Rating Policy

Part of Ministerial Statements – in the Northern Ireland Assembly at 11:15 am on 22nd November 2016.

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Photo of Máirtín Ó Muilleoir Máirtín Ó Muilleoir Sinn Féin 11:15 am, 22nd November 2016

Thank you for giving me the opportunity, a Cheann Comhairle, to make a statement on a rates rethink, spurring economic growth. Inniu, tá pacáiste beart á mholadh agam a bhfuil sé mar aidhm aige nuachóiriú a dhéanamh ar eilimintí intíre agus ar eilimintí tráchtála an chóras rátála, d’fhonn spreagadh a dhéanamh ar an ngeilleagar mar bhunús ar shochaí roinnte agus rathúil. Is iad seo mo mholtaí mar Aire Airgeadais agus tá mé ag súil le dul i gcomhairle fúthu leis an Choiste Airgeadais, le mo chomhghleacaithe san Fheidhmeannas, agus leis an phobal i gcoitinne.

Today, I propose a groundbreaking package of measures aimed at modernising the domestic and commercial elements of the rating system in order to stimulate the economy as the foundation of a shared and prosperous society. These are my proposals as Finance Minister, and I look forward to consulting on them with the Finance Committee, of course, with my colleagues on the Executive and with the wider public. Taken together, the measures constitute the biggest shake-up in rating policy in a generation and signal my commitment to a tax system that is fair and supports prosperity.

Rates are a vital source of public revenue. Money raised through rates funds our schools, our hospitals and other essential services. My aim in setting out these proposals therefore is ultimately to arrive at a refreshed, fit-for-purpose rating system in which citizens and commercial ratepayers contribute according to their ability to funding the building of a modern, inclusive and exemplary society. I also intend to ensure that rates act more as an economic spur. The rates system should encourage regeneration, investment and entrepreneurship and at the same time discourage dereliction and decline.

I will begin with the non-domestic rates proposals. I want to replace the existing small business rate relief scheme with a £22 million investment in small retail and hospitality businesses. That move aligns with the findings of the Ulster University Economic Policy Centre's evaluation, which recommended a more targeted approach. In 2010, the small business rate relief (SBRR) scheme was introduced to provide small businesses with temporary respite from the recession. The Ulster University evaluation found that the scheme had served its limited purpose, helping with cash flow at a particularly difficult time.

It also found that the scheme contributed little to economic growth and the £18m that it cost would not provide value for money in the long term. It therefore recommended replacing the SBRR with a more targeted initiative.

I want to target support under the new scheme at the sectors that are key to the survival of our town and city centres. The statistics show that town centre retail spending is down 10% since the beginning of the century. I would like this new initiative to be easily accessible to small businesses, subject to some simple tests around business investment in the form of, for example, new equipment, skills training or the employment of additional staff. In the time ahead, I would also like to enable companies to access this rates relief by accrediting with the Living Wage Foundation.

I also wish to bring forward a business empowerment zone pilot targeted at small-scale regeneration areas and developed in tandem with other Departments and initiatives. I propose to start in Belfast with two pilots, on the Falls and Newtownards Roads, both areas in need of a greater peace dividend. The west Belfast zone, with special rates relief to encourage business and investment, is likely to stretch from Castle Street through the Gaeltacht Quarter to the bottom of the Whiterock Road. The east Belfast zone is likely to stretch from the bottom of the Newtownards Road through the area now the focus for the EastSide Arts renaissance — CS Lewis Square opens tonight, Mr Speaker — to the Holywood Arches. Those will be confirmed in due course. Having had the pleasure of working extensively in both areas, I know that the will is there to transform those key arterial roads and that a small investment now can reap dividends for years to come.

Another way of revitalising town centres is to make them vibrant living spaces. Therefore, I would also like to take forward a new scheme to incentivise conversion from commercial to residential occupation, by providing a rates incentive for the first occupiers of newly converted premises in our town and city centres. A scheme to encourage people to live in those areas will help to stimulate the night-time economy and assist with issues around footfall that were raised during the consultation.

