Oireachtas Joint and Select Committees
Thursday, 7 November 2013
Joint Oireachtas Committee on Environment, Culture and the Gaeltacht
Leanfaimid ar aghaidh leis an bplé a bhí á dhéanamh againn ar athchóiriú an rialtais áitiúil. I welcome from IBEC Mr. Reg McCabe, director of transport, and Ms Anne Marie Caulfield. I call on them to address the joint committee.
Mr. Reg McCabe:
I thank the Chairman for the kind invitation to address the joint committee. IBEC's focus is on the recently introduced Local Government Bill and the wider issue of local government reform.
With regard to the Bill, it is important to emphasise that it is not all about rates. From IBEC's point of view, as an organisation and on behalf of its member companies, business is all about costs, competitiveness and the potential to expand employment and generate profits. Commercial rates are a very significant cost for many companies; hence we focus on them. There is a headline figure of €1.6 billion paid by the business sector to local government, which figure comprises commercial rates and water charges.
IBEC welcomes the Bill's provisions which are well intended. We believe the reforms included are quite significant and will have an impact, particularly the audit functions. The Bill will create a more regionally based audit function and allow stakeholders to participate in the process, including businesses. We are, however, a little concerned about another proposal. I know representatives of the municipalities attended this morning, but we welcome the proposal to eliminate town councils, thus generating significant savings. On the other side, the town council network will be replaced by a network of municipal districts. We understand there will be three or four municipal districts per constituency. That means that the number of municipal districts will exceed the current number of town councils. Our difficulty is with the unknown quantity of the measure. We simply do not know what is the level of costs. We know that there is a saving associated with the elimination of town councils, but we do not know the level of costs or additional charges associated with municipal districts. Therefore, we seek more information on what the Minister intends to achieve. Of course, he will say the intention is to reduce costs, but the devil is in the detail. As funders of the system, we have not seen the details and are quite anxious to do so.
I will outline another point made in IBEC's submission. The standardisation of commercial rates between town and county councils will, in many cases, lead to an upward adjustment. My colleague, Ms Caulfield, will talk about this matter. The increase will be significant; it will be between 15% and 20%. Typically, a retailer in a place such as Dungarvan will find over a period and for no particular reason that his or her baseline rates bill has increased by between 15% and 20%. That increase will be connected to jurisdiction, as opposed to a drawdown of services.
The Government has talked about reducing the cost of local government, efficiencies and so forth, but there is another measure in the Bill that will increase business costs. I refer to the proposal to standardise the refund of rates levied on vacant buildings. Unfortunately, there are a lot of vacant commercial buildings around the country for all the wrong reasons. Standardisation, therefore, is a significant issue. As the Chairman will know, the current rebate on rates on vacant buildings is 100% for county councils which, in my view, is generous, and 50% for city councils, but that is for historic reasons. Of course, the Minister has proposed to standardise a 50% rebate for companies which will result in a very significant increase in costs without a commensurate increase in the level of service provided by local government.
As I do not want to take up too much time, I will summarise. IBEC welcomes many of the provisions included in the Bill. It is a reforming Bill that will have an impact. We welcome, in particular, the elimination of town councils and the new provisions in respect of a local government audit, transparency and accountability. We are, however, concerned about who will foot the bill for many of the proposed changes to the structure of local government.
Ms Anne Marie Caulfield:
I thank the Chairman for giving me the opportunity to speak. I attend in two capacities. I am president of the south-east region of IBEC; therefore, I represent four or five counties. I am also a business person and retailer. We have eight separate sites in the south-east regions which stretches as far as Bandon, County Cork and to Malahide, County Dublin. As we see a very broad picture in terms of rates, I will speak about that issue first.
There is a certain level of frustration experienced by my business and also by others which are members of IBEC about the level of rates, the optics on how rates are spent and where the money goes. All of us involved in business pay water charges and do not have a problem with doing so, but such charges will increase. There are also waste management charges and so on. It is difficult to see where rates are being spent, how they are being spent and what benefits they give to individual businesses.
