Official Report: Minutes of Evidence
Committee for Finance, meeting on Wednesday, 5 February 2020
Members present for all or part of the proceedings:
Dr Steve Aiken OBE (Chairperson)
Mr Paul Frew (Deputy Chairperson)
Mr Jim Allister KC
Mr Pat Catney
Miss Jemma Dolan
Mr Seán Lynch
Mr Maolíosa McHugh
Mr Jim Wells
Witnesses:
Mr Alan Brontë, Department of Finance
, Department of Finance
Mr Ian Snowden, Department of Finance
Overview and Priorities for Land and Property Services and Statutory Rules
The Chairperson (Dr Aiken): I welcome Ian Snowden, chief executive of Land and Property Services, and Alan Brontë, director of the rating policy division. They will provide an overview of Land and Property Services and its priorities, and an update on rating legislation progressing since 2017.
I draw members' attention to a comprehensive briefing paper from the Committee Clerk, a briefing from the Department regarding key issues and priorities for the LPS, and extensive written briefing papers from business representatives that we requested on non-domestic rates. We have received briefings from the Confederation of British Industry (CBI), the Federation of Small Businesses Northern Ireland (FSB), Hospitality Ulster, Manufacturing NI, the Northern Ireland Council for Voluntary Action (NICVA), the Northern Ireland Retail Consortium, Retail NI, and a report from two east Antrim business people of their meeting on 29 January 2020.
Mr Ian Snowden (Department of Finance): Thank you, Chair. I will give an overview of Land and Property Services and what we have been doing since 2017 and then look at issues for the next six to 12 months.
Land and Property Services is a division of the Department of Finance. It was formed around 2008 by the amalgamation of the Valuation and Lands Agency, the Rate Collection Agency, Ordnance Survey Northern Ireland, and the Land Registry for Northern Ireland. We added the rating policy division in January last year.
Land and Property Services is a mixture of steady-state activity that continues without much change, mostly in Ordnance Survey and Land Registry, where services are delivered in much the same fashion year on year. There is cyclical or periodic activity in the rates billing and collection cycle. In slightly more distant time frames is the revaluation of non-domestic rates, and then there are one-off or episodic activities in things like policy reviews. Land and Property Services is also going through a substantial digital transformation programme. A number of those issues are covered in the briefing material.
I suppose the Committee will be interested in some of the key issues that have been going on in Land and Property Services since the Assembly last sat, in 2017. On rate setting and the regional rate, you will of course be getting a much more detailed briefing on the statutory rules that were passed in the past three years in relation to the setting of the regional rate. In the absence of the Assembly, the regional rate was set by the Westminster Parliament as part of the Budget-setting process in each of the past three financial years. That has been more or less the extent of the legislative activity at Westminster in relation to what is happening in the rating field.
Rates performance has been generally quite good in collection and rating debt. Collection figures have gone up, [Interruption.] [Inaudible.]
our collection performance has increased and debt has been brought down to its lowest level in over a decade. The previous two Finance Ministers, Mervyn Storey and Máirtín Ó Muilleoir, agreed that there should be a non-domestic revaluation exercise, and LPS has been taking that forward in the intervening period. No doubt members will have questions on that later.
The draft schedule of values was published on 7 January this year, just before the Assembly returned. In May of last year, the permanent secretary announced a review of business rates. Mr Brontë will be able to talk in more detail about that. He has been leading on that for us since that review was announced.
In January of last year, the Civil Service board agreed to establish a single mapped database of all land and property owned by the public sector in Northern Ireland, which is going by the provisional title of the government land and property register. I am happy to talk to you about what that involves, if you wish, but that project is ongoing and will probably take about three years to complete.
The 2020-21 rates cycle is key for us at the minute, and we are in preparation for that. That includes the setting of the regional rate to allow the rates bills to be calculated and issued with the intention of getting bills out at the start of April as normal. This year, the revaluation exercise will continue. We have an informal period now when people are able to contact LPS and challenge or query their draft valuations before the bills are calculated.
Mr Snowden: We have had between 200 and 300 phone calls out of 56,000 people who have rate bills. Quite a small number really. Therefore, that work will continue. Whenever the full list is published on 1 April 2020, it will be subject to the statutory process for applications, appeals and, potentially, challenges to the Lands Tribunal. The rates policy review will continue. We will be in discussions with the Minister, now that he is in post, to present and discuss a number of options for short-, medium- and long-term measures that might be taken. We will be progressing with our digital transformation programme, and by June or July of this year, we should be letting the first contract for the replacement of the rate collection system, which is known as Abbacus.
That is as much as I want to say by way of an introduction. I am happy to take questions on the briefing material or any issue.
The Chairperson (Dr Aiken): You will be aware that there is a considerable degree of disquiet being expressed by the many small and medium businesses that we have. I was interested when you said that you only had 200 to 300 telephone enquiries about what has emerged from the draft process.
The Chairperson (Dr Aiken): I do not think that any MLA here has not had direct representation from businesses in their constituencies. I am very surprised at the 200 to 300 figure. I have had as many as that in South Antrim alone.
To quote from the CBI briefing:
"However, for many of our members, particularly in the services and hospitality sectors, the feeling is very much that they have been treated unfairly through this process. Without due warning, they may have to absorb substantial increases which are materially damaging".
Indeed, we have had reports of potential rate increases of 31% to 60% in some areas. Can you tell me how these demands have come about? How have you been communicating them, since they were only found out about in January? Why has there been no attempt at upwards transitional relief as we have in the rest of the United Kingdom? Run through those issues.
Mr Snowden: The revaluation exercise is designed to introduce fairness into the ratings systems. Essentially, as the property market moves and changes and property values go up or down, the periodic revaluation exercises will bring the rateable value of the properties in line with the rental values in the marketplace.
For most kinds of property that are part of a normal rental market, for example, offices and shops, there will be information about market activity, rents let in the past, that you can use as a basis for calculating the rental value for the property.
For other kinds of property, there is never any rental. Examples of this type of property are airports, hospitals or schools. The methodology used with this kind of property is called a constructor's cost method. We work out what it would cost to build the premises, we depreciate the cost by the age of the premises, and then work out, using an applied the decapitalisation rate, which is in legislation —.
Mr Snowden: There is no rental market for either of those two types of property in Northern Ireland. Nobody rents a hospital, and nobody rents an airport.
Mr Snowden: No. Mr Brontë is the expert on this. He can explain, if he wants, in more detail. Essentially, for these kinds of properties you work out how much it costs to build it. If you were attempting to build an airport or hospital to rent it out, you will work out the cost to build it, and then work out how much rent you need to take in order to make it a profitable property investment. Therefore, the constructor's methodology attempts to work back from how much it would cost to build the premises to find what the ratable value of the property will be.
The Chairperson (Dr Aiken): If we use the airport example, it has taken you five years to come out with the valuation. The valuation was taken to the Lands Tribunal, and it was lost. I understand, we are going back to the Lands Tribunal to do exactly the same thing again. Why is it taking five years for this process when we have data from England, Scotland and Wales that you could use?
Mr Alan Brontë (Department of Finance): I will take this one. We have taken the data for the construction costs for the current airport valuation. The data is agreed by the airport users group for airports throughout the UK. We have used the construction costs that have been agreed by the airport users group and adjusted it slightly for Northern Ireland and for the different valuation dates here. On the issue of the International Airport and the current list, everything is agreed in terms of construction, depreciation, the size and the site. One item is not agreed, and that is being taken forward at the minute by two sets of experts appointed by the airport and LPS. They are looking at this issue called superfluidity.
Mr Brontë: The valuers on both sides have agreed absolutely everything. That is sitting, and that has been the case, but experts are now in discussion about superfluidity and how we can reflect what the airport is describing as under-usage of its building and how that under-usage finds its way back into the value. That is the outstanding issue, and the experts are looking at it. From talking to the valuation side, I am very confident about that being agreed and not going to the Lands Tribunal. There are different issues now than there were back then. We were dealing with the 2003 valuation previously. We are dealing with a 2015 valuation now. Passenger numbers are different. Everything is agreed, bar that one item of superfluidity. That is moving along now, and I am reasonably confident that we should be able to get it agreed.
Mr Brontë: I do not know.
Mr Brontë: It depends where the valuation settles.
Mr Snowden: In the previous settlement?
Mr Brontë: Oh, previously?
Mr Brontë: Yes, it is probably around that, but that was going back quite a number of years.
The contractor's method is not something that LPS has. It is an accepted methodology right across the valuation profession and is signed off by the Royal Institution of Chartered Surveyors (RICS), Institute of Revenues, Rating and Valuation (IRRV) and professional bodies. We are using a methodology that is used by other rating valuation authorities throughout the UK.
The Chairperson (Dr Aiken): Are there similar problems throughout the rest of the UK with these issues? I understand that it is not just the airport. There are all sorts of issues with shopping centres and all sorts of things being challenged.
Mr Brontë: There are always issues. You will find, if you look at the valuation office records, that it will have appeals going back to not just current valuation lists but previous valuation lists. These things are contentious. Certainly, in terms of the valuers now, there are very few cases. There are fewer than 100 challenges left in the current valuation list. That is a big success, given the number of cases that are there. Those are going down by the week. LPS does not have a legacy now of long-outstanding challenge cases. Yes, there will be one or two cases that are highlighted, such as the airport, but, generally, LPS valuation is very much on top of its caseload, and I expect that to be the case.
