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

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Mr. Beggs: Can the Minister confirm that vacant warehousing is not rated in Great Britain? If that is the case, can he explain why rating will be introduced in Northern Ireland when it is not applied elsewhere in the United Kingdom?

Mr. Pearson: I shall come to that point in a moment. Before I do, let me spell out some of the details.

Article 4 of the draft order imposes a liability to pay rates on persons entitled to possession of certain vacant non-domestic property; in most cases, that will be the owner. The rate of liability is set at 50 per cent., as has been the case in the rest of the UK since 1988.

An important aspect not provided for in the draft order itself is exemption from application of vacant rating, which will be dealt with in the normal way through a power in the draft order to make regulations that prescribe the various categories of non-domestic properties to be exempt from the new rate. It is my intention that the exemptions will largely mirror those in the rest of the UK and include industrial property, factories, mines, quarries, properties with a net annual value of less than £2,000 and other properties such as listed buildings and properties subject to bankruptcy

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or probate proceedings. As in England, Wales and Scotland, there will be an initial three-month exemption period for all non-domestic properties that are subject to the new rate. On the hon. Gentleman's question, unlike the position in the rest of the UK, I do not propose to exempt stand-alone warehouses from the new vacant rate, as the grounds for exempting them do not appear to be sufficiently strong. It is in the nature of the storage and handling business that such buildings often lie empty for periods. That should not be allowed to justify more favourable treatment than for other types of property. Warehouses are usually general purpose buildings and readily marketable for sale or to let to a range of tenants. That is often not the case with industrial property, which is why warehouses that are part of an industrial complex will be excluded from the provisions, whereas stand-alone warehouses will not be.

The draft order also contains special provisions relating to properties on which full rates are not levied when they are occupied. Such properties include sports clubs, which pay 35 per cent. rates, and nursing homes and charities, which may be partly or wholly exempt. The principle that has been applied is that a ratepayer should not be worse off when such properties are vacant than he or she would be if the properties were occupied and used for those specific purposes. To ensure that that is the case, the draft order provides that the level of rate relief afforded to any such properties when occupied will apply pro rata to the vacant rate.

Article 5 of the draft order provides for the introduction of a new completion notice system in Northern Ireland and mirrors similar provisions in the equivalent Great Britain legislation. The purpose of the system is to determine the day on which a new building that is unoccupied will become liable to the new vacant rate, and its aim is to prevent developers from deliberately not completing buildings to avoid paying the new vacant rate. Article 5 also sets out the mechanism for appealing against a completion notice and the position pending appeal. I intend to make regulations that provide for the amount of rates chargeable to be adjusted in the light of the outcome of a final appeal and, where appropriate, for any overpayment to be refunded.

Articles 6 and 7 of the draft order give the Department of Finance and Personnel two new powers. Article 6 permits the Department to serve a notice on a range of people requiring them to provide information to it for the purpose of identifying the person liable to pay the vacant rate. I intend to exercise this power in a reasonable and measured way. My officials are preparing written guidelines to inform those who have to serve such notices of the manner and circumstances in which they are to be served. Notices will be served on a relevant person as specified in article 6 only if the Department has reasonable grounds for believing that he or she is in possession of the required information.

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Mr. Luke: I know that concern has been expressed about the impact of the measure on small businesses with a turnover of less than £300,000. Small businesses all over the UK are a concern, and we must foster them as a priority in any economic measure. Has the Minister given any thought to doing that by exemption?

Mr. Pearson: Yes, I have. One of the things that my officials have been doing is looking at systems elsewhere. As my hon. Friend will know, in Scotland small business relief is set at a relatively low level, as it is in England and Wales, and we are actively considering that. I do not want to preclude further debate and the work that needs to be done, but we shall consider making proposals with regard to that at a later date.

May I complete my responses by referring briefly to article 7, which confers a power to enter land on persons authorised by the Department of Finance and Personnel for the purpose of gathering information? This power is needed, but it will be exercisable only in relation to non-domestic property. It mirrors a similar power available to the Department for maintaining the valuation list.

I am sorry that I have gone on a little, but I thought that it would be helpful to clarify and answer some of hon. Members' questions as I went along. I believe that the proposals for a rating order are an important first step towards achieving the ambition of the previous Northern Ireland Executive, an ambition shared by the Government, to reform and modernise the rating system in Northern Ireland so that it can provide a fairer basis for the collection of local revenue. These are two significant steps along that road. They are sensible, modernising measures and I look forward to hearing the debate.

