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Standing Committee Debates

Draft Rates (Capital Values, etc.) (Northern Ireland) Order 2006

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Fifth Standing Committee on Delegated Legislation

The Committee consisted of the following Members:


Mr. Eric Martlew

†Coaker, Mr. Vernon (Lord Commissioner of Her Majesty’s Treasury)
†Donohoe, Mr. Brian H. (Central Ayrshire) (Lab)
†Drew, Mr. David (Stroud) (Lab/Co-op)
†Duddridge, James (Rochford and Southend, East) (Con)
†Foster, Mr. Michael (Worcester) (Lab)
†Hepburn, Mr. Stephen (Jarrow) (Lab)
†Hillier, Meg (Hackney, South and Shoreditch)
Holloway, Mr. Adam (Gravesham) (Con)
†Khabra, Mr. Piara S. (Ealing, Southall) (Lab)
Norris, Dan (Wansdyke) (Lab)
†Öpik, Lembit (Montgomeryshire) (LD)
†Robertson, Mr. Laurence (Tewkesbury) (Con)
†Rosindell, Andrew (Romford) (Con)
†Smith, Angela E. (Parliamentary Under-Secretary of State for Northern Ireland)
Taylor, Mr. Ian (Esher and Walton) (Con)
†Walley, Joan (Stoke-on-Trent, North) (Lab)
†Wilson, Sammy (East Antrim) (DUP)
Glen McKee, Committee Clerk

† attended the Committee

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Thursday 9 February 2006

[Mr. Eric Martlew in the Chair]

Draft Rates (Capital Values, etc.) (Northern Ireland) Order 2006

2.30 pm

The Parliamentary Under-Secretary of State for Northern Ireland (Angela E. Smith): I beg to move,

    That the Committee has considered the draft Rates (Capital Values, etc.) (Northern Ireland) Order 2006.

It is a pleasure, Mr. Martlew, to serve under your chairmanship. I know that, in your great wisdom, you will guide us in our proceedings this afternoon.

The draft order was laid before the House on 26 January 2006. It marks an important milestone in a reform process that was started in 2000 by the Northern Ireland Executive. It paves the way for the introduction in April 2006 of the new domestic rating system, which is to be based on capital values. It also gives effect to two non-domestic reforms—namely, the exemption from rates of community halls, subject to certain conditions, and an increase from 65 per cent. to 80 per cent. in the level of support for recreational relief.

Several public consultation exercises have taken place as part of the reform process, including the proposal for a draft order that was debated by the Northern Ireland Grand Committee in November 2005. The Government listened carefully to all the views expressed during those consultations. Some concerns were raised, and I assure hon. Members that they have been addressed; indeed, they have directly informed other actions that the Government propose—for example, protecting those on low incomes and providing transitional relief to those most adversely affected by the change. Those changes will be included in an Order in Council later this year, and we aim to have them in place at the same time as the new capital value system.

It is worth mentioning that we would all prefer to see the Northern Ireland Assembly debating the reforms, and we are doing all that we can to help restore it. However, as was acknowledged during the Grand Committee debate, the need to reform the rating system is not only clear but pressing. For too long, rates in Northern Ireland have been based on a rental value system that is unfair and out of date. That system predates the community charge and the council tax in Great Britain. Switching to capital value is fundamental to correcting that, and it has to be done sooner rather than later.

Before going into detail, I shall refer to the non-domestic reforms included in the order. I acknowledge the general support for them that was expressed by the Grand Committee and during the consultation exercise. Article 9 provides for an increase in the level
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of relief available to amateur sports clubs from 65 per cent. to 80 per cent. That will put Northern Ireland in line with the existing level of mandatory relief in Great Britain. Article 10 is a technical adjustment to allow the Department to repay rates if a business is awarded hardship relief, but also to recover rates remitted in excess of what is permissible under state aid rules.

I turn next to community halls, and I take this opportunity to make our policy aims clear. We want specifically to encourage the wider use of halls occupied by certain organisations, many of which are already being used for some community purposes, such as mother and toddler groups and clubs for young people or pensioners. Article 11 seeks to achieve that by exempting such halls from rates. The organisations concerned are listed in schedule 3, and they include the Grand Orange Lodge of Ireland, the Ancient Order of Hibernians and the Grand Lodge of Freemasons of Ireland.