Mr. McCabe touched on a couple of matters. I will commence with the standardisation of rates. We operate in locations that are included in county and city areas. When rates are standardised, additional costs will be generated for our business and others around us. That is a source of very serious concern for us because businesses are already under pressure, particularly retail businesses, while consumer sentiment is low. There was a flicker of recovery, but it is still very fragile and many retailers are under serious pressure.
With regard to the refund of rates being reduced from 100% to 50%, we have experienced the adjustment in owning some properties. The reduction will have a serious impact on business.
The last matter about which I wish to talk is the revaluation process. We have gone through it in Waterford where we have experienced an increase in rates. Many businesses in Waterford city have experienced a negative impact. Some experienced a significant increase of between 10% and 40%, but it depended on the type of business involved. I am aware of one business that experienced a rates increase in excess of 40%. In order for it to pay the increase, it would have had to increase its turnover by in excess of 5%.
Ms Anne Marie Caulfield:
Yes. Having to increase turnover by 5% to pay commercial rates before one does anything else and at a time when the retail sector is under severe pressure is untenable and unacceptable. It is said the revaluation process in Waterford is inequitable and needs to be deferred and re-examined because it is not viable for many businesses.
In summary, IBEC would like to state on behalf of businesses, particularly those involved in the retail sector, that the position on commercial rates is inequitable and that the system is flawed and needs to be addressed. I have highlighted the other areas we would like to be considered such as the standardisation of rates, the rates refund mechanism, how rates are spent and how they benefit businesses. All businesses have had to reposition, manage and reduce costs.
It is very painful and challenging. We do not appear to have seen the same with commercial rates.
I thank both witnesses for their input and consideration in making a submission such as they have. It is part of what we had sought to bring to the table prior to Committee Stage of the legislation to allow us as broad a range of amendments as possible through input from various sectors. I wish to make a few comments on the content. I am surprised that the witnesses welcomed the elimination of town councils. I disagree with them on that point. As I have said to others, I recognise that there was some duplication and there was room for streamlining, but not to the extent proposed by the document and, now, the legislation to support that document. In respect of the fact that there will now be three municipal districts where there was previously one, I do not think there is much autonomy attached to the municipal district. They have more of a consultative role with regard to the full council than anything else. There is nothing within the legislation, so far as I can see, that would tell me otherwise. There are at present, throughout the local authority system, local area committees made up of members from a certain district and they can make recommendations to local authorities themselves for onward decision. There is nothing within the legislation to suggest that this will change greatly. The ceremonial attachment to an area will continue with the mayor and so forth, but other than that I do not see any change.
The question in respect of rates is very pertinent to the situation on the ground. I am totally supportive of and committed to a system that would overhaul the present system as we know it. We think there has to be more alignment in commercial rents. Consideration will have to be given to turnover and ability to pay. Some previous speakers this morning mentioned that the existing system is archaic. We are in agreement with that, and something has to be done, if for no other reason than to address the imbalance in many towns throughout the country where town centres have lost their sheen compared to outside developments on the edges of towns. There must be a means and a mechanism by which that is addressed. For our part, we are putting a Bill before the House to address that issue in the coming weeks, for which we hope to attract cross-party support. In the lead-up to Committee Stage of this Bill, we hope to have realistic amendments to effect change in that regard.
The rebate on rates has been raised by all contributors today. Obviously, it is a very real issue on the ground. This is tied into the last comment I made in respect of rates. There must be a recognition of the present commercial realities before any decision such as that is rammed through the House. We will be cognisant of that. I reiterate my appreciation of the delegates' contributions. I may not agree with everything they said, but it was interesting to hear what they had to say at the same time. We would hope to reflect some of their considerations when we set about amending the Bill.
I shall follow up on one of the points I raised on Second Stage. If others do not table an amendment on the rebate, as I expect they will, I certainly intend to do so. I cannot see how the 100% difference can be carried, particularly in the retail area. In towns and villages around the country vacant premises are much more noticeable than the vacant houses in housing estates.
That will be a serious problem. It might have been possible to sustain it in a city environment but I do not think one size fits all in that case. I certainly agree with the witness on that issue.
