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Proposal for a Draft Rates (Amendment) (Northern Ireland) Order 2004

Northern Ireland Grand Committee

Thursday 15 January 2004

[Mr. Roger Gale in the Chair]

Proposal for a draft Rates (Amendment) (Northern Ireland) Order 2004

2.30 pm

The Chairman: Good afternoon, ladies and gentlemen. Hon. Members may remove their jackets for personal comfort, if they wish to do so. I remind the Committee that the debate may continue until 5 o'clock. I have no power to impose a time limit on speeches, but if hon. Members keep their contributions brief it should be possible for me to call all those who wish to speak.

The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Ian Pearson): I beg to move,

    That the Committee has considered the proposal for a draft Rates (Amendment) (Northern Ireland) Order 2004.

It is a real pleasure to serve under your chairmanship this afternoon, Mr. Gale, for what I am sure will be a lively and interesting debate.

I am grateful to the Grand Committee for convening this sitting to give hon. Members the opportunity to consider this proposal. It is an important piece of legislation, and I am pleased to be here today to explain the provisions of the draft order and to listen to the Committee's views.

To begin today's debate, I want briefly to put the draft order in context. The current rating system in Northern Ireland is based on principles established in the 19th century, so the underlying arrangements are over 150 years old. When the Northern Ireland Executive was in place, it recognised that the system needed modernisation and fundamental reform, and it undertook a comprehensive review of rating policy in Northern Ireland. The aim of the review was to establish a modern and fair rating system.

An extensive public consultation exercise on the rating review had just ended when the devolved institutions were suspended in October 2002. That was, and remains, a matter of regret, and the Government's No. 1 priority is to see the early restoration of devolution. However, the process of government must continue, and in December 2002 we were able to publish the results of the consultation exercise, which confirmed the pressing need for rating reform.

The draft order deals with two policy issues relating to the rating of non-domestic property—the derating of industrial property and non-rating of vacant property—and provides for the phased removal of industrial derating and the introduction of rating of vacant non-domestic property.

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Industrial derating was abolished in England and Wales in 1963 and phased out in Scotland by 1995. The policy rationale for its retention in Northern Ireland is no longer sustainable. That is the view not just of the Government but of the Committee for Finance and Personnel and the Committee for Enterprise, Trade and Investment in the Northern Ireland Assembly. Both Committees concluded that industrial derating should be removed, and they recommended time scales for its removal of six years and three years respectively.

Many others, including representatives from the wider business community who responded to the consultation process, reflected those views. Industrial derating is not effective as a method of supporting general economic development. Its benefits are focused on just one business sector—manufacturing—while other businesses, including many of the new knowledge-based industries and the service and retail sectors, pay rates at levels broadly similar to those in the rest of the United Kingdom.

All sections of business use local services and infrastructure to create wealth and employment for the community in Northern Ireland, and all sections of business should contribute their fair share towards providing and maintaining those services.

David Burnside (South Antrim) (UUP): The Minister referred to the context of the rating changes proposed. To what extent was there consultation on the comparative cost to business of non-rating and on the fact that, in Northern Ireland, energy, transport, insurance, property and waste treatment are all a higher cost to business than in the rest of the United Kingdom? How much was that borne in mind in the consultation process?

Mr. Pearson: Those matters were certainly considered by the Assembly Committees. Before we took final decisions, all those relevant factors were considered. I will go on to say something about the costs of operating businesses in Northern Ireland, but I just want to stress that before we took final decisions on how to proceed, we considered a range of sources of evidence. We also discussed options openly with representatives of the business community, and that analysis was reflected in the policy paper published in April 2003. That included a regulatory impact assessment, as well as a summary of all the evidence that we drew on to reach decisions on how best to proceed.

The key feature is our proposal in the draft order to phase out industrial derating over a prolonged period. That is reflected in article 3, which makes provision for firms that are currently derated to begin paying rates in April 2005, but only at 15 per cent. of their full liability. That percentage will increase gradually over the following five years and the full rating liabilities will apply from April 2011. That means that firms will have had more than eight years from when our decision was first announced to adjust to the new arrangements.

In adopting that approach, we have responded to the concerns that were expressed to us during our consultation with business representatives, which took place before we published our policy plans. We have

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also followed the recommendations made by the Assembly Committees for a phasing-in period. I know that there has been some lobbying locally for a review of the policy, but I strongly refute the claims that this measure will lead to the loss of thousands of manufacturing jobs. As far as I am aware, no evidence has ever been produced to justify or substantiate those claims. They appear to be an attempt to distract attention from the sound basis for the measure. It is supported by research, Assembly Committees, leading business and economic organisations, and leading business commentators, including, most recently, John Simpson, writing in the Belfast Telegraph.

Mr. Andrew Hunter (Basingstoke) (Ind Con): But is the Minister not open to challenge? Surely it is well established that increasing the costs for any sector of business—increasing the costs includes increasing the burden of taxation—has an adverse impact on unemployment. Surely he should qualify what he just said.

Mr. Pearson: If the hon. Gentleman had listened, he would know that I said that I refuted claims that this measure would lead to the loss of thousands of manufacturing jobs, and that no evidence has been produced to substantiate those claims. Let me make myself quite clear. I do not believe that there will be any sustainable job losses as a result of a gradual phasing out of industrial derating over a prolonged period. Companies will start with 15 per cent. in 2005 and not reach the full percentage until 2011. That is a reasonable policy. Companies that need financial support can secure it from the Government through other means. A blanket measure such as the one currently in place is not needed. It is not an effective policy weapon for the Government to use. There are better ways of supporting and modernising manufacturing businesses than the current blanket measure, which is why we are phasing it out over a sensible and extended period.

Mrs. Iris Robinson (Strangford) (DUP): The Minister will be aware that, even with industrial derating, my constituency has seen a loss of jobs. We are talking about 150 jobs at Shorts (Hawlmark), 300 at TK-ECC, 450 at Carpets International, and 200 at Saintfield Yarns, which is closing down. Surely, with the removal of derating, job losses and closures in the Province will accelerate.

Mr. Pearson: Any job losses are obviously a matter of regret. They are a major tragedy for those who are put out of work and have a significant effect on their families. However, it is the nature of business that some companies do well and some do badly. Some companies take on extra employees, others have to lay them off and make redundancies, and some companies close. That is the nature of a modern, dynamic economy.

The Government's priority and objective in industrial policy is to support companies in Northern Ireland and ensure that there is a competitive business base. The policies of the Department of Enterprise, Trade and Investment and the activities of Invest NI

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are geared towards that end. It is important that we help those companies that need support and will benefit from it. The hon. Lady will know of a number of examples recently where we have supported companies in her constituency and throughout Northern Ireland to enable them to invest in modernising and improving their competitiveness, which is important for their long-term future and for the long-term future of the Northern Ireland economy.

Mr. Geoffrey Clifton-Brown (Cotswold) (Con): I am sure that the Minister will be aware of a letter of which I have a copy, dated 10 June, from the Northern Ireland manufacturing focus group to the Department of Finance and Personnel rating policy division in Bangor. It states that the number of jobs lost in the past five years is 10,000 in Northern Ireland, down from 107,600 to 96,000. It continues:

    ''If the decision to force through this policy is carried through it will have a totally negative effect on manufacturing causing major unemployment with possibly the loss of 30,000 jobs or more over the next few years.''

Will the Minister explain how it has a view so different from that of the Government? If its view proves correct, will the Minister assure the Committee that the phasing in will be done more slowly than is provided for in the order?


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