Another issue concerns the treatment of charity shops. This is a matter where we are striving to get the balance right. Charity shops help to bring people into our high streets or small towns, in particular when times are tough, so we need to make sure that we do not upset the healthy retail mix that exists in many areas. I am all in favour of continuing to single out charity shops on the high street for favourable treatment, but there is a case for limiting their growth. We cannot have our high streets just made up of charity shops. In England, Scotland and Wales, most are charged 20% rates, and local authorities in the South can charge charity shops on the high street. If, for example, we reduced support for charity shops on the high street from 100 per cent to 90 per cent — they pay one tenth of their rates bill — that would represent only a small revenue gain for the Executive. However, it would move us towards the balance principle that everyone on the high street should start to pay something. That was the strong view reflected in the small business rate relief evaluation. I agree with that direction of travel, with the caveat that I would like any future income from charity shops on the high street to go towards supporting entrepreneurship in the social enterprise sector. I look forward to consulting further on the issue.

I would like to address the issue of empty property. Currently, an empty property pays zero rates for three months and 50% thereafter. I want to increase the empty property rate from 50% to 75% of the occupied rate. That remains substantially below what is charged in Scotland, for example, where owners are charged 90% on empty properties, and recognises that our local property market is less buoyant than there. I would also like to remove the initial exemption period of three months. I do not think it necessary, it does not apply to the domestic sector, and it leads to complications in administering it. It is my view that this will encourage the letting of empty properties and increase economic activity. It will, of course, provide additional revenue for the Executive, although, more importantly, it will act as a stimulus for landlords holding empty property to sell up or to offer lower rents and get properties occupied by businesses.

Aligned with that objective, I propose to introduce the rating of empty factories, a class of property that has never been subject to rates. As well as bringing in extra money — up to £2·2 million a year — into the Executive’s finances and the public purse, it will encourage owners to subdivide or let empty factories. It will also remove any doubt about what is a warehouse and what is a factory. Coupled with both changes, I will move forward with proposals for anti-avoidance measures, making landlords liable for rates when they let their premises out to charities on short-term agreements.

At a cost of £58 million, industrial derating is a very generous support to the manufacturing sector. However, manufacturing is a vital part of our economy, providing well-paid jobs often in locations where employment opportunities are lacking, and is highly export-orientated. Given that and the challenging economic circumstances faced, I intend to maintain industrial derating.

A measure that I would like to remove is the new mines seven-year exemption that has been in place since 1852. I see no good reason for retaining the new mines exemption.

I also wish to remove the university halls of residence exemption that was put in place by direct rule Ministers in 2007. This step has already been consulted on, and it will ensure consistency of treatment between those that are managed privately and those that are managed by universities. Indeed, all other students living away from home pay some rates, so this is only fair. Furthermore, I do not believe that it will inhibit the viability of new purpose-built halls of residence, given that student demand is outstripping supply, as the appearance of so many privately run halls testifies. If evidence emerges that university halls of residence need an additional incentive, I will be happy to return to the issue and look at it again.

We are moving towards a system that widens the tax base and shares the load. However, many businesses find themselves in serious hardship due to matters completely outside their control and beyond normal business risk. Victims of flooding are one example. I do not want to see those who find themselves in hardship in such circumstances being closed down because they simply cannot pay their rates bill. The legislative apparatus already exists for hardship relief, but few businesses benefit from it. I have therefore asked my officials to review the operation of the scheme to ensure that it provides help for more of those who are in need.

My intention to commence a new non-domestic revaluation exercise to take effect in 2019 is a clear response to the calls from the business sector. Coming only four years after the revaluation in 2015, it will make our non-domestic rating system more responsive to changes in the wider world, allow it to flex with economic conditions and help to avoid the shocks that occurred last time round. As before, the process will be revenue-neutral. The objective of the measure and, indeed, the whole package is about balancing the tax base, balancing the rates burden and balancing the books after a hard time for business and government finances. I would also like to reassure businesses by enshrining in law revaluations every four years. That happens in many advanced economies throughout the world.