In respect of the elimination of town councils, I am surprised that a group such as IBEC did not seek a change in the county council system, as opposed to the town council system. Please do not get me wrong; I would not argue for the retention of all town councils. However, having served on both a town council and a county council, I could see the return from the town council was evident and useful. In the event of complaints, it was far more likely that they would have been directed at the county council. For example, if there were to be three large regional authorities, many changes could be made from the point of view of procurement opportunities and combining some of the services while still maintaining a district council model, which is the way I think we should proceed, but that is not what is proposed in the legislation. In some cases, the town councils will be missed.
Some of the high-profile town councils around the country, such as Westport Town Council, which has been in contact with us, made a substantial impact, as did Tralee Town Council. They are very important given the impact they make by being focused on the local economy, and they deliver a return. For example, the town council of which I was a member was a former town commissioners, and almost all of its funding came from Intel. None of that funding will go back to the Exchequer, but will go straight back to Intel in the form of profit. I question whether there will be the savings that have been mentioned. As that was a town charge, it would have been over and above the rates, but it would have been a relatively small charge. Even where the traders paid that town charge, most of the money would have been spent on town improvements, which would have had a direct return. That is very different from the arguments made by the witnesses in respect of where our money is going. One would have seen the return on it.
A point that has been a bone of contention is that some of the chambers of commerce and the Irish Business and Employers' Confederation argued for a property tax. The difficulty now is that they will ask where the money is spent, while every householder will ask the same question. They will do that at the same time as the general purpose grant is being radically reduced, and there is no additional money. I do not think that will lead to a harmonious relationship or a better arrangement in terms of how the costs will be distributed. I am surprised that the delegates are welcoming some of the things they welcome. Essentially, the property tax will take money out of people's pockets. It will not necessarily deliver a return in terms of additional services or lighten the load on the business sector. It is another observation rather than anything else. I would be interested to hear their response.
I thank the delegates for appearing before the committee this afternoon. In regard to their statement in respect of the municipal districts exceeding the town councils they replace, how was that figure arrived at?
To clarify where I am coming from, in my own county there are 27 town councillors and 21 county councillors, a total of 48. With the abolition of the three town councils, and following the boundary review under which four districts have become three, the number will be 19, which is a big difference. That is why I was curious, as the witness suggested there would be more councillors, not fewer.
The intention was that there would be fewer.
On the issue of municipal districts, Dublin is the classic example of a place where there was no town council but where there will now be municipal districts. However, this system will not cost more because in the Dublin area there were always area committees and there will be no need for special offices. Some areas already have offices, for example, Lucan, but there is none in Rathfarnham. There will be no extra area offices until such time as the council sees a need for such an office. In areas where there are no town councils there have always been area committees, but these committees had no power. Now there will be a statutory devolution of functions from the council to these areas which will be called districts. IBEC is looking at the number of areas and stating there will be extra requirements because the area committees were not counted. However, area committees were already in place. The town I am from originally, Clifden, never had a town council, but it had a county area committee. Therefore, this is not creating extra requirements but is streamlining what we have in place. As Deputy Marcella Corcoran Kennedy said, there will be fewer councillors overall. Granted, because of the population of Dublin, there will be more in that county.
The issue of rates seems to be a main focus for IBEC. The streamlining of the enterprise boards in local enterprise offices, LEOs, will focus on having more input from local authority and community members to bring businesses to each county, rather than leaving it to Enterprise Ireland or enterprise boards where the focus is not on local areas. That is good. Also, for the first time, councillors will have the authority to reduce rates by 15%.
I can see that being done, particularly where councils have some leeway with regard to cash flow. Not all have done so, but the discretion is there to do it and it is up to businesses to lobby for a move in that reduction. The AMAI mentioned that there should be varying mechanisms and rates in different areas and in areas better able to carry the higher rates. Since the 2001 Act, there has been a facility to raise local government community funds - let us call them rates. For example, councillors and businesses may want to pay extra rates to allow free parking. This can be done under the 2001 Act, under the provision relating to the local community fund, provided everybody agrees to it and pays up, not just regular businesses. Some businesses are hidden in that they are not paying rates, but they are making profits.
