local councils and Departments for services. Would that continue regardless of whether the money is coming in? In other words, would you give it to the Departments in advance assuming that it will come in later anyhow, or would you slow down payment to the councils etc?
Mr McClure: Our current and preliminary assessment is that the Department is under a legal obligation to provide the funding to councils in the normal way whether the rates bills are issued or not.
Mr Wells: How will you pay that if you do not have any money coming in?
Mr McClure: We are looking at that. You are right: under the rates order, they are dealt with as a combined rate. We cannot separate that out. We cannot issue bills for district rates on their own; they have to be together. That is a problem.
Mr Wells: It is a problem, but you have not indicated how you will get the money to pay to the councils or the Departments. There must be some contingency. Say this situation drags on well past the summer, you do not have devolution here and the Government have not stepped in to take the necessary action because, obviously, they want the devolved Government to take the decision, where will you get the pot of money to pay the £600 million?
Mr McClure: It is an issue that we have to deal with. It is an issue for the public expenditure people in the Department. It has been the subject of discussions already today, and it will be the subject of discussions tomorrow. It is a problem for us. This is uncharted and unexpected territory for us.
Mr Wells: Will the permanent secretary be in a position to answer that question on Monday?
Mr McClure: I am sure that he will advise you of the Department's current assessment.
Mr Wells: So councils can rest assured that, come May and June, they will get their normal quarterly payment.
Mr McClure: All I can say is that the Department is under an obligation under the primary legislation to provide that funding to councils.
Mr Wells: The councils will have set the rate by 15 February.
Mr McClure: That is correct.
Mr Wells: Is always around St Valentine's Day. I remember that very well from my many years on the council.
Mr McClure: It happens to be my birthday as well.
Mr Wells: It is always very romantic, sitting in a rates meeting on 14 February. I always remember that. They will have set the rates, so they will know their expenditure and will be expecting to deliver those services from the start of the financial year.
Mr McAvoy: They submit their expenditure requirements to the Department of Finance on 1 March under the legislation. They set the rate on 15 February and lay out their expenditure requirements to the Department on 1 March. The legislation flows from that. Everyone expects there to be a rate on the regional side as well, obviously, in terms of the legislative infrastructure.
Mr McAvoy: Currently, the Rates Regulations (Northern Ireland) 2007 and the subordinate legislation — the penny product legislation — set it out that the payment goes to councils.
Mr Allister: Yes, but is that predicated on there being a Budget?
Mr McAvoy: It is predicated on there being a regional rate.
The Chairperson (Mrs Little Pengelly): What Jim is getting at is that you have an obligation to pay, but, if you do not have any money to pay it with because there is no Budget and no baseline sitting in your Department, how can you pay it?
Mr McAvoy: That is being looked at.
Mr McClure: The problem is being looked at at the moment.
Mr McAvoy: It is the Rates Regulations (Northern Ireland) 2007.
Mr Smith: To take Jim's point a step further, if there is no Budget per se, moneys will still be passed by the Treasury with departmental expenditure limits (DEL). You still have the liability to pay councils, for example. You have a lump sum, presumably, sitting there that has not been allocated to the various Departments in a Budget, so how on earth does that work in providing money to communities and paying councils? What are the practicalities of it?
Mr McClure: The practicalities are that councils get paid on a monthly basis. That has always been the case. It will be a cumulative effect.
As I said, this is uncharted territory. We are looking at solutions and workarounds at the moment. I have been in this job for an awful long time, but I have never faced anything like this before.
The Chairperson (Mrs Little Pengelly): Does anybody have any specific issues on any of the SL1s? I know that it is difficult to talk about the detail given the ongoing issues with even getting them implemented at all.
Mr Smith: Universal credit is not due to go until, I think, the summer.
Mr McClure: September this year.
Mr Smith: This was a pilot. Does that just extend the waiting time until the pilot starts? What are the ramifications for the universal credit process? I presume that we are committed to universal credit now. People will not have a rates bill anyway, but if this is not in place how would people —
Mr McClure: There is nowhere near the same urgency associated with that statutory rule or regulation as there is with the others. We are pretty well ahead of things on that, and we would like to think there would be political resolution well in advance of September this year.
The Chairperson (Mrs Little Pengelly): OK. Thank you very much for that. We will, obviously — well, hopefully — reconsider the SL1s in due course. Obviously, we are not in a position today to agree them.
Just to clarify, the SL1 on the regional rate is predicated on the Budget. In terms of the percentage increase, which did not seem to be mentioned, there was some mention of it being in line with inflation. In terms of that SL1, is it that the rate will simply be an inflationary increase, or is it subject yet to agreement in terms of —
Mr McClure: It is expressed as pence in the pound.
Mr McAvoy: In the legislation, it is poundage rates that are set. The percentage uplift is dictated by whatever percentage is featuring in the Budget in terms of the projected revenue coming in from rates.
Mr McClure: It is an outworking from that that is in this SR. It is simply translating that into pence per pound or fractions of pence per pound.
The Chairperson (Mrs Little Pengelly): In a normal situation where we would have had a Budget or draft Budget proposed, would the Committee have had some sense of what that percentage would be at this point, or is that worked out at a later stage?
Mr McAvoy: Because of the tight timescale generally in these things — the last few years have had one-year Budgets — to try to get through the Committee Stage, we have typically given an indication that the SL1 will track the Budget, so that whatever is agreed by the Executive is reflected in the regional rates order. When there has been a multi-year Budget, we could give the figure with some certainty to the Committee at that point. The policy is to strike a regional rate; the Budget is what reflects the amount of money being raised.
Mr McClure: The Budget entirely determines the pence per pound. It is a mathematical calculation that is made, and that is what appears in the statutory rule.
Mr Allister: Chair, you said we could not approve these today: why is that?
The Chairperson (Mrs Little Pengelly): We could. I am not hearing from anybody any principled objection to any element, so we could agree them and see what happens in the Budget. That might, actually, be the prudent thing to do just in case this is our last meeting. In one way, Jim, if this is our last meeting, there is not going to be a Budget agreed before there will be another meeting. If there is another meeting, we can consider it again.
Mr Allister: These were brought to us without a Budget, so, presumably, we were anticipating approving them.
The Chairperson (Mrs Little Pengelly): Nobody is raising any issue with them, so, in principle, there is no reason why we could not agree them. In a way, it is a bit of a strange exercise in the absence of knowing what is going to happen. I had thought that members might well wish to simply revisit it next week, if we have any further clarity on the Budget position and what is likely to be the impact of this, but, if it gives a little more security to the Department or officials —. I am not hearing any objections.
Mr McClure: It could be helpful. I will not say that it will be helpful, but it could be helpful if we got them approved today. Clearly, if anything unexpected should happen, we would come back to the Committee on that.
Members indicated assent.
Members indicated assent.