The Chairperson (Dr Aiken): How do we benchmark LPS in Northern Ireland against other land and property services across the rest of the country?
Mr Brontë: In what respect?
The Chairperson (Dr Aiken): On the amount of challenges you have and the speed with which it comes to making valuations, where would you put LPS?
Mr Brontë: On the challenges, other people have put us at a fairly high level, and other people have referenced that. In Northern Ireland, we have quite a low challenge rate. Against the 2015 rate, about 7% of valuations were challenged. Historically, in —.
The Chairperson (Dr Aiken): Is that to do with the fact that there is a different legal system in Northern Ireland, whereby you have to put up a substantial amount of money to take it to the Lands Tribunal?
Mr Brontë: No, because the first two stages in Northern Ireland are entirely free, so there is no cost in making an application. There are two stages in Northern Ireland for which there is no application fee: the district valuer stage and the commissioner stage. Certainly, there is a fee to the Lands Tribunal, but it is no different elsewhere. In fact, if you were going to the higher courts in England, it would be more expensive. The 7% challenge rate is one of the best, and that is attributable to the consultation that has gone on before revaluation and the attempt to agree certain values in advance of a revaluation.
At some stages in GB, the appeal rate has been 50%-plus. That is a massive workload, and I am really glad that we do not have that sort of reaction. Even in 2015, after a period of 12 years, the amount of work in the consultation that we did around that time led to a very low challenge rate, and those challenges have all been cleared. The first-year challenges were all cleared within 18 months or two years.
The Chairperson (Dr Aiken): Ian, what should your staffing complement be? How many people should you have in LPS? There have been lots of amalgamations and groups brought in and changes.
Mr Snowden: It should be 1,118.
Mr Snowden: I think that we are managing to cope with the business. The difficulty is that there is no capacity to take on additional workload. With no disrespect to yourselves, obviously, the return of the Assembly has put a tremendous amount of pressure on the organisation, which had been able to cope simply because the normal machinery of government business did not have to be done.
Mr Snowden: My number of emails has doubled since then.
Mr Snowden: I tried my best.
Mr Snowden: The workload substantially increases for all parts of the organisation. If we want to make any changes or improvements, there simply is not the resource to allocate to that task.
Mr Snowden: I have not quite finished answering your question on the CBI stuff. As well as the constructor's method of valuation, there is also the receipts-and-expenditure valuation. That is the one that is the biggest bone of contention for pubs and hotels. In other kinds of properties where there is a limited amount of rental, you have to find a method by which you can make an assessment of what the rental value would be. If you wanted to rent a pub, the thing that you would look at was how much business the pub was doing, because that would determine how much rent you would be willing to pay for the pub. So, that is the method by which, essentially, the valuation for a pub or a hotel is worked out. It is on the basis of the receipts, the amount of business that they take in and their expenditure — the amount of costs that they have.
Mr Snowden: We can pull it from Companies House accounts and various different sources. Really, the business owners should give it to us. They have a statutory requirement under the law to do so. Returns from hotels was very low, and returns from pubs is about 33%. If the business premises do not provide us with information, we have to source it from other sources.
The Chairperson (Dr Aiken): What about the trade bodies such as Hospitality Ulster? Can they not provide you with data? I imagine that that would be the case with pubs and hotels over a particular size. Sorry Pat, I know you will come in on this later.
Mr Snowden: We have engaged quite a number of times with Hospitality Ulster. The equivalent bodies in Great Britain have agreed a scheme of valuation with the Valuation Office Agency and the Scottish Assessors. In Northern Ireland, Hospitality Ulster has not agreed a valuation scheme with us. It will not engage to agree a valuation scheme for pubs. The valuation scheme that we use has not been agreed with it. You should not take from that that it is detrimental to pubs here. In fact, the percentages used in that valuation are more generous than they are in Scotland or England, and, indeed, just after Christmas, there was an article in which some Scottish licensed trade organisations were complaining vigorously that if our methodology was used, their valuations would be about 50% lower. However, that level of engagement has been quite disappointing. It is reported to us and rumoured that Hospitality Ulster is telling —.
Mr Snowden: I cannot verify this, and Mr Neill would deny it, but it has been said to us by some people that Hospitality Ulster is telling pub owners not to engage and not to send in information. That is disappointing if it is true. If any of you have constituents who have concerns about revaluation, they really should be getting in contact with us. We want them to get in contact. If we are able to deal with problems before the valuation list takes effect on 1 April, the number of appeals and applications will reduce substantially, and everybody will be in a much happier position.
Mr Brontë: To add to what Ian has said, there is a lot of misunderstanding that, in some way, the rating system in Northern Ireland is using a completely different system for pubs and hotels than the one for other properties. That could not be further from the truth in that every single property in Northern Ireland is, under statute, valued on its rental value. As Ian has described how we get to rental value for the likes of the airport, it is a rental value. It is the only thing that we can put into the valuation list. It is about how you get to that rental, but there is no different approach taken, so it is the rent of the pub or the rent of the hotel. There are other types of properties, such as cinemas, markets, filling stations, quarries and utilities, for which we use the receipts-and-expenditure method of valuation.
I really want to put on the record that the system for valuing pubs or hotels in Northern Ireland is no different. It is based on the rental value. Valuers can argue as to whether the rental value assessed is correct, but it is done on the same basis. There is no different basis. It is because we ask for turnover that we are looking for throughput in petrol filling stations or the tonnage of a quarry, and we do that for many other properties. It is just a way of getting a rental value. If the rental value is not accepted, there is a process, as we mentioned earlier, of going to the Lands Tribunal, which will look at a receipts-and-expenditure basis of valuation in order to achieve a rental value under the statute. I really want to put that on record because there is a lot of false information here that LPS, in some way, is tackling the issue of rates for pubs in a very different way, but we are not.
Mr Brontë: As Ian said, exactly the same methodology is used throughout the UK and, indeed, the Republic of Ireland.
Mr Frew: If William Pitt came in and said, "Ian and Alan, I have a problem. We are going to have to fight the French, and it may last a generation. We have no money in the Exchequer, so how do we raise money?", what ideas would you have, and would it be something similar to this?
Mr Brontë: Ian is the historian. [Laughter.]
Mr Snowden: I had not planned for that question. [Laughter.]
Mr Wells: Despite the rumour, I was not around at the time of William Pitt.
Mr Frew: I suppose what I am asking is this: you guys do this every day, but is this the best way to raise revenue? Is it the fairest way to raise revenue?
Mr Brontë: I will have a go at it, Ian, while you are thinking. Most jurisdictions will have a property tax system in their basket of taxes. No matter where you go, whether to the US, Canada, or the rest of the islands, most people will have a property tax in that basket. They will have transactional taxes, capital taxes and corporation taxes. There are a range of taxes that most countries will have, and in there somewhere will be a property tax that is probably a local tax to fund local services. There are good reasons why you should have property tax, because it is predictable and very difficult to escape. It is quite easy to predict, as well, what you are going to get from it. Therefore, there is a place for a property tax in most jurisdictions; the issue is where the balance is.
Mr Frew: Does it ignore the means to pay? Does it ignore cash flow? Is it blinded to that? You could end up owning or renting something substantial but not have the means and the business to pay.
Mr Brontë: Value — whether rental value or capital value — is normally quite closely aligned to ability to pay. There are always situations; for example, I remember talking to the Committee back in 2007, when the domestic revaluation changed basis, about a retired individual, now a widow or widower, in a large house, where there was a difficulty with the value of the property and their ability to pay because they had inherited the property. There are always exceptions, but, generally speaking, no matter where you go, if you rent a shop, then you have taken that rent on that shop and you expect to be taxed through business rates.
The issue that we have in Northern Ireland — we can come back to this — is the level of that percentage against the rental value. I think there is a good correlation between value and ability to pay, but there are always exceptions.
Mr Snowden: The benefit of a property tax is that it is visible; you can see it. It is very difficult to hide. A property taxation system based on rental value also promotes the efficient use of the space. If you are operating a business that is not making very much money, then it encourages a different form of business activity or you move to a location that is more suitable.
Now, that causes difficulties for the individuals involved but over a longer span. If you are going to fight the French for a generation, you will want to have efficient economic activity in your economy over that time. One way that that is helped is through property taxes.
It is a slightly different question, though, if you say, "Would you have designed on a blank piece of paper the current business rating system with its range of exemptions, reliefs and exclusions?". I am not sure that is the same answer, although that is an accretion of a number of decisions taken over a long time.
Mr Frew: When we have to give exemptions, such as industrial derating, which I support, and there is methodology around that, does it not illustrate that property tax is a primitive, blunt tool?
Mr Brontë: If you have a tax, the more exemptions and reliefs that you have to give to make it workable calls into question whether you have the basis of the facts correct. In Northern Ireland, we have not had to have the range of reliefs and exemptions perhaps that I have seen in other jurisdictions. From the domestic point of view, they are very few and far between. I think, at one extreme, it is not fit for purpose.