Given their capacity to generate income, halls that have a full liquor licence will be excluded from complete exemption, but they will be allowed to obtain a temporary licence. However, a small number of licensed halls already have partial exemption, and we do not want to see them placed at a disadvantage. Accordingly, article 12 of the order allows such halls to retain their current exemption for as long as they occupy the same premises.

I now move on to the provisions that pave the way for household rates bills to be based on capital rather than rental values—the most radical change to the rating system in Northern Ireland since its inception over 150 years ago. That will clearly take some getting used to, which is precisely why we are proceeding with the draft order. It will allow the capital value of every domestic property in Northern Ireland to be made publicly available in the spring this year. Those provisions are to be found in articles 3 to 8.

Article 3 sets out what we mean by domestic property; it is principally dwelling houses, private garages and private storage premises. Schedule 1, when read in conjunction with schedule 5 to the Rates (Northern Ireland) Order 1977, determines whether a property is to be treated as a dwelling house; it also defines what is a private garage and what are private storage premises for the purposes of the order. Article 3 also deals with mixed-use property and vacant property. I emphasise that the latter will not be subject to rates, as the rating of vacant domestic property does not apply in Northern Ireland. Only the domestic parts of mixed-use properties will be revalued on a capital value basis.

I have mentioned capital value several times. Article 4 and schedule 2 set out what that term means. In short, it is the amount that a property could reasonably have been expected to sell for on the open market as of 1 January 2005, subject to a number of assumptions. The purpose of those assumptions is to ensure consistency and equity between comparable properties. They largely mirror those used for council tax purposes, but are modified in part to reflect the different system, which is discrete rather than banded, that is being introduced in Northern Ireland. I shall
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not go into great detail about the assumptions, given that they were accepted without any great query or discussion in the Grand Committee debate in November.

I shall, however, clarify the position on agricultural planning restrictions and farmhouses because this issue came up in some of the responses to the consultation. The Government’s view is that valuing farmhouses on the basis that they will always be used as such, as provided for in paragraph 8 of schedule 2, is a more appropriate and fair way of addressing the particular needs of the farming community than a provision that allows agricultural restrictions to be taken into account when assessing capital value. Given the particular circumstances in Northern Ireland, such a provision would favour the more modern farmhouse, which is more likely to have planning restrictions attached to it than its more traditional equivalent. We have therefore decided not to make any changes to the draft order on that point.

Article 5 enables the Commissioner of Valuation to publish the capital values, and article 6 gives him the power to publish a list of all the values in each district council area to assist with planning at local government level. Article 7 provides for the revision of the values, and any of the additional information published with the values.

Article 13 seeks to clarify and strengthen the existing obligation on public bodies to provide the district valuer with information that is relevant to a decision to alter the valuation list. Article 14 applies this duty and the existing power of entry for valuers, and the power to call for returns for the purpose of the draft order. In light of remarks made during the Grand Committee debate, let me be clear that the power of entry will be exercised only where absolutely necessary and where it has not been possible to gather sufficient information to determine accurately or to revise a capital value by any other means. Furthermore, ratepayers will be advised if a visit to their property is necessary, and the power will not be exercised in the absence of the owner, occupier or a representative.

In the Grand Committee debate, Members asked whether we should proceed with this draft order and revaluation on a capital value basis given the postponement of the 2007 council tax revaluation in England. I want to make it clear that because of the inequities and anomalies inherent in the system in Northern Ireland, postponement is not an option. Unlike in England, the revaluation in Northern Ireland is not about updating values; it is about changing the basis upon which properties are valued to one that will produce a fairer distribution of the rating burden and that ratepayers can understand. It is not a change just for the sake of it. The Government strongly believe that reform is in the best interests of ratepayers in Northern Ireland and should not be delayed.

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2.38 pm

Mr. Laurence Robertson (Tewkesbury) (Con): I welcome you to the Committee, Mr. Martlew. I do not think that I have had the pleasure of serving under your chairmanship before, and I look forward to doing so.

I am grateful to the Minister for going through the draft order in a fair degree of detail, and I thank officials in the Northern Ireland Office for briefing me on this matter beforehand. It is probably little known that, quite unusually, the Northern Ireland Office is very accessible to Opposition Members, and provides information when it is requested, and often when it is not.

