Statement to the Assembly - A Rates Rethink: Spurring Economic Growth

Date published: 22 November 2016

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 am proposing a groundbreaking package of measures aimed at modernising both the domestic and commercial elements of the rating system in order to stimulate the economy as the foundation of a shared and prosperous society.

They are my proposals as Finance Minister and I look forward to consulting on them with the Finance Committee, with my colleagues in the Executive, and with the wider public.

Taken together the package constitutes the biggest shake up in rating policy in a generation, and signals my commitment to a tax system that is fair, and that 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 is to ultimately 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, 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.

Non-domestic rates

I will begin with the non-domestic rates proposals first.

Investment in small business

I want to replace the existing Small Business Rate Relief Scheme with a £22M investment in small retail and hospitality businesses.

This move aligns with the findings of the Ulster University Economic Policy Unit’s evaluation which recommended a more targeted approach.

In 2010 the Small Business Rate Relief 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 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 this support at those sectors which 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 for 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.

Small business empowerment zones

I also wish to bring forward a Business Empowerment Zone pilot scheme targeted at small-scale regeneration areas and developed in tandem with other government departments and initiatives.

I propose to start in Belfast with two pilots - 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 to the Holywood Arches. These will be confirmed in due course.

Having worked extensively in both areas I know that the will is there to transform these key arterial roads - and that a small amount of investment now can reap dividends for years to come.

Revitalising our High Streets

Another way to revitalise 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 these areas will help stimulate a night-time economy and assist with issues around footfall that were raised during the consultation period.

Charity shops

Another issue concerns the treatment of charity shops. This is a matter where we need 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 we don’t 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 I do think 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 them too.

If, for example, we reduced support for charity shops on the High Street from 100 per cent to 90 per cent — that is, they paid one tenth of their rates — that would only represent a small revenue gain for the Executive. However, it would help us move towards the balanced principle that “everyone on the High Street should start to pay something”. This 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 to see any future income from charity shops on the High Street go towards supporting entrepreneurship in the social enterprise sector.

I look forward to consulting further on this issue.

Empty property rates

Next, 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. This remains substantially below what is charged in Scotland, for example, where owners are charged 90% on empty properties, recognising that our local property market is less buoyant than there.

I would also like to remove the initial exemption period of 3 months. I do not think this necessary. It doesn’t apply to the domestic sector and leads to complications in administering it.

It is my view that this will encourage the letting of empty properties and increase economic activity.

This will provide additional revenue for the Executive although more importantly it will act as a stimulus for landlords holding empty property to sell up or offer lower rents and get properties occupied by business.

Aligned with this objective I am proposing 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 £2.2M a year into the Executive’s finances, it will encourage owners to subdivide or let empty factories. It will also remove any doubt about what’s a warehouse and what’s a factory.

Coupled with both these changes I will be moving forward with proposals for anti-avoidance measures, making landlords liable for rates when they let their premises out to charities on short term agreements.

Industrial Derating

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

Mines

However, a measure I’d like to remove is the ‘new mines’ 7 year exemption that has been in place since 1852.

I see no good reason for retaining the new mines exemption.

Halls of residence

I also wish to remove the University Halls of Residence Exemption that was put in place in 2007 by Direct Rule Ministers.

This step has already been consulted upon and it will ensure consistency of treatment between those managed privately and those managed by Universities. Indeed, all other students living away from home pay some rates so this is only fair.

Furthermore, I do not believe it will inhibit the viability of new purpose built Halls of Residence - 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 then I will be happy to look at the issue again.

Hardship relief

We are moving towards a system that widens the tax base and shares the load. However many businesses find themselves in serious hardship for 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 can’t 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 this scheme to ensure that it provides help for more of those in need.

Revaluation

A clear response to the calls from the business sector is my intention to commence a new non-domestic revaluation exercise to take effect in 2019.

Coming only 4 years after the Revaluation in 2015 this will make our non domestic rating system more responsive to changes in the wider world, allow it to flex with economic conditions and help avoid the shocks occurred last time around.

As before, the process will be revenue neutral. The objective of this measure and indeed this whole package is about balancing the tax base, balancing the rates burden and balancing the books after a hard time for both businesses and government finances.

I would also like to reassure businesses by enshrining in law, revaluations every four years. This happens in many advanced economies throughout the world.

Rate setting

As for the level of the regional rate, that will be set as part of the budget. But 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 attract new business and retain old ones.

Domestic Rates

Fairness underpins much of what I am presenting today and this extends to the domestic rating system.

The rates cap

When the capital value system was being developed 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.

This to me is inherently unfair; take Bill Gates’ house. He pays $1M a year in property tax on his $100M Washington State home. If he lived here it would cost him less than $5k a year.

There are significant measures already in place to safeguard the elderly pensioner who is asset-rich but income poor and remaining in a high value family home – we have a generous low income rate relief scheme, which was put in place before the cap came along.

In a phased introduction, I wish to charge a regional rate levy — approximately 55 per cent of the rates due on a property — to the full value of a home in order to raise an additional £4m in revenue.

Early payment discount

The first thing I would like to do is reduce and then remove the early payment discount.

I will be reducing the allowance to 2% in the context of the Budget settlement, and will then be consulting on the proposal for the removal of the provision altogether. The £6m this measure costs the public purse cannot be justified in these difficult financial times.

Energy efficient new homes

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.

This will need more research into standards and value for money and this work is already underway.

Landlord allowances

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.

This was recently the subject of consultation and I intend to reduce it to 5%.

Derelict property levy

What I have outlined today are the immediate challenges. Looking beyond that, research is well underway into developing a levy on derelict property.

We have already identified 1,800 problem properties and I have commissioned the Economic Policy Centre at Ulster University to provide us with independent policy advice.

I recognise there are a range of reasons for which derelict properties are lying vacant and we need to be sensitive to this so that we don’t hinder orderly development activity.

However, if policy is well designed and discerning, it would help encourage 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.

Conclusion

All in all, the changes I have put forward today 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 these measures will actually lead to a revenue gain for the Executive and for our Councils.

Current estimates are up to £16M a year, recurring, for the Executive - money that will help deliver the Executive’s Programme for Government for all our citizens.

Councils stand to gain up to £10M a year and this will help them deliver better outcomes in terms of local services as well as their new role in place shaping, building communities and economic development.

Last month in this very House I was asked by other parties in the Chamber when I would be making hard decisions in relation to rating matters. I trust you will all agree these are hard issues I am tackling.

The decisions I make, however, will not be made alone. I have further consultations to undertake with the general public and with the Finance Committee. I will require the agreement of the Executive and this Assembly when the required legislation needs 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 I am setting out today establishes a solid basis for developing a modern rates system that is fair, that revitalises our city and town centres, spurs growth in our High Streets and that supports prosperity.