The Republic of Ireland was a case in point where, quite a number of years ago, it dropped its residential property tax. When it hit economically bad times and transactional tax no longer worked, part of the rescue deal was to reinstate a residential property tax, and it had to do that very quickly. It looked at what we were doing in Northern Ireland, and the quickest way to do that was a self-assessment tax into a banded system, but there is quite low take still, and it will have to move in some direction.
I think that every jurisdiction will have some form of residential and commercial property-based tax. There are lots of nuances in there, but, generally speaking, it is a good thing.
Mr Frew: Can I ask then about rates collection? It is one thing to charge someone for it; it is another to get the money off them. There is a fairness element around the people who do pay and the people who do not. We said that, in your correspondence, there seemed to be a positive slant on the fact that debt has fallen to its lowest levels for decades, standing at £124 million. We could do a lot with £124 million; maybe we could not. Maybe we could spend it badly, but, at least, it would be useful to have. Where are we on that? Why are we at those levels? I know that it is historical, but what mechanisms are in place to get that money back or is it simply court case after court case?
Mr Snowden: The majority of the £124 million at the end of last year could probably more accurately be described as arrears. The vast majority of that will be rates not yet paid but reaching some sort of payment arrangement. It is not that, at the end of the year, we have failed to collect £124 million and that is gone and lost forever; this is a kind of rolling figure. Every year, a certain amount of debt has to be written off. Principally, it is non-domestic business rates and the companies involved will have gone into liquidation, so there will always be a certain degree of debt that you will never be able to recover.
Mr Frew: What yearly figure can you put on that?
Mr Snowden: Last year, it was £18 million, and that has declined quite substantially over the past five years from closer to £35 million.
Mr Frew: What can you attribute that drop-off to? Are we saying that we are —?
Mr Snowden: No, actually, it is the other way round. If I wanted to be really cynical and I wanted to push that debt figure down below £100 million, I would just write off a large chunk of debt and it might not be all that terribly transparent that that is what has happened. In fact, by reducing the amount that is written off every year, it demonstrates that, in addition, we are bringing more collectable rates in each year. That is really what we need to be trying to do.
In the past three to four years, there has been a new approach to analysing the debt and use of data where the debtors are segmented into different types. Obviously, domestic and non-domestic ratepayers are slightly different. Better behaviours are slightly different and so forth. We have put quite a lot of investment into helping people who are in financial difficulties and getting payment arrangements put in place. Some of that debt of £124 million relates to people with whom we have agreed three- or four-year repayment periods. It may be a number of years before all of that outstanding debt and arrears is brought in, but there is at least an assurance that the money will be brought in; it will come in.
If we do not get the money through that payment arrangement or the arrangement is broken, we will consider court action, usually through the Enforcement of Judgments Office, and, if that not successful, bankruptcy proceedings will be started. Typically, about 25,000 court proceedings letters are issued every year. The issuing of those letters is usually sufficient to get the payment in. There is a class of ratepayers, which is small-ish in number but significant enough, who wait every year until that process has started and will quite often turn up at the court with a cheque and pay. There is a kind of process to go through with some ratepayers.
There is a chunk of debt that is more difficult to collect, because rating debt is a civil issue in Northern Ireland. It is not a criminal offence to not pay your rates, so we have to take civil court proceedings to recover it. If the ratepayer is not resident in Northern Ireland — if they live in another part of the United Kingdom or in the Republic of Ireland — we cannot pursue them legally through the courts to get it. We have looked at other methodologies to try to get those people to pay up. One that has been quite successful is the use of StubbsGazette as a recovery method. The reputational damage of having your name in StubbsGazette still carries a certain amount of weight, and, when StubbsGazette contacts them, people will pay. That has been quite successful in bringing in more debt.
All those things, together, have helped to push the rating debt down.
Mr Frew: Can you give us a breakdown of the £124 million between non-domestic and domestic? Can that be broken down by geographical area?
Mr Snowden: Off the top of my head, I think that it is about two thirds non-domestic and one third domestic. I cannot tell you the precise figures, but it is roughly that. I can get you a breakdown by area, the age of the debt and so forth.
Mr Frew: Yes, that would be useful. Would it break down by constituency?
Mr Snowden: It is usually by district council. It might take longer to sort it out by constituency.
Mr Frew: No, whatever way or whatever methodology you use is fine.
Mr Allister: Walk me through the basic arithmetic formula for working out the NAV. It is linked to the perceived rental value. Yes?
Mr Brontë: In carrying out a rating assessment, valuers take the same approach as they would if they wanted to rent on the open market. They use the terminology of following the market, so the analysis will look at shops in a particular street, and they will have analysed the market and the rents around the valuation date. The valuation date for the current revaluation is 1 April 2018 — that is one of the statutory rules (SRs) on the table today. The valuer will try to adjust the analysis forward or back to correspond with the valuation date.
You are following the market. If you are talking about shops, offices, warehouses and factories, you are looking at the open market rental value. There is a statutory definition of the rental value that it is one year with another and it refers to a willing lessor and a willing lessee.
Mr Brontë: No, you analyse the rent, and, as you devalue, so shall you value. Having devalued the rent of a shop, which was £50,000, you start to understand. You can analyse it in different ways — you would zone it if it is a shop; you will take an overall if it is a supermarket — but we follow the market. Having analysed the market and understood the rental value market of a street, you use that market evidence to apply that devaluation to every shop in the street, as if you were going to rent every shop in the street. As we know, some shops are owner-occupied, and there will be no rental evidence, but we have to put a rent on every shop.
Mr Allister: If you say that a shop is worth £6,000 a year, how does that translate to the NAV?
Mr Brontë: If the shop were let on 1 April 2018 at £6,000 per annum, I would want to understand why the NAV was not £6,000, because, if it is around about the valuation date and we know that it was an arm's-length transaction, we would expect to see the open market rental value and the NAV being very close to the same thing.
Mr Brontë: Where it is not, you would want to know why it is not.
Mr Allister: Can you tell me why, in Ballymoney, for example, it is so out of kilter?
Mr Brontë: I am not sure until we know the actual property. If you look at the rents for the shop, you might understand if it was connected parties or an open market rental value, but you would expect to see a very close correlation because the market has been analysed and then applied by the valuers —.
Mr Brontë: A rental tone is, if you have a street, rents will be negotiated at different times, and some people might have struck a harder bargain than others. The point is that, in NAV terms, you want to try to provide a tone so that you have a general level of values applied where the location and the type of property is the same, and so, if you have three shops together and they are the same, you would expect to have the same ratable value in each shop.
Mr Allister: Does the rental tone translate into a poundage per square metre?
Mr Brontë: No. The valuer will analyse the shops or offices in a street and will come up with a pricing.
Mr Allister: Mr Brontë, estate agents in Ballymoney have said to me that the tone for Ballymoney town centre has been worked out by the valuation office at £180 per square metre, which is nowhere close to what is actually attainable in the market; you are doing well if you get £120 a square metre. How is it that, in streets in Ballymoney, you have worked out an NAV on the basis of £180 a square metre when you could not possibly acquire that in rent?
Mr Brontë: Individuals would need to be in discussion, as Ian said earlier, with LPS to challenge the value and say, "Look, I rented this shop for £10,000, and, look, you've put a rateable value on it of £15,000. That can't be right". If that is the case, and evidence is shown of where LPS has misinterpreted a rental value or applied an overall value that is not consistent with the open market value —.
Mr Allister: Does the rental tone vary from street to street?
Mr Brontë: Absolutely. As you know, part of a street can make a very big difference to the value of the street —.
Mr Allister: Let us come to Ballymena, for example. Church Street, historically, was the shopping street. Now, the tone of it is substantially below Ballymoney Street, so, suddenly, the premises in Ballymoney Street feel that they are getting exorbitant NAVs in comparison with the heart of the town in Church Street.
Mr Brontë: That very much changed in 2015; there were substantial reductions in Church Street, if I recall.
Mr Brontë: I am not familiar with the figures for the 2020 revaluation; I have moved in my role. However, the district valuer will want to look at any issues like that. They have been out and about holding meetings with councils and the chambers to meet people. They have run clinics with people to talk through those issues.
Mr Allister: At the end of the day, they have to reap the same income from rates, so they spread it differently.
Mr Brontë: No. We are talking about the valuer. The valuer is there under statute to put a fair valuation on the property; the valuer is not looking at income. You will know that rates is like a back-to-front tax. The values are used only to apportion out the liability; the liability is established by other people.
The valuer is not there to end-guess the game of how much revenue will be raised. Rates is a tax where you decide what C is, and you use A, your values, to work out your poundage. It is a back-to-front type of tax; it is not a transactional tax. The valuer is not there to guess whether more money will be collected from Ballymoney versus Ballymena or one street or the other. They are there to do a statutory valuation and are empowered to do that; and not to have any recognition of the collection.
Mr Allister: Let me ask either of you a different question. We have this 100% charity exemption, which means that many of our high streets, which are overpopulated by charity shops, are enjoying the benefit of zero rates, competing with shops with high rates. Where are we on re-examining the 100% charity exemption?
Mr Snowden: Just to clarify: the charity exemption applies to the proportion of the goods sold in the shop [Inaudible.]
Mr Snowden: If a charity shop is selling 50% manufactured or new goods, its valuation [Inaudible.]
Mr Snowden: Not necessarily, no.
Mr Snowden: Our staff who do the inspections.