That said, I have some difficulty with the order. I have had the benefit of a briefing on it and have considered it in some detail and am a little concerned, so I shall go through some of my concerns if I may. The Minister and hon. Members will be aware that the council tax system in this country is unpopular and is seen as being unfair. At certain times of the year, we get many letters from constituents who say how unfair it is that they have to pay an increased council tax. Although I will not go down the road that I think the hon. Member for Montgomeryshire (Lembit Öpik) may try to take us, I do have criticisms of the council tax system. For instance, there is no link to the ability to pay. I understand that the order may create such a link for Northern Ireland, but I am not sure to what extent. I shall return to that point in a moment.

There is no link to services in the council tax system in England.

Angela E. Smith: What about Northern Ireland?

Mr. Robertson: If I can just develop my argument.

I am aware that that system was introduced as a replacement for the rather unpopular community charge.However, the community charge for a pensioner living on her own was actually rather fair, unlike many other systems, such as the council tax system. For example, an old lady who lives on her own in a reasonable house, in which she is entitled to live, pays a huge amount of money, but uses virtually no services—she would have no children at school, might not be benefiting from social services and may never call the police, although she gets their protection. [Interruption.] If the Minister is not aware of that situation, I am rather worried.

The Chairman: Order. I get the feeling that it is Friday afternoon—I am sorry, I mean Thursday afternoon. Members should settle down. I have been in the Chair a long time already. Let us continue.

Mr. Robertson: I put it on record that certain Labour Members seem to think that the council tax system is fair and acceptable to many people. I do not know whether they visit their constituencies at the weekend—whether on a Thursday or Friday, Mr. Martlew—although I know that the hon. Member for Stroud (Mr. Drew) does so.

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The system is very unpopular. [Interruption.] The point that I am trying to make, if I can get through all the sedentary interruptions, is that I do not know whether it is wise to move to a similar system in Northern Ireland when, in England, we should probably be taking a step backwards and asking, “Which services should councils actually provide, and how should we finance them?” To my way of thinking, that would be a far better way of proceeding.

Meg Hillier (Hackney, South and Shoreditch) (Lab/ Co-op): I have not served under your chairmanship before, Mr. Martlew, but as the hon. Gentleman has put those comments of Labour Members on the record, I too would like to put something on the record. We were simply saying that criticism of the council tax was a little ripe coming from a member of the party that introduced the council tax. I am not suggesting, and nor was any other Labour Member, that everything is always perfect with every system—there are always anomalies. I think that it is important to put that on the record.

Mr. Robertson: I am grateful to the hon. Lady for putting that on record. We all have many criticisms of that system.

I do not think that we should continue to extend that system when it is obviously so unpopular and unfair. I am aware that there are certain differences with the order, but the principle of it is not entirely dissimilar. I accept that the current system in Northern Ireland, which is based on rental values, is also unfair and outdated. I also accept that there is a need for change; but, in principle, I would like to see a step back and a review of what local government should provide. Afterwards, it should be decided how best to finance that, using a fairer system than the one we have in England, and one that is fairer than the one that we will be using in Northern Ireland.

My next objection is procedural. The order is largely but not entirely an enabling one. The Minister has gone through the details of the order, but that is only some of what it will encompass. A second order will be made. Details on transitional arrangements, the capping of the tax rate and relief entitlements—as far as I can see, and as far as my briefing goes—will be introduced in that second order.

To agree to the order before us would be the equivalent of signing a blank cheque. As I said, there are some details in the order today, such as those relating to the increased rate of relief for amateur sporting organisations, that we welcome, but too much detail has been left out. If we pass the order today we cannot tell the people of Northern Ireland what the transitional arrangements will be. We have guidelines on that but they are not in the order. I am not prepared to go down the road.

We also hear about rate comparisons and that people in Northern Ireland pay less rates than people in England. On the face of it that is true, but perhaps the comparison is a bit unfair. The impact on the Northern Ireland economy could be rather bad. We
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discussed this in the Grand Committee and we went over it at Question Time yesterday. Let me stress that the Northern Ireland economy has some bright spots at the moment. The Minister tackled me the other day for saying that it was a depressing outlook; she was paraphrasing me a little. Regardless of what I said then, I readily acknowledge that there are bright spots in the Northern Ireland economy, but progress is patchy.

There are areas of concern in Northern Ireland, which I raised with the Minister at Question Time yesterday. Invest Northern Ireland has identified a number of areas of concern in the economy. For example, it has less disposable income than many other parts of the UK. It is ranked 11th of the 12 regions in terms of disposable income. It has a low rate of economic activity among working age people, which stands at 70.5 per cent. and falling as against 78.5 per cent. for the UK as a whole. That is not a good statistic.

