JOINT COMMITTEE ON THE ENVIRONMENT, HERITAGE AND LOCAL GOVERNMENT debate -
Tuesday, 21 Sep 2010

Local Authority Rates: Discussion with Irish Hotels Federation

Vice Chairman

I welcome Mr. Paul Gallagher, president; Mr. Tim Fenn, chief executive; Ms Breda Keane and Mr. Pat Chawke from the Irish Hotels Federation to make a presentation on the matter of commercial rates payable to local authorities. The industry believes the local authority rates payable are particularly inappropriate in the current economic climate.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(i) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they do not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.

I now invite the Irish Hotels Federation to makes its presentation.

Mr. Tim Fenn

I thank the joint committee for inviting the Irish Hotels Federation to address it on the issue of the rates payable by hotels to local authorities. Tourism is one of Ireland's most important economic industries and has to play a key role in our economic recovery. The Irish hotel and guesthouse sector, a key part of that industry, is in a critical financial position owing to excess capacity, falling demand, falling room rates, the collapse of the banking industry and the issue of competitiveness.

In relation to competitiveness and following the decimation