Mr Allister: You can have a situation where a charity shop can sell a particular good or goods with more headspace on the profit margin because they do not have the overheads, compared with the bona fide business next door.
Mr Snowden: Rates will be one of their overheads; staff costs [Inaudible.]
Mr Allister: Rates, I think, are the biggest overhead for most premises in our high street.
Mr Snowden: I might dispute that for most shops, because staff costs would be their biggest overhead.
Mr Snowden: Charity shops will be mostly staffed by volunteers. But, I take your point: there is an issue with the number of charity shops in a lot of locations. This is part of a bigger picture about the high streets. There needs to be some examination of whether we should be looking at changing the use of some of the premises, from retail into some other kind of lease. There are probably simply too many shops in most towns.
Mr Allister: Look, I remember asking you folk this, three or four years ago, and there was expectation that things were going to change. In those three or four years, nothing has changed.
The Chairperson (Dr Aiken): Sorry, just to go back, Ian. I did not quite pick that up, because we seem to be moving everything up and down outside, which I apologise for. You said something about there being too many shops?
Mr Snowden: I suppose that I am bleeding into one of my previous jobs. I worked in regeneration. In most town centres, the number of shops were developed in response to the market conditions that existed maybe 20 years ago. In the intervening period, there was the rise of internet shopping; so, essentially, shopping habits have changed to the extent that there is no prospect of using rates mechanisms, or any other, to bring back the same kind of retailing economy in most town centres that was anticipated 20 years ago. So, there will have to be some kind of adjustment in the use of property in town centres, away from retailing, which cannot be sustained in the current market, into some other productive economic use, whether that is residential or some other kind of economic function.
Mr Allister: What about my question? Have things just stayed stagnant for the last three or four years in addressing the issue of exemptions?
Mr Brontë: I can pick that up. In the 2016 consultation, when the Minister was Máirtín Ó Muilleoir, one of the proposals asked whether everybody should pay something. That was the catchline. That consultation was in train, 2016-17, when obviously the Assembly closed. We could do absolutely nothing, because that would be a change of primary legislation. We cannot change primary legislation.
Mr Brontë: This is part of the review now. We went back out to consultation. As Ian said, we looked at the consultation again. We took a broadly-based look at business rates. We have 239 responses, which is a high number, from across the Province and many sectors. There is no doubt that this is a hot topic, but it is very divided. Some people see charity shops as bringing good: they are obviously a charity, and they are enjoying tax reliefs because people give to charities, and should we tax them again for their occupation of the shop? That will be part of the review and the report to the Minister for his consideration.
It is very divided as to whether we should ask a charity shop to pay something. The position in the rest of the UK is that, with local authorities in England, there is an 80% automatic relief for charity shops, and then the local authority has discretion in relation to the remaining 20%. My understanding is that, in most cases, it is given as 100%. However, yes, that is something that will be part of the Minister's consideration on what we should do with charity shops.
Mr Allister: You state in your paper that there has been over collection of land registry fees in the sense that they have a surplus. Is that categorised in budgetary terms as money that has to go back to the Consolidated Fund?
Mr Snowden: No, it is absorbed, first, into the Department's internal resource budget. In the terms of the budgetary process, it is a surrender. We know that we are going to get more money in; we project that we are going to get more money in; we surrender —.
Mr Allister: Does it not have to go back as a Consolidated Fund extra receipt?
Mr Snowden: I will have to check that out for you, Mr Allister.
Mr Allister: Will you check it? I must say that my perception is that it would. What is the Audit Office criticism that is referred to?
Mr Snowden: It is essentially that the fees are too high. They are higher than they need to be.
Mr Allister: If it is the case that you are gaining more fees, but you cannot keep the extra money and it is a Consolidated Fund extra receipt that has to go back, what is keeping you from reducing that?
Mr Snowden: Again, it was the need to pass legislation. The fees order is an affirmative resolution regulation.
Mr Catney: Chair, please allow me to go back, because it will lead on to my question. I am interested in Belfast International Airport and your formulation on how that rate is worked out. I look at its competition or how it tries to gain its revenue, and I go to Dublin, where there is cheaper travel and no tax on it. I think that it is unfair to look at England, Scotland or Wales for the amount of travel that we have to partake in from Northern Ireland in order to try to do business. It is unfair to judge on the buildings for that domestic market. That is my observation on what you have said.
Mr Brontë: There is a misunderstanding. One of the essential core parts of that valuation is the construction cost. There was a working party to agree the costs of construction for all the component parts of airports. There were agreed construction costs of airports by the airport user group, and those were adjusted because of Northern Ireland's construction differences in cost and the date of the valuation.
Mr Brontë: It depends, because the revaluations in England and Wales happened in 2010 and 2017. Therefore, we have done it both ways: we have gone forward for 2010 and back for 2017 in looking at some of the figures. We have been able to use it both ways. It has to be adjusted for time, and it has to be adjusted because construction costs are different. We have been able to do that. We recognise fully that we are dealing with a different market, but there are other aspects that we can adjust within the valuation. We recognise passenger numbers. Indeed, that is one of the issues that is being discussed. I am a little nervous because we are getting into the details of one ratepayer, the airport. In the generality of airports, you look at the facility and the age of the construction, runways and hangars — all of the component parts. There is certainly an adjustment there. The decapitalisation rate is also different. That is set under statute. When we have the depreciated replacement cost, we apply the decapitalisation rate, and it comes up with the value. That is the way it is done throughout the rest of the UK. It is not comparing apples and oranges by any means.
Mr Catney: That brings me on to "compare the market". They were your words, Alan. I am trying to figure them out. If we look at public houses in the hospitality sector in Northern Ireland, and then we look at England, we see that all of that is tied. There are very few independent owners; by that, I mean publicans who own their premises and licence and operate their own business. They are doing it under a tie. We are talking about turnover. When you are doing it under a tie, you can spread out all your costs for 500 bars with one accountant. I can go in, or he can go in, and do the stocktakes. That is not a gift that is given to small, private individuals.
When you are looking at or using the English model, you are not comparing apples with apples. It is a completely different type of market. That is only an observation that I am making. Very few licensed premises in Northern Ireland are leased from a tied brewery. There are thousands in England.
Mr Brontë: Yes. We recognise that, very much so. We recognise the different markets that apply in England, Scotland, Wales and the Republic of Ireland. That is not the issue. We are not trying to apply one pricing structure or guide. What we are saying is that there is an accepted valuation profession methodology, called the receipts and expenditure method, which takes all those factors and comes down to a point of divisible balance. It will recognise the Northern Ireland market. We have talked before about those sorts of issues. Hospitality Ulster will tell me about the difference in price of a keg of beer in Northern Ireland versus one in GB. The methodology, approach and analysis can take account of all that.
The big issue is that we want to sit down and agree those matters with Hospitality Ulster. Two or two and a half years ago, we sought to do that. We have sought to do that this week. We have tried to say, "We want to get a scheme that we can all agree to". As Ian said earlier, the equivalent schemes in GB have the branding of the equivalent of Hospitality Ulster along the bottom. It has been agreed in Scotland as well. We do not want to contest every pub. There are 1,000 pubs or more. We do not want to be in a position where we have to contest them all or take them to court. That is not what we want to do. We want to agree a scheme valuation that is acceptable to everybody, that we can sign off and can apply to every pub in Northern Ireland, recognising that they are different. We are not applying English or Scottish schemes.
Mr Catney: I understand. I was using that only with regard to what you said about the airport. Hospitality in public houses is a unique trade. There is no guaranteed income. You cannot say, "I will increase my turnover by 2% in the next year". If a publican spends £100,000 doing up their bar, it will probably be a 15-year outlay before that money comes back in. You will penalise publicans who invest and try to create jobs when the publican who owns the bar opposite does not spend that money. I can give you examples where there is a difference of nearly £100,000 in a rateable valuation. That is not right. That creates unfair competition.
On top of that, you said that only 300 people across Northern Ireland had made contact with you. I do not know — maybe I am reading it wrongly — but I have had contact from quite a lot of businesses and retailers. My question follows on from that: most large multinationals have seen, across the board, their rates drop by 15%. Ian, you talked about your last job in regenerating city centres. No one will go into a city centre if there is only one stall. We need them all to work together in order to draw people in. There needs to be a daytime economy and a night-time economy.
This penalises existing businesses, family businesses that have stood by this through thick and thin and the worst of the Troubles. I am telling you that this is an onslaught on them now. If you are not hearing that from 300 calls, I can tell you. I am a past member of Hospitality Ulster. I do not know whether that is a conflict of interest. I spent my life in a bar, so I know the consequences that will come with it and the different valuations that you have on barrels, beer and the pricing structure here.
It is, on average, a 40% increase on the retail sector. Do you accept that? These are the figures that I get from people. I can only read out my figures. It is even higher in the hospitality sector. I am shocked. I do not know how much engagement there has been with them or their bodies. When your people are out walking round and checking the charity shops, they should put a wee call into a public house or a bar manager, and they will find out how difficult it is and how that trade is generated.
