27 May 2002 Launch Of Public Consultation

The Minister said that the consultation will include a number of public seminars and meetings with interest groups and organisations. The consultation period is expected to end in mid-September

Dr Farren told MLAs that the Executive’s decision to conduct the review recognised that the present system is unfair, out-of-date, and does not address the needs of government in the post-devolution era:

“It has been our intention to address the issues in a considered, balanced, open and transparent way. I would emphasise that the consultation paper does not make any proposals or recommendations, but expresses the issues and the general options available. It sets out objectively the pros and cons of the possible changes that might be considered.

“Nothing is ruled in and nothing is ruled out by the Executive.”

The Minister said the report identified a number of key issues. The Minister highlighted what he identified as “two of the more difficult choices – domestic rating and industrial de-rating.” He was quick to point out that though inevitable comparisons between rate bills here and elsewhere in the UK are made, the prime objective of the review is to develop a system that distributes local revenue requirements in a fairer way.

Dr Farren told MLAs that the present domestic system is still difficult to defend:

“The present domestic rating system does not Target Social Need. On the contrary, in distribution of the tax burden, it tends to disadvantage the less well off because, while there is a gradual upward curve, the amounts levied flatten out quite markedly for those in more expensive housing.

“The system means that a higher proportion is paid by those on low incomes – those just above the housing benefit threshold. In the language of taxation, it is not ‘progressive’. To put it another way, the Valuation List is a relatively flat one which does not discriminate much between levels and sectors of the market.

“A re-valuation is long overdue. The last one occurred in 1976 and was based on rental values from the late 1960s which reflected the socio-economic conditions of that time.”

The Minister said that the present system also lacks clarity and transparency. The figures in the Valuation List, he pointed out, are meaningless to the ratepayer and because the rateable values are artificial, the vast majority of payers cannot understand the basis on which they are asked to pay:

“The inequities of the current system would be exposed all the more should the Assembly choose to increase revenues significantly using the current tax base.

“That, after all, is where the Review began, following the outcry about the increases proposed in the autumn of 2000. And it is why the First Minister, the Deputy First Minister and I have given an assurance that there will be no abnormal increase unless and until a fairer system is put in place.”

Turning to industrial de-rating, Dr Farren described it as “unique to Northern Ireland – no other region anywhere provides this particular tax break. It costs Northern Ireland £64 million a year.”

This was a sensitive subject for scrutiny, he said, which had made it necessary for the Executive to examine it separately with assistance from external consultants. This report would be made available alongside the consultation paper.

The Minister said the study found the justification for the continuation of industrial de-rating questionable, with strong points in favour of phasing it out. On the other hand he acknowledged that organisations such as the CBI favour de-rating as a strong incentive for inward investment, a useful counter to more attractive taxation in the South, and a compensation for higher industrial costs here.

Dr Farren said that the consultation document includes an examination of rating relief for particular groups ranging from broad relief, such as a single person allowance, to more selective ones, such as assistance to pensioners or others who find it difficult to make ends meet. Ideas are also floated for new relief for the commercial sector, such as small business relief and hardship relief. Other suggestions coming through in the course of the consultation will be examined closely, he added.

The Assembly was told that the Executive will begin analysing responses to the consultation in the early autumn. Once options have been identified, impact analyses will be carried out and a report made to the Executive by the beginning of November. Legislation will follow once final decisions have been made and the Minister envisaged the legislative process occurring during 2003 and possibly into 2004.

“I fully expect the consultation on rating to be complex and contentious,” he said. “Time will be needed to assess the implications of the responses both from an official and a political point of view.

“Responses will clarify the range of issues which in turn will affect the timetable for decisions. But I think it underscores the genuine neutrality and openness of the consultation by saying that we will decide in the autumn the arrangements by which any substantive decisions will be taken.”