Introducing a new system of rating that will further reduce people’s disposable income is hardly likely to help the economy. It will inevitably lead to a shrinking of consumer spending and thus a shrinking of the size of the private sector. The Minister at the Dispatch Box yesterday and earlier in the week was right to say that more jobs are being created in Northern Ireland. But, as she is well aware, many of those are in the public sector. Northern Ireland is still only 11th of the 12 regions of the UK in terms of unemployment. It is next to the worst. Changes in the rating system, together with the introduction of new water charges, which I know we are not discussing today, will worsen the situation.

The Government will be asking people in Northern Ireland for an increase in the rates that they pay. A reduction in the number of councils has also been proposed. That is a very controversial issue. I do not want to go down that road, but the Government will reduce the number of councils and at the same time they are cutting the payment for some services. To accompany all that with a rates increase seems a little odd. It seems a strange time to introduce it when they are trying to shrink local government. I am aware that there is a fiscal deficit, but it seems a little unfair to introduce it in this way.

According to the Northern Ireland Local Government Association there is a plan to cut the waste management grant by 30 per cent. and reduce the general grant by 5 per cent. It is rather concerned that the Government will fail to provide grants towards emergency planning costs, which will be incurred by councils when the responsibility for planning is moved to them. The NILGA says:

    “It is evident that even in the middle of the RPA, Central Government treats local government as an afterthought. The Budget document reads as if local government does not exist.”

Yet the ratepayers in Northern Ireland are being asked for more money.

Finally, I turn to one or two details of the order as it stands. As hon. Members will be aware, it is not proposed to create a banding system as we have in this country—I do not suggest that that system is perfect—but to introduce a system of discrete capital values. As
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I understand it, each house will be valued individually. Hon. Members will understand my concern about how that will be done. It could discourage home improvements. As far as I can see from the information that the Northern Ireland Office has kindly provided, owners of homes with patios, porches, sheds, pigeon lofts, double glazing and so on will pay more. Owners of a house with a nice view will pay more. It could be assessed, and then another house could be built between that house—

Mr. Brian H. Donohoe (Central Ayrshire) (Lab): The hon. Gentleman must clarify that point. I do not believe it.

Mr. Robertson: I can send the hon. Gentleman the document. It is headed “Domestic Rates (Revaluation) Order (Northern Ireland) 2006 property attributes”. I agree with the hon. Gentleman that it is unbelievable and I hope that he will vote with us on the proposal.

I have not finished yet; there are many worse examples. If a house with a nice view is valued on the basis of that view and someone builds a house obscuring it, presumably it will have to be revalued, and on it goes. An incredible amount of detail will have to be gathered; not only will it be very intrusive to gather information which, given the peculiar situation in Northern Ireland might concern some people, it will be very difficult to assess the value fairly. One house could be assessed on the basis of someone’s opinion of the double glazing and another on the basis of someone else’s opinion, and the values could be completely skewed.

Classifications such as terraced, semi-detached, detached, purpose-built apartment, converted apartment, bungalow, chalet, cottage and farmhouse, are the relatively easy bit. Other data are broken down as single-glazed with wooden frames, single-glazed with PVC frames, single-glazed with metal frames, double-glazed with wooden frames and so on and on to a degree that is absolutely ridiculous. If I were to be asked such questions about my own house I would not have a clue about half the information being requested. Yet some poor souls have got to value properties throughout Northern Ireland in enormous detail. I pity them their job.

I am not entirely sure that my memory is correct, but I think the estimate of the cost of it is about £11 million—the Minister will correct me if I am wrong. However, it is not the cost that bothers me as much as having to get the valuation accurate to the degree that is required. It will be an incredibly difficult job.

I have expressed my concerns, which are a mixture first, of wondering whether it is the right system when there is so much disquiet about it in England and whether we should learn from that experience; secondly, that there is so much detail to follow in a second order that I am not persuaded that we should give this one a blank cheque; and thirdly, that the detail involved is very worrying indeed. I will vote against the proposal myself and ask my hon. Friends to do the same.

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2.53 pm

Lembit Öpik (Montgomeryshire) (LD): I, too, welcome you to this exciting and unpredictable debate, Mr. Martlew. There seems to be an enemy within the Labour Government’s Back Benches, horrified by the discoveries that have been leaked to the hon. Member for Tewkesbury (Mr. Robertson) in secret, bilateral talks with the Conservative party, no doubt from officers who share his concerns but are obviously gagged and cannot make those points themselves.