Mr Snowden: On the retail side, the overall position is that the total value of all the shops has actually gone down marginally from the previous list. It is now 99% on what the previous list was. Within that, of course, some shops have gone up and some have gone down. The values of 80% of the shops in Northern Ireland have either stayed the same or decreased in this revaluation; 20% have gone up. Essentially, the movement in the market is that high streets, shopping centres and supermarkets have seen their trade decrease; their market share has decreased. Discount retailers like Lidl and convenience stores that are probably attached to petrol filling stations have seen their share of the market go up. The consequence is the shift that you can see in the value of the premises. I do not doubt that there is a small number of retailers who will have seen their valuations increase by 40%, but I do not accept in any shape or form that the average increase in the retail valuation of a shop is 40%. That is simply not borne out by any of the figures.
Mr Catney: I did not say all; I said most who have contacted me. I will probably not hear from those who find that it has dropped. You will at least agree with me that the multinationals have had a drop of, on average, 15%.
Mr Snowden: In 2013, which is the date for the valuation in the previous list, the supermarkets were most certainly at the height of their market relevance. There is no question about that.
Mr Catney: How does that sit with the regeneration of our city centres? They have free parking and all of that; the size of them as well and how they generate income. Is that in rental income, or is that purely on turnover?
Mr Brontë: I want to clear up some things. Under the statute, the valuer can take no recognition of the occupier. Whether they are a local trader or a multinational is not something that the valuer takes into account. When the valuer looks at a Tesco, an Asda or whatever, we do not look at whether it is a multinational or not. As Ian said, in 2015, the large food superstores saw a substantial increase. Some of these properties have ratable values approaching £1 million of ratable value. In 2013, the large food stores were at the top of their market. Since then, any market evidence will tell you that people are not doing the big trolley shop; it has moved towards the convenience market.
So, the value of those large superstores has dropped slightly. We follow the market; LPS is not trying to say, "Maybe we should charge the multinationals less or more". We are following it purely as a valuer follows the market. The evidence shows that the large food stores have seen a decline, but they are still massively ahead of any other equivalent building in price per square metre or whatever way you look at it. That follows the trend, and we saw that trend in 2017 in England and Wales. So, albeit there are some falls, if you compare what is on a large Tesco, Asda or Sainsbury's — other brands are available — to the value of a shop, it is massively different.
Mr Catney: Would you at least agree with me that if we are trying to make it as fair as we possibly can — that is what you have you have said to me — the bottom line on this is not on the value but on what you pay out? When I was a businessman, what I paid out was the main concern, regardless of how that figure comes. As an MLA, I am not comfortable with the rating system as it is at the moment. I would have to challenge it. There must be a fair mechanism. However, to try to use the turnover, regardless of the investment and capital spend that went into a business to get it going, is unfair and unjust. The bottom line is it is going back the other way, going back from the valuation.
Mr Brontë: We are not using turnover; rates are not based on turnover.
in order to look at the hospitality sector and the public houses?
Mr Brontë: Statute — the Rates (Northern Ireland) Order — tells us to assess a rental value for every property in Northern Ireland. There are many methods of getting to that rental value where there is no evidence.
We have quite a few rents for pubs. In fact, the rents —
Mr Catney: Did you take the rental value from England?
Mr Brontë: No, no. We have Northern Ireland rents, and we have rents for quite a number of pubs. I spoke to the valuers this week, and quite a few of the rents that we see are higher than the rateable values that have been assessed for 2020, so there is some rental evidence. There is not sufficient rental evidence to make a fair assessment of all the pubs in Northern Ireland.
Something like 60% of pubs in Northern Ireland are eligible for small business rate relief, which means that their rateable value is up to £15,000. We have to be careful that there are some very big headline figures here, but, on the whole, 40% of pubs will see no change or, indeed, a decrease in the rateable value, and 60% of pubs are eligible for SBRR.
We do not value pubs on turnover nor do we value hotels on turnover.
Mr Catney: But how do you —? I mean, that mechanism —
Mr Brontë: We have to assess or value. When the valuer goes to the court, it is to approve that the valuation, the net annual value, is correct. Valuers will be appointed from both sides to make sure. It is a rent assessment, whether it is a quarry or a cinema or anything else.
Mr Catney: OK but do alarm bells not ring with where you are? You said that there were only 1,000 public houses left in Northern Ireland. When I started, Chair, there were over 2,000. Yes, we had the Troubles, and I know the impact through bombs. Public houses then were probably looked upon as a target, but do alarm bells not ring with you?
The number of people employed in this sector. I have come in here to create jobs; I want to see this economy grow. I really think that this is going the opposite way; it will take away jobs. My colleague Jim raised the point that, in order to find that revenue, you are going to have to cut back on costs, and the biggest cost is staffing.
Mr Brontë: The valuer's job in LPS is very simple, in a sense. The statute says put a rental value — a net annual value (NAV) — on every property. I think that that is the value. The tax is a very different thing, so the tax of what is demanded is a factor of the district rate and the regional rate.
Whatever the value, it is only a value. The value is there to apportion the tax between one occupier and another. I suggest to you that the issue for us in Northern Ireland is that we have a very high poundage, and that came through clearly in the review. We have a poundage of between 55p and 65p in the pound, whereas in England it is 50p to 51p in the pound. So, being taxed at 65% of the rental value, I suggest, Mr Catney, with respect, is the issue because that is where the taxation comes in.
Yes, there are arguments to be had about whether the rental value assessment is correct, and that is for the valuers to discuss and for the courts, ultimately, to decide.
Mr Catney: Would you agree with me that within that sector — let us call it loyalty — customers, and I do not want to be too hard on them, can be very fickle, are you with me? If a new bar opens that is all-dancing and all-singing, they will move there, especially the younger clientele. Meanwhile, we are landed with this high bill that has been forced upon them. You may say, "Why are you after all of the figures from the public houses if you are now saying that you do not use them?".
Mr Brontë: I do not think I did say that I do not use them. What I am saying to you is —
Mr Catney: To engage with them for their accounts.
Mr Brontë: — the valuers do have —.
Mr Catney: I thought you started that off. You said that you asked them for their accounts, as part of that process.
Mr Brontë: We asked for accounts in order to establish a rental value. We do have some rental evidence, but the valuers are saying that there is not enough rental evidence.
Mr Catney: How do you come to it? We are back to the same question.
Mr Brontë: As Ian said earlier, we have had to go to Companies House to try and get it. As an organisation, we would prefer to reach an agreement about an agreed scheme, like our colleagues in the rest of the UK. If an agreed scheme cannot be reached, we have to deal with each one individually, which is fine. We will have to do that, but it is not a good use of everyone's time and our resource. In a sense, that is what we are asked to do, and it is what the statute that Northern Ireland has in place says:
Which is to fix a rateable value on that pub. We have to leave it to the valuers to decide if the valuation is right. Aside from that, we have the issue of what is charged and billed. It is a valuation issue that the valuers need to decide on.
Mr Wells: First of all, there are a lot of Brontës in South Down, so I will be very nice to you. There are no Snowdens.
Mr Snowden: There are; that is where I am from.
Mr Snowden: Yes. I am from Dromara.
Mr Wells: No, that is not South Down. You are in Lagan Valley.
Mr Snowden: I suppose not, but my mother's family is from Ballyward.
Mr Wells: There are many Brontës, so I will have to be very careful around Glascar and places like that. I have a couple of questions. I am concerned: you said that 55,000 businesses have been re-rated and that the number of calls you have had is in the low 200s. That just does not add up to me, because this is one of the hottest issues in town, as far as MLAs are concerned.
The Chairperson (Dr Aiken): Sorry, Ian, can you give us a detailed breakdown of the statistics? I have had about 100 calls to my office alone, and if that is multiplied by the number of MLAs —.
Mr Snowden: I do not want to be disrespectful to any MLA, but if the ratepayer is contacting you, you ought to be telling them to contact us.
Mr Snowden: We want them to contact us.
Mr Snowden: They need to contact us if they have a problem and they think that our valuation is wrong. They ought to be contacting us. If they want to challenge it, they ought to be getting in contact with us. The more we can get resolved before the end of March, the better for everyone.
Mr Brontë: The website and the detail has now been made available. We know that people are looking at it. They can now go in and look on a map and see the rateable value, and see the breakdown for a shop, office, warehouse or factory. You can go on to the system and look at it spatially, on an aerial photograph or a map, and you can compare the value of one shop to the value of the shop next door. It is all there. People are using it; we know that from the hits on the website. We know that people are finding it useful. They are comparing rateable values, and saying, " Why does my shop have this figure?", and they can see it online. We have made the information available for the first time, which the permanent secretary said last week.
We are finding that people quite like to self–serve, and if they can find the detail within the website, the pages or by looking at the information then, perhaps, they do not need to phone us.
Mr Wells: The Tesco at Knocknagoney has had a 15% cut in its rates. It is a very profitable and busy site. Meanwhile, Willie John or Séamus, who owns a sweet shop or newsagent in the town centre, is seeing a 20% to 40% increase, or at least a 15% increase in his rates. Do you take account of the location of the megastore? Obviously, there may be a Tesco located in Strabane or Fermanagh that is struggling. Certainly, the Tesco at Knocknagoney is not struggling. Therefore, is it a blanket 15% cut if you are a Tesco megastore, or is it done on the basis of the particularities of the site?