Mr. Clifton-Brown: I am grateful to the Minister for giving way one more time. I believe that the measure would be a lot more palatable to the people of Northern Ireland if the Minister could assure us that the money will be additional and not merely a substitution for any other public money that might now be going to Northern Ireland.

Mr. Pearson: This is certainly additional money to Northern Ireland. It will be raised in Northern Ireland and spent in Northern Ireland. As the hon. Gentleman is aware, under the current funding system the Government provide funding to Northern Ireland through the comprehensive spending review process. The figures are allocated right up to 2005-06 and the CSR to be carried forward later this year will set the amount of spending to be allocated to Northern Ireland for the following three years. This is genuinely additional money to improve infrastructure in Northern Ireland and I am sure that a large majority of people in Northern Ireland will welcome that.

3.6 pm

Mr. David Trimble (Upper Bann) (UUP): The Minister referred to the rates review instituted by the Northern Ireland Executive. I was a little disappointed

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that he did not say more about the current state of that review and the range of matters that might be considered. I would appreciate it if he could go into those when he responds.

I was also a little concerned when the Minister referred to the rates review having the objective of producing a fairer rating system. I much preferred the approach he referred to later when he said that the objective was to find a fairer base of local revenue. I always expected that the rates review would consider systems of local taxation generally—not just make adjustments to the rating system—and see whether there might be other ways. I draw the Minister's attention to the debate elsewhere in the United Kingdom on this subject. That is not to say that I immediately leap towards some of the other ideas, such as local income tax, but it is worth considering whether a different system of local taxation is possible because, although the rates are efficient and easy to collect, they are unfair in many ways and bear heavily on some sectors of the community, particularly the domestic sector. I hope that it is still in the Minister's mind to consider the matter more radically.

The draft order that we are discussing deals with two relatively minor matters and the general approach is to broaden the base for the levying of the tax. That is attractive in principle because, in so far as exemptions are granted, it simply increases the burden on those who are not exempt. If the base is broadened, there is a prospect of the burden being lower in some respects.

The rating of vacant non-domestic property is not controversial. As the Minister said, it was welcomed by most of those who commented on it. Over the past decade or so, it has operated on this side of the water without, I believe, any significant adverse effects. Extending rating to vacant properties is not controversial and I hope that it will carry with it some significant advantages. Vacant properties often fall into disrepair and make an area look run down, which discourages other investment in the area. One would hope that anything that discourages owners from leaving properties vacant would encourage development and maintain the appearance and style of local areas. That would be generally welcomed.

As the Minister reflected in his comments, the controversy is attached to industrial derating. The point that my hon. Friend the Member for East Antrim (Mr. Beggs) made is significant. My understanding of the European approach to state aids is that if one were to introduce something such as industrial derating for Northern Ireland alone, it would run counter to European rules. Derating predates the introduction of those rules, but if we were to remove it, it could not return in its former form. It would be an irreversible change, were it to go ahead, and that is another reason why we should approach with caution.

Of course, the point that the Minister makes about the order applying to manufacturing industries and not to other industries is perceived by the latter as unfair and potentially distorting. With the development of modern industries, it is old-fashioned to think of industry as purely manufacturing. Industry

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should be seen in a broader context. There is more to it than just manufacturing, so having a level playing field is attractive. That is why we were broadly in favour of the proposals when we considered them and when we responded to the initial consultation in 2002. In our response, we suggested a phasing-in period of 10 years as opposed to the six with which the Minister will proceed. That is quite significant.

The Minister was quite forceful in his belief that the proposals would not have an impact on employment. In taking that approach, he is relying on the study by DTZ Pieda Consulting for the Department of Finance and Personnel, which suggested that the impact on profits that firms generally make would be no more than 2.7 per cent. If that were the case, I could understand why he says that there is no problem. Was the DTZ study accurate, however? That is at the core of the concerns expressed.

Invest Northern Ireland suggested that the impact would be about 8.5 per cent. rather than 2.7 per cent. In its paper, the CBI Northern Ireland suggested that the impact of rates would be between 15 and 20 per cent., and the Northern Ireland manufacturing focus group, which has been mentioned, was even more concerned.

A month or two ago, I met a delegation from that group, including several firms from my constituency, which assured me that the impact of the likely rate on them would be significant and much higher than suggested in the report by DTZ. In the focus group's presentation, a representative from McDonagh Furniture said that the figures for new rates and charges in the DTZ report bore no relation to the turnover and profit of his business. At £1 per sq ft, his rates would be 42 per cent. of profits, and at £2 they would be 84 per cent. of profits. Other manufacturers have expressed similar views. The figures call into question the accuracy of the DTZ report.

 
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