As for the level of the regional rate that will be set as part of the Budget and in recognition of the new era for local government, I would like to give councils the choice of striking their own non-domestic district rate, thereby breaking the historic link that exists with the domestic district rate. Such a move could help councils to attract new businesses and retain old ones.

Fairness underpins much of what I am presenting today, and that extends to the domestic rating system. When the capital value system was being designed, it was designed on the basis that you paid in direct proportion to the value of your home. However, the application of the £400,000 cap means that those in houses with a higher value pay proportionately less than those in middle- or lower-value homes. To me, that is inherently unfair. Take Bill Gates's house — I know that many people would like to take the house of Bill Gates — he pays $1 million a year in property tax on his $100 million Washington state home. If he lived here, the rates on that home would be less than $5,000 a year.

Significant measures are already in place to safeguard elderly pensioners who are asset-rich but income-poor and remain in a high-value family home. We have a generous low-income rate relief scheme that was put in place before the cap came along. In a phased introduction, I wish to charge a regional rate levy of approximately 55% of the rates due on a property to the full value of a home in order to raise an additional £4 million in revenue.

The first thing that I would like to do with domestic rates is to reduce and then remove the early payment discount. I will reduce the allowance to 2% in the context of the Budget settlement and then consult on the proposal for the removal of the provision altogether. The £6 million that the measure costs the public purse cannot be justified in these difficult financial times.

As with the business rates system, I want the domestic rating system to incentivise good behaviour. I have asked my officials to consider reopening the low-carbon new homes scheme and refashioning it as an energy efficiency incentive by providing an extended domestic rates holiday for the first occupants of new houses that meet the required standard, thus also helping our construction sector. That will need more research into standards and value for money, but that work is under way.

Finally but not insignificantly, I want to advance proposals to significantly reduce the landlord allowance paid to all landlords in the public and private sectors. It was the subject of consultation, and I intend to reduce it to 5%.

Today, I have outlined the immediate challenges. Beyond those, research is well under way into developing a levy on derelict properties. With the help of the councils, we have identified 1,800 problem properties, and I have commissioned the Economic Policy Centre at UU to provide us with independent policy advice. I recognise that there is a range of reasons for derelict properties lying vacant, and we need to be sensitive to those so that we do not hinder orderly development activity. However, if the policy is well designed and discerning, it would help to encourage the regeneration of and investment in our urban areas, areas that have become blighted by properties that are simply lying idle. It could also serve to increase the supply of development land for housing.

All in all, the changes that I have put forward today — the package — are driven by a need to increase the fairness of the system by ensuring that those who can contribute do so and that the tax burden is broadly shouldered. They also involve a better and more strategic targeting of reliefs to support social and economic development. Taken together, the measures will lead to a revenue gain for the Executive and our councils. Current estimates are up to £16 million a year recurring for the Executive, which is money that will help to deliver the Executive’s Programme for Government for all our citizens. Councils stand to gain by up to £10 million a year, which will help them to deliver better outcomes in local services, as well as their new role in place shaping, building communities and economic development.

Last month, I was asked by other parties in the Chamber when I would make hard decisions on rating matters: I trust that you will all agree these are hard issues that I am tackling today. The decisions that I make, however, will not be made alone. I have further consultations to undertake with the general public and the Finance Committee, and I will require the agreement of the Executive and the Assembly when the required legislation needs to be passed.

Leagann an pacáiste misniúil moltaí atá á nochtadh agam inniu bunús láidir síos le forbairt a dhéanamh ar chóras nua-aimseartha rátaí atá cothrom, a dhéanann athbheochan ar lárionaid ár gcathracha agus ár mbailte, a spreagann fás ar ár mórshráideanna agus a chuidíonn le rathúnas. The package of bold proposals that I have set out establishes a solid basis for developing a modern rates system that is fair, revitalises our city and town centres, spurs growth in our high streets and, indeed, supports prosperity.