Mr Snowden: It is done individually. The 15% cut for the Knocknagoney Tesco may seem substantial, but the rateable valuation of that premises is still over £1·3 million. They are a very large ratepayer. It is unlikely, but there may be an individual case where a small shop in a town may see a 20% increase in their valuation, but almost all town-centre retail premises have either stayed static or gone down in value.
Mr Wells: Like a small pub when Tesco has off-licences. One off-licence in a supermarket in Newry has the record for the largest amount ever sold on a single day in the United Kingdom: over £1 million of alcohol went out its door one Christmas when the exchange rate was favourable. Meanwhile, Séamus or John down the road is struggling. Given the present economic circumstances, why should any megastore be getting a cut in its rates?
Mr Snowden: As Mr Brontë said, we cannot take any account of the occupier of the premises. This is essentially the same point that Mr Catney was making: we have to operate on the basis of the evidence available. Perhaps we have misinterpreted the evidence that we have or there are other pieces of evidence that have not been supplied to us, in which case the ratepayer should challenge us. On the other hand, if there is dissatisfaction but no evidence to back it up, we have nothing else to work with. Alternative methods by which we might arrive at the rateable value of a property that are not evidence-based are not available to us; we have to follow the legislation and apply it correctly.
Mr Wells: The evidence is that Tesco, Asda, Sainsbury's and Dunne's are big multimillion-pound companies and can sustain their present rate demand whilst the small shop in the middle of the town cannot. Can you not take into account the fact that a shop is part of a multinational?
Mr Brontë: If the Assembly wants to bring through legislation after the Minister has brought proposals after the review, that is up to the House. The legislation asks us to put a net annual value on every property, so it is a rental assessment. It is the same for the Tesco store as it is for the corner shop, the Centra or any other convenience store. We do not say, "We know this company could bear more" or "This store is more profitable"; we follow the market.
One of those very large supermarkets built a very large food store in Northern Ireland around the time of the last revaluation. The market stopped and went downhill, and they did not fit it out; they let it out and subdivided it. That shows you that the market has changed for large supermarkets. I am happy for you to use the spatial tool and go in and have a look at the values that we are talking about.
Mr Brontë: Is the price per square meter not on it?
Mr Allister: It is not on it at all. The only thing that is on it is the cash machine, which has a rateable value of £9,500.
Mr Brontë: If you look, it should say that there will be one of two. If you look at the top of the icon, you can move between them. We are very happy to pick that up with you later.
We need to look at the reality of the total valuation of a prop—.
Mr Allister: By the way, this building has a rateable value of £1,347,000. I do not know how that was worked out.
Mr Brontë: Probably on office pricing.
If we look at the large supermarkets, there has been an adjustment. However, there is a huge difference, Mr Wells, in the value per square foot. It is done on a valuation basis.
Mr Wells: The problem is the megastores. We have one in Banbridge, which is having a huge impact on the retail sector in the town. I live in Banbridge, so I know a fair bit about it, and we have gone from a situation in which every shop in Banbridge had a tenant to one where we are beginning to see empty properties. That has happened after the opening of a huge store, which, when it is complete and has all its areas functional, will have, on their figures, a throughput bigger than all of Banbridge, Dromore and Rathfriland put together. No town can sustain that, and yet that store has enjoyed, like many others, a rate cut, despite the fact that it is having a profound impact on businesses in the core of the town.
Mr Brontë: I repeat, with respect, that we are not here to make those types of decisions; we are here to do what the statute asks us to do. In this case, the statute is asking us to put a rental value on that property. We follow the market in relation to that property; we do not make judgements on whether it is good that the store is there, whether we think it is detrimental to Banbridge or whether Tesco or any other large shop can afford it. That is not a decision for us to make: we would be acting ultra vires if we in any way took that into account. We follow the market.
Mr Wells: In GB, there is rate relief for shops that have a ratable value of less than £51,000. We have a much lower threshold. Why is that?
Mr Brontë: The scheme that was brought in in 2010 was very similar to the ones in the rest of the UK. It tailed out at £15,000 ratable value. The Chancellor has brought through different schemes over a couple of years in England. Scotland has followed to some extent, and Wales has, too. They have different schemes. Over the last three years, it would not have been possible to change that scheme. The small business rate relief is one of the three SRs in front of the Committee today. That was brought through because it was by negative resolution. We stetted the existing scheme; we would not have been able to make any change to that scheme.
As part of the review, the Minister will have to take that to the Executive as to what he wants to do in relation to the small business rate relief scheme. Certainly, we, as civil servants, would not have been able to make any change over the last couple of years. There is a very big difference. If we were to try to introduce similar schemes in Northern Ireland with similar levels of value, it would be exceedingly expensive. That is something that the Executive will have to look at.
Mr Wells: It puts a small business in GB in a much better standing to oppose the multinational megastores than the similar small businesses in Northern Ireland.
Mr Brontë: The scheme is certainly more attractive to small businesses.
The Chairperson (Dr Aiken): Is it possible for LPS to provide us with details of the review, what is going and the timelines? If we could have a briefing on that, it would be very useful.
Mr Lynch: Thanks, men. How many of the challenges have resulted in revaluation, either up or down? What percentage have been revalued if somebody had a good argument that it was too high?
Mr Brontë: In terms of all the non-domestic properties?
Mr Brontë: Certainly, 75% of retail property has stayed the same or come down. I think that I gave you the figure earlier of 40% of pubs, but I am struggling to get —.
Mr Snowden: He was asking about challenge.
Mr Brontë: I beg your pardon. Sorry. Do you mean back in 2015?
Mr Brontë: I do not have those figures to hand.
Mr Brontë: No, I do not have those figures.
Mr Lynch: It came to light yesterday at the all-party group on sport and recreation that there has been a 30% to 40% increase in NAVs. Is that not inconsistent with our promotion of healthy living through the Programme for Government?
Mr Snowden: As Alan explained, in relation to pubs and the shops question, that is all based on the evidence relating to the individual property. You have to put a rental value on that particular property. There is no option for LPS to take any other factor into account because the legislation does not permit that. If the Assembly decided that other considerations, such as those that have been expressed today, were the kinds of things that it would like to take into account for the valuation of property for rates purposes, that would need to be placed in legislation.
On sport and recreation facilities, amateur sports clubs are entitled to fairly substantial relief.
Mr Brontë: It is 80% relief; they pay only 20% of the normal liability. If it is a community amateur sports club, it has 100% relief on anything but the bar.
Mr Lynch: That would be GAA clubs and soccer clubs.
Mr Brontë: Yes. Their ratable value is assessed in the same way; it is net annual value. You will go to sleep after being really fed up of listening to that one line that I have used, but the relief for sport and recreation is 80%, and if it is a community amateur sports club it is 100% relief.
Mr Lynch: Lastly, Ian, how do you get in touch? Is there a phone line?
Mr Snowden: Yes, there is a phone line. There is a section on the Department of Finance Internet site about Reval2020. Full details on how to contact are there; it is either by telephone or online.
Ms Dolan: Two schemes lapsed in March 2017 because of the lack of an Assembly: rural ATMs and Back in Business. Do you know whether those will be reintroduced? Has that been decided?
Mr Snowden: It has not been decided; that will be a matter for the Minister to work on. It does not need to be decided before the rates bills go out, because both schemes are application-based.
Mr Brontë: No. Sorry, the ATM was not application-based.
Mr Snowden: OK. There were 94 rural ATMs, so it was not a huge number that was affected by it. The Back in Business scheme was an application-based scheme. That was very popular, and I think that there was quite a lot of support for bringing it back, but, again, it will be for the Minister to take a view on whether he wants to reintroduce it.
Mr McHugh: Your ambition is to raise almost £1·4 billion in rates this year. To what extent have you realised that? Secondly, there is a suggestion that you may have proposals for raising the total amount of rates collected. How do you propose to do that? Is it a case of branding the rates-based payers or raising rates in certain areas? What are your suggestions for that?
Mr Snowden: We are slightly behind on the current year's rating collection target. We were £26 million ahead of the same position at the end of December, which is the last date for which I have figures. There are a few late assessments that have just been agreed, which will come in and bring in fairly substantial sums of money. I think that we might be in the region of £10 million to £12 million short of that target this year.
Mr McHugh: And are there any proposals for raising rates in the future?
Mr Snowden: We do not set the rates. The target for rate collection is linked to the rates that are set by district councils and the Executive: the district rate and the regional rate. We take the rates poundages that are set and apply those to the valuation lists. We can then work out what we should be seeking to bring in in rates assessments and what our targets should be for collection to raise the amount of money that the Executive and the district councils say they want to bring in. We do not have ambitions to bring in more rates in that sense. Our job is simply to collect the rates for the Executive and the councils as efficiently as possible.
The Chairperson (Dr Aiken): Ian and Alan, thank you very much. However, Alan, you are not going anywhere yet.
We need to move on to the next item, which is subordinate rule legislation — ratings progressed since 2017. Alan, I believe that you will brief us and provide an overview of the ratings legislation that has been progressed since 2017.
I draw the Committee's attention to the Committee Clerk's paper, which provides a summary of the SRs received between 2017 and 2019 and to the Department's letter to update the Committee for Finance on outstanding issues from January 2017. Over to you, Alan.