Yes; this can be counted if it is agreed that businesses are part of the community, rather than just being seen as paying rates. There are different mechanisms available to us; there are different ways to skin a cat. If areas do not have jobs and people are being put out of business, we are on a hiding to nothing. The provision will give local councillors leeway to reduce rates where businesses cannot afford them.
Mr. Reg McCabe:
The issue of local government structures generally is something of a difficulty for us because we are here to discuss the provisions of the Bill and issues around the cost of local government. If we were to have a position on local government reform generally, it would be along the lines that the number of local authorities should be reduced. I am reluctant to mention a figure by which they should be reduced, but it would be substantially below what it is. We would like to see considerable rationalisation in the local government structure.
There are significant variations in the head counts in local authorities, between the authorities in Dublin which cover a substantial population and those at the other end of the scale that are so small one wonders whether they are viable, particularly in counties such as Leitrim and Longford. I have nothing against these places, but in the interests of reducing costs and increasing effectiveness, IBEC as a business organisation would support substantial reform and restructuring in the local government sector. That would be a longer term aspiration. I point, for example, to what is happening in Northern Ireland where the number of local authorities has been reduced to 12 or so. The legislation providing for this reduction will be implemented from next year. It will be interesting to see how it is implemented in places such as Belfast and its impact.
I am reluctant to get into a political debate on town councils, but as the matter has arisen in a number of contributions, I will make a comment. There are 80 town councils which cover 15% of the population. It is said this level of local government is important, but I wonder how effective it is considering that it is focused on such a small percentage of the population. This is a debate that can be continued. I am not convinced the municipal districts will be highly effective, but at least the new structure will be implemented in all local authority areas. It will be more universal, whereas the town council structure is patchy in terms of its impact.
That is all I have to say, but perhaps Ms Caulfield might like to add to what I have said.
Ms Anne Marie Caulfield:
I wish to respond to one or two questions regarding rates. Deputy Catherine Murphy mentioned vacant properties in rural areas, small towns and some town centres. I am in business as a landlord also and it makes no sense to me that where a property is vacant, I pay rates on it. If it is vacant, I am making no income from it. Such a property is a charge on my business and, therefore, has a knock-on impact on business. It does not seem reasonable to have to pay rates in that instance.
Retail businesses are the biggest employer in the country, with approximately 250,000 employees in the sector. If businesses wish to let properties to new businesses or people who want to set up a business, they will be asked two questions by prospective clients - about the rent and the rates payable. We have control over one of these areas, the rent payable but not rates. However, the rates payable are often the linchpin which determine whether somebody will proceed with setting up in a premises, particularly in smaller towns and locations where there are significant numbers of vacant properties. For a small business, with one or two jobs, these issues all count.
With regard to the provision providing for a reduction in rates by up to 15%, this would be welcome. However, as Senator Cáit Keane said, this is where a local authority can afford it. The question must also be asked whether the business can afford the rates charged or not to receive a reduction. We have all cut our cloth and gone through painful processes to reduce costs while paying all of the additional charges required to be paid. Therefore, it is not unreasonable for us to expect to see a reduction in rates for businesses.
The idea that additional moneys can be collected to facilitate the provision of free parking and so on which all add to footfall and help to generate business is positive in theory, but few businesses can afford to pay additional charges. The principle is a good one, but whether it is practical for many businesses is the question.
Mr. Reg McCabe:
I wish to make a final point on the structure of the commercial rates system.
It is just picking up on Deputy Murphy's comment about Intel. The system is heavily biased against the larger companies. That is to do with the way the valuation system operates, in other words, the way in which values are attributed to particular locations or businesses. There is a heavy bias against the bigger players. For example, the biggest rates payer that I have identified within our organisation is paying €1.8 million. The difficulty is that company is losing money, but it is still required to pay the rates. I am not saying that €1.8 million is typical. The company is exceptional, but it is a fact that the proprietor is writing a cheque for €1.8 million to a particular local authority every year, irrespective of the level of service he is drawing down.