I congratulate the Minister on doing something that was long overdue: she has finally published the responses to a consultation on the website. I thank the Minister for taking on board the feedback from myself and others in that regard.

The Secretary of State announced his intention to increase the rates in Northern Ireland in October last year, as we know. We all recognise that the current system is antiquated and unfair and takes no account of ability to pay, but by basing the rates on capital values rather than rental values, the new system will not address that problem either. It will still fail adequately to take account of a person’s ability to pay and will be seen by many as an unfair burden.

We said at the time of the Secretary of State’s announcement that the increase was grossly unfair. Average earnings in Northern Ireland are £100 a week below those in the United Kingdom and people still pay more for basic necessities such as food and fuel.

The Secretary of State’s comparisons with England and Wales can have little relevance when they operate in a totally different local taxation system. The whole structure of their cost of living calculation is different from that in Northern Ireland. That point was ably made by the hon. Gentleman, and I agree with him.

We are also extremely concerned about the impact on those, particularly the elderly, who are asset rich and cash poor. In many cases, this proposal will apply to those who have retired after working hard their entire working lives to pay off their mortgages. They will find themselves penalised by having to pay higher rates. That will be a particular problem in Northern Ireland constituencies such as North Down or Belfast, South, which are experiencing very rapid growth in house prices, not least because what seems to be the fairly speedy normalisation of life in Northern Ireland has removed an artificial cap that suppressed house prices in that area. I asked the Minister why she thought it fair to punish people for the benefits of the peace process. That punishment will be exacerbated by this proposal.

Furthermore, the proposal will require a number of exemptions for people on low incomes, and that will add complications and increase administrative costs. Will the Minister say how much that exercise will cost? Will she also explain how the revaluation will be calculated? Will it be based on every individual property, or decided by street or postcode district?

The hon. Gentleman made a valid point about the complexity and the detail that is being inspected as part of the revaluation; that will make the system tend towards making an individual assessment of every
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house. Is that really what the Minister intends to introduce in Northern Ireland? If so, how can she think that a reasonable burden, either on the individual residents or on the officers expected to implement the proposal? More than that, it is easy to see that the colossal administrative cost will in itself be an additional burden on the rates that will have to be levied to apply the whole system.

The hon. Gentleman stated correctly that the Liberal Democrats feel obliged to raise at every opportunity a fair and more equal system that takes account of ability to pay: the local income tax. If the Minister were serious about having a fair system, she would take seriously the proposal I put forward now. [Interruption.] Government Members are frit, Mr. Martlew; they know that only by shouting me down will they prevent the force of my argument being heard.

The hon. Gentleman said that the council tax system is very unfair, and I agree with him. In so saying, he presents himself as the acceptable face of conservatism. Others, including the hon. Member for Hackney, South and Shoreditch (Meg Hillier), have already pointed out that the hon. Gentleman’s own party introduced the verminous abomination of the poll tax. To hide behind the phrase “community charge” is optimistic to say the least.

When hon. Members describe the poll tax as the community charge, it reminds me of when the nuclear reprocessing plant previously called Windscale was renamed Sellafield, presumably in the hope that nobody would notice that it was the same place. Well, the community charge is the same abominable poll tax. I do not blame the hon. Gentleman personally; I hope that he is part of the more liberal-minded new guard of the Conservative party and can apologise for those terrible sins of the past. The best way for him to do that is by supporting local income tax, which takes away every single problem that he raised about the current proposals.

That tax does not look at a person’s property at all, but at their income. As that information is already required for the Inland Revenue, the tax is relatively easy to administer. [Interruption.] It may be helpful to some; it is clear from the regular comments of the hon. Member for Stroud that there are those, including the hon. Gentleman, who are closely connected to the Duke of Westminster. [Interruption.] I shall not be distracted into discussing land value tax, Mr. Martlew.

Anyone who is fair-minded can see the benefit of sweeping away a system that is inherently unfair rather than monkeying about with it. All fair-minded people know that the most equitable form of taxation is one that recognises the ability to pay and, most important, one that recognises that our senior citizens, who have served society, should not be penalised by unfair domestic rates.

I am pleased that the Minister is trying to address the problem in Northern Ireland, but I am sad that she is merely fiddling at the edges rather than sweeping away a system that, at heart, is unfair.

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3 pm

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