Mr Brontë: OK. Thank you. If possible, Chair, with your permission, I would like to group a number of the SRs together. I will start with the Rates (Small Business Hereditament Relief) (Amendment) Regulations (Northern Ireland) 2017, which we have, in a sense, referred to just now and for which I will probably use the acronym SBRR — small business rates relief. That is SR 2017/72, SR 2018/61 and SR 2019/44.
These three SRs were made by the Department to extend the small business rates relief scheme, which would otherwise have lapsed. The SRs were made following the agreement of the annual budget exercise announced by the Secretary of State, alongside the regional rate decision. As the chief executive said earlier, the regional rate legislation went through Westminster because it required affirmative resolution, but these rates relief regulations were negative. No change was made other than to extend the qualifying year to enable ratepayers to benefits from small business rates relief in the three years of 2017-18, 2018-19 and 2019-2020. In the absence of Ministers, we could not enhance the scheme, and so we stepped it through those three SRs to allow a normal SBRR to apply. There are no questions, so I will move on.
Another two that I would put together are the Rate Relief Regulations (Northern Ireland) 2017, which is SR 2017/184 and SR 2018/109.
Those SRs provide for rate relief for eligible claimants and came into operation as a result of the making of the commencement order for welfare reform. Previously, the Executive had agreed to the rate replacement scheme. There were three public consultations on that. Not to have implemented SR 2017/184 in 2017 would have meant that new universal credit recipients in Northern Ireland would not have had any access to related support provision. There is no change to the provision for those whose social security benefits had not migrated to universal credit. After the initial period, the Department made some amendments to the rate rebate replacement.
An Executive paper on the functioning of the scheme will need to come back to the Northern Ireland Executive in due course. That paper will be informed by an external review, commissioned by the Department, of the scheme last year. That was therefore a very important SR. Over 32,000 claims have been made to date, and about £9 million in rate rebate has been awarded.
I now move on to SR 2017/231, which is the Rates (Unoccupied Hereditaments) (Amendment) Regulations (Northern Ireland) 2017. The amendment arose as a result of the extensive flooding in 2017 in the north-west. There were people who had to leave their home because of the flooding but would have had to continue to pay rates. Empty homes are still rated, so full rates are paid on an empty home. Those homes were not sufficiently damaged that homeowners could not move back in. They were able to be repaired so that homeowners could move back in. The homes could not be removed from the valuation list, so we tagged an exclusion from the rating of empty homes on to the Local Government (Miscellaneous Provisions) (Northern Ireland) Order 1992. If homeowners qualified for a compensation scheme from their local council as a result of the flooding and the property had been occupied for a continuous period of not less than four weeks, we brought in the SR to give people up to a maximum of six months rate-free where they were, as it were, evacuated from the home because of flooding. Ninety-three properties benefited from that, and the cost of the exclusion was £41,000.
I move on to two other SRs, which are SR 2018/67 and SR 2019/198. They concern, in a way, how telecommunications, natural gas and water are entered into the valuation list. Those types of utilities are not in one place. You cannot put a red line around them on a map, so they are valued in a different way. Each property appears separately in the valuation list. As a new supplier comes into the utility market, then, we are required to make a new regulation; otherwise, we would not be able to collect non-domestic rates from that supplier. Therefore, the two SRs were made to bring into the valuation list two new suppliers.
Mr Brontë: Two companies. You will see that they are listed in the schedule to the SR. Each time that there is a regulation, it lists the company names. You cannot use an address when you are using it for a gas undertaking.
Members will see that each of the SRs has a list. The list is longer for the later SR. For example, the lists include Belfast Gas Transmission, Firmus Energy, Phoenix Natural Gas and Premier Transmission. By listing those names and others, we are able to attribute a value in the valuation list and, in that way, collect non-domestic rates.
I now move on to SR —.
The Chairperson (Dr Aiken): Hold on one second. I cannot see the name of the company listed. Am I missing that somewhere?
Apologies. When I was reviewing the SR, I did not see the name of the company, and that has surprised me. That is why I am checking. It probably is there. I just need to have a look.
Mr Brontë: I have a copy, and the names are in the schedule. It is on the second page of each of the SRs, in part 2 of the schedule. In the earlier version, it is on a third page.
The Committee Clerk: Sorry, Chair. This is SR 2018/67.
Mr Brontë: Yes. SR 2018/67. There is a page 3.
Mr Brontë: Can I give you this? It might help you.
The Chairperson (Dr Aiken): Am I missing it?
We have it in front of us. We are just reading it. I am not trying to be difficult. I genuinely just did not see it. When you mentioned the name of the company, I was going —.
Mr Brontë: Can I give you a copy of the SR?
Mr Brontë: Trust me.
I will move on to SR 2018/68. This is the New NAV List (Time of Valuation) Order (Northern Ireland) 2018. I referred earlier to the fact that, every time that we have a revaluation, such as Reval2020, we have to ascertain the valuation date. It is the normal course taken. At this time, the valuation date reference point, if you like, is set two years before the publication or coming-into-effect date. It is non-controversial, and the essential feature of a revaluation is to set a valuation date. That is merely what the order is doing. It is establishing that the market valuation is based on 1 April 2018, two years prior to the new valuation list coming into effect.
The next SR that I want to take is SR 2020/5, which is the Rates (Making and Levying of Different Rates) Regulations (Northern Ireland) 2020. That SR came through just a number of weeks ago. Again, it is to accompany the revaluation process. It restates the longstanding provision to allow different rates to be levied on NAVs and capital values. The change implemented by the SR is to update the formula that links the domestic district rate struck by councils to the non-domestic rate struck by councils. Many of you will know that, effectively, that allows the council to make one rate-striking decision.
The updated formula, which we refer to as the "conversion factor", preserves the relative burden shared between the domestic and the non-domestic parts of the council tax base that existed prior to the revaluation exercise coming into effect. It was therefore essential to bring in the SR , to allow district councils to move through the rate-striking, which they are all in the process of doing now. Once we had the out-turn values from the valuation list and we knew the increase-by-council percentage in Northern Ireland, the economists were able to provide the conversion factors, which are then applied by each council as it strikes the rate.
Mr Brontë: I think that that is all. We have moved through all of the SRs.
The Chairperson (Dr Aiken): Alan, we need you still. You are not allowed to run away just yet. The SL1 is the Rates (Regional Rates) Order (Northern Ireland) 2020.
I draw members' attention to the Committee Clerk's briefing paper on the SL1 and to the SL1 from the Department setting out the purpose of the draft rule. The rule is subject to Assembly affirmative resolution procedure. Its purpose is to set the amount of the domestic and non-domestic regional rates for the year ending 31 March 2021. Members need to decide today whether they are content with proposals at this stage or whether they require any further information from the Department.
Alan, you are here on standby, should you be required to address any queries on this or the other proposals for subordinate legislation on rating issues.
Mr Brontë: This is very much the standard regional rates order. There are no figures in there. That is something for the Minister and the Executive to take forward. At this stage, we are looking for the Committee's agreement on the legislation as it is currently presented. Again, I suggest that it is not controversial. It is very much a tried-and-tested piece of legislation.
Mr Brontë: No. It does not at this stage.
Mr Allister: You are asking us, who are ignorant of what the poundage will be, to approve it blind.
Mr Brontë: No. I am not asking you to agree to any of the figures. Those figures will come back.
Mr Brontë: Yes. They will come back.
Mr Brontë: When the Minister has put the figures of the regional rate-striking to the Executive. Then the order will come back. It is subject to affirmative resolution by the Assembly.
Mr Brontë: That will be part of the Budget process, Mr Allister. It will be tied into the Budget process. My understanding is that it will be mid-March.
Mr Allister: For a Budget Bill that needs Royal Assent by 31 March?
Mr Brontë: It is mid-March because we need to get rate bills out. My understanding is that the Budget will be agreed, I hope, in the middle of March, and the regional rates order will be part of that process.
Mr Brontë: You are agreeing the form of the legislation. We are duty-bound to give you that to do. That is the process that has been followed from time immemorial. The statutory rule is in front of you, and, as I say, on a future occasion in the Assembly, you will see the figures for both the capital value regional rate and the non-domestic regional rate.
Mr Frew: Alan, this might be a time when you get very nervous. You talk as though this is non-controversial, and it may be, but I am sure that you have nervous fits at the start of a new term, with inexperienced MLAs on a new Committee. Can you explain in layman's terms the rationale behind the procedure? Why do you need to get permission or consent from the Finance Committee, when this is really a decision for the Executive? When you talk about mid-March, is that for a decision by the Executive or for the Budget Bill?
Mr Brontë: I think that the Budget and the setting of the regional rate will take place in March. I presume that, if it could be done earlier, it would be. However, it is my understanding from those who deal with finance, and, indeed, from the Minister himself, that it is something that the Minister expects. He expects to be able to provide LPS with the two figures to allow the rates process to proceed. It is important that we have the legislation in draft form with you and that it goes through the process of going through this Committee. Departmental solicitors and a number of other people will look at it as it moves through the normal process by which legislation is looked at. At this point, it is non-controversial. It basically sets out the words that have been used for many years. At a later date, the figures will be added to the legislation in front of you.
Mr Frew: If we as a Committee were not to agree the SL1 today, what impact would it have on the process?
Mr Brontë: I do not know the answer to that, so I would have to seek advice. With respect, I would find it unusual if you did not agree it, because it is something that has been used over a number of years as the piece of legislation —.