On the point generally, in Dublin city, half of the €350 million in rates income comes from less than 3% of companies in Dublin. There are nearly 25,000 ratepayers in Dublin, 600 of whom pay €170 million between them - in other words, 3% of the companies are paying 50% of the rates. I say this merely to illustrate how inequitable it is. There are few defenders around here of big companies, but the rates system is highly inequitable in the impact as between the small, medium and large. While we are on the topic of the need for reform of the valuation system, that is a point worth making.
The witnesses mentioned what had been done in Northern Ireland. There are 12 local authorities in the Six Counties.
On the rates issue, in Northern Ireland they changed it for the big multiples recently so that the bigger multiples pay more rates than the smaller ones. What is IBEC's feeling on that because it has been mooted in different submissions down here?
Mr. Reg McCabe:
We would be reluctant to target any particular sector. We welcome the property tax. We think there is scope for the commercial rates contribution to be diluted by bigger contributions. After all, at the end of the day, it is all about the users of the service paying for the service. I would contend that the vast majority of the services delivered by local authorities are consumed by householders and that is where the main focus should be. The system has developed over the decades on the basis of the householders getting a free ride and the impact was that all of the costs were levied on businesses. There is now an opportunity to re-balance that in a fair way. It is certainly not fair as it is structured.
If Mr. McCabe says that the bigger ratepayers are disproportionately impacted and the same take must come from the business sector, presumably, he is talking about a redistribution between the large, medium and small. Has IBEC done any calculations on the impact on the smaller ones? In fact, proportionately, the SME sector would probably be the largest employer. I presume that would impact on jobs.
On the funding of local authorities, the local property tax will not make a difference. In the general purposes grant, motor taxation was ring-fenced. The motor taxation receipts started dropping in 2008. They fell from €999 million in 2007-08 to just over €600 million in the general purposes grant. As the household charge came in, the general purposes grant dropped. As the property tax is coming in, it is dropping further. It is a replacement tax. It will not provide what Mr. McCabe is talking about. In fact, it is likely to take more money out of the pockets of the customers who will be shopping in the shops of which he spoke and it will not produce a fund large enough to make any kind of a different. There is less money to spend in the overall sense. It will not make the difference that will produce an option to reduce rates that might reduce costs where the consumer gets a benefit on the other side of it. I do not see the logic of Mr. McCabe's argument in that regard.
Mr. Reg McCabe:
We listen to what the Minister and the Government have to say. We understood that it would be their intention to provide this level of re-balancing, but perhaps we are being a little naive. It would still be our strong ambition that the Government would deliver on that commitment. We certainly feel that it should.
On the issue of large versus small, it would be helpful as a reform to put a cap on rates where one would pay rates based on a valuation system, as one does now, but up to a particular figure. That would provide an incentive to employment if one expanded. That cap could be set at, for example, €0.5 million, and one simply would not pay anything over €0.5 million, irrespective of the scale of one's company. That would be a much fairer way. As matters stand, ultimately, the figure for rates for any particular location is infinite. There is no upper limit.
For example, the Tesco store in Naas, one of the biggest Tesco stores in Ireland, is built on the periphery of the town. One can see that it had a major impact on the main street. In fact, it did not create new jobs but relocated them, and the profits are repatriated.
My point is that if one puts a cap on its rates, one gives Tesco or a big company such as that the advantage as against the myriad smaller retail stores that produce not only rates but a vibrant town centre.
The property tax is giving more power locally. Deputy Catherine Murphy states it does not make a whit of a difference. The fact that there is more money coming in to local authorities from the households takes a little of a burden off the businesses. It also gives more discretion locally. It will provide an incentive to every local authority, particularly through the local enterprise offices, LEOs, and ensure they do not sit back and say that they will be all right on the night because the equalisation fund will sort them out. There is now an incentive for every local authority to get out there to do its damnedest to ensure that it looks for all the businesses that it can. It gives more autonomy in the raising of money, the spending of money and everything else. I could not leave on the record that it does not make a whit of difference. There will be more money anyway. That will make a big difference.
We will conclude this section of the meeting. I thank Mr. McCabe and Ms Caulfield for their attendance and interaction with us. It is much appreciated. Is féidir leo imeacht anois.
We will suspend for a couple of minutes to allow the next batch of visitors to come in.