Mr Frew: We are in unusual times. I think that one of your colleagues wants to come in.
Mr Brontë: Mr McAvoy is perhaps the expert.
Mr Andrew McAvoy (Department of Finance): I have been through this process with the regional rate before Alan took over, prior to the political impasse. This is seeking permission only for the SL1 — subordinate legislation 1 — letter, the purpose of which is to clear the process through the Committee. It is to provide advance notice that we will be taking forward a regional rates order. That is the policy behind a regional rates order, in that it is subordinate legislation that goes through the Assembly annually to provide for the rate poundage. At the moment, we do not know what the poundage will be, but when the legislation is made and brought before the Committee, that will have in it the poundage that reflects the Budget settlement.
The Chairperson (Dr Aiken): We were told that a lot of work had been done on the Budget beforehand and that it would be ready to proceed as soon as we came back, with everything being ready to go. We discover, however, that it is not and that we are being asked to look at this legislation. We are told that you do not know what the poundage will be set as. Can you give us any indication of when the poundage will be set?
Mr McAvoy: At the moment, you are not clearing the legislation; you are clearing the SL1 letter, which the Department uses to indicate the process and the policy behind the process.
Mr McAvoy: As Alan has indicated, this is a process that we have gone through in the past with the Finance Committee, because of the tight timescales between the presentation of the SL1 letter and our saying, "This is the order that we intend to make". There has always been a dependency on the Budget agreement following that. If, for example, we were to wait until there is a Budget agreement, which the Minister last week referred to as being before 11 March, before providing the SL1 letter to the Committee —.
The Committee Clerk: For the Budget.
Mr McAvoy: The Budget Bill is distinct. Yes, for the Budget.
If we were to present the Committee with the SL1 at the point at which we had a Budget agreement, you would need to schedule that into your Committee meeting for the first Wednesday after 11 March. If you agreed the SL1 then, we would need to come to you the following week with the actual statutory rule. As you go through the weeks, you are taking things further towards the turn of the financial year, when the bills have to come out. Therefore, by presenting the SL1 to the Committee at this point, as has been done in the past, it is merely to allow an expedient process for issuing rate bills.
It is not legislation that we are seeking to be cleared today but the SL1 letter, which is the process and policy behind the legislation.
Mr Catney: My colleague asked what the impact of a one-week delay on this would be. There seems to be a lot coming through. As you said, Chair, it has been three years, and this is a brand new Committee. I have done my best to understand this, but tell me, Mr Brontë, where does this impact on the businesses that you have not met yet? I know that it is a different level, but, if you are looking at the moneys, I say back to you that all that businesses or households think of is the rate that they will pay. I would like to be able to give a little bit better scrutiny to the process if possible, but I cannot figure this out at this late stage.
Mr Brontë: This will be the statutory vehicle that will put into law the figures that the Assembly agree to on the regional rate for non-domestic and capital values. It will then —.
Mr Catney: Is it common practice to bring it in six weeks before the Budget?
Mr McAvoy: Yes. It is common practice to bring it in just before the Budget.
Mr Allister: We do not have any draft legislation in front of us. I have a letter.
Mr McAvoy: Yes. That is the SL1 letter.
Mr Allister: Therefore, what you are asking us to approve is a letter.
Mr McAvoy: Just the letter, yes.
Mr McAvoy: That is part and parcel of subordinate legislation.
Mr Allister: I have a different question for you. As officials, have you recommended a poundage level to the Minister? Is that part of your function?
Mr Brontë: No. It is part of the Budget process. We may be involved in looking at that, but the decision will be reached by the Minister. It is very much a Budget process.
Mr McAvoy: The branch of the Department that deals with overall Budget preparation is the central expenditure division (CED). The regional rate makes up 5% to 6% of the Budget, and that is factored into the balance. CED manages that process, and it has done so for the past three years with the NIO. It will manage the process with the Finance Minister and the Executive to set the Budget.
Mr McAvoy: I am sure that it has. We have our own views on the poundage. On the overall amount to be raised through the rating system, we can point to things such as high poundage and the impact of the poundage on businesses, but that really is a matter for the Minister and the Budget staff in the Department.
Mr Brontë: This is about what you want to raise from the regional rate.
Mr Frew: What you are asking us here is to approve a letter.
Mr McAvoy: Yes. It is the SL1.
Mr Frew: What is the advantage in getting a scrutiny Committee to agree a letter for a process?
Mr McAvoy: It is just part of the subordinate legislative process of the Assembly. Any time before legislation is introduced in the Assembly, the process is that the Committee gets an SL1 letter to inform it that the Department intends to introduce the legislation. It is really the Committee's first sight of things to prepare it for the fact that the Department will be introducing legislation in due course.
Mr Frew: Therefore, it is only a warning letter or a courtesy letter.
Mr McAvoy: Yes, it is a courtesy letter.
Mr Frew: If it is a courtesy letter, why do we have to approve it?
Mr McAvoy: I am more than happy for the process to be dispensed with, in that it adds another block of time.
The Chairperson (Dr Aiken): I do not think that you would be, for the record. It might be useful at this stage if I were to ask the Clerk to go over it quickly.
The Committee Clerk: The SL1 letter sets out the policy proposals that will come to the Committee in the legislation. It is the Committee's opportunity to consider the policy proposals and provide a view on them. Once the statutory rule is produced, the Committee cannot change it. As this is an SR that is subject to affirmative resolution, the Committee will have the opportunity to recommend either that it be affirmed by the Assembly or that it not be affirmed by the Assembly.
The Committee Clerk: The Committee will have another opportunity to look at the SR with the poundage in it. At that stage, it can recommend either that it be affirmed or that it not be affirmed.
Mr Frew: Again, my question, which I do not think has been answered, is this: what impact and effect will it have on the process if the Committee does not agree or endorse the SL1?
Mr McAvoy: The subordinate legislation process for Departments is to present the SL1 letter to the Committee. In the past, we have taken the view that, if an SL1 letter is not cleared, the legislation cannot move forward.
Mr Snowden: May I come forward again, Chair, to answer Mr Frew's question?
Mr Snowden: The regional rate must be set to allow the rate bills to be issued. If the regional rate is not set and the order making the regional rate does not pass by 13 March, the rate bills cannot be issued before the beginning of April.
Every week of delay thereafter delays the issuing of the rate bills. In and of itself, that is not a major problem, except that, if you get into April and the regional rate has not been set, ratepayers who habitually pay their rates by direct debit in 10 installments will find doing so more problematic, until eventually they will not be able to make 10 installments and their rate payments will have to be reduced to nine, and subsequently to eight, and so on and so forth.
I am not suggesting that there is any prospect of a long-term delay of that nature, but, if the initiation of the legislation is delayed, which concertinas the amount of work that we need to do to get the order through once the rate has been set by the Executive, that has a knock-on, real-world implication for rate bills going out.
Mr Frew: Of course, we faced this disaster when Stormont fell the first time, as the previous Minister failed to bring forward a Budget to this place. We now have a new Minister, and we asked last week for his first-day brief. He said, "No problem. It's only a few pages long." I have yet to see that first-day brief. I believe that we have it today, but that is a week later. We are in a new place, and Committees will not accept the lack of information of before. We will be scrutinising everything. I know that this is a very simple thing, and I may be being petty, but we need to send a message through you guys, because it is not your fault, to the Department that we are not going to stand for any more nonsense.
Mr Brontë: We have brought the SL1 at the absolute earliest opportunity to give you the time to consider it. As you saw, I was walking away from the table when the Chair called me back. I was not sure whether you wanted this discussion today or not. We have pushed this through at the absolute earliest opportunity in order to give you the time and to afford you respect as a Committee.
Mr Frew: The information that we have received from you, Alan, and from Ian and —. I am sorry, but I cannot —.
Mr McAvoy: Andrew McAvoy.
Mr Frew: That information has been very informative and detailed. You are on top of your game, there is no doubt about that. However, we need to send a message to the Department that we are not going to be messed about. I am not going to be messed about by any Department or Minister. You guys probably got the brunt of it because you are up first.
Mr Brontë: I certainly do not feel that way at all after today's session. Andrew, who has vast experience in this area, provided me with the immediate prompt and the draft that we then put up through the system to the permanent secretary and the Minister. It was probably one of the very first SL1s coming from the Department, so we have been proactive in providing it at the very earliest opportunity.
As you will appreciate, we were pushing towards putting the regional rates through Westminster, and we had started that process. We then immediately started the process of bringing it through this House and through this Committee. We have therefore been proactive in bringing it to the Committee at the very earliest opportunity.
The Chairperson (Dr Aiken): To reiterate what the Deputy Chairman has ably put, can you convey this message to the permanent secretary? I am sure that she is listening avidly to every word that we say.
The Chairperson (Dr Aiken): We expect to see information in a timely manner. There have already been discussions on poundage, and it would be more appropriate if, when that information is available, we are brought into the conversation earlier rather than later. Thank you, everybody.
I therefore ask members to agree formally that the Committee has considered DFP's proposal for subordinate legislation under the Rates (Regional Rates) Order (Northern Ireland) 2016 and to confirm that they have no objection to the policy implications of the proposed legislation at this stage.
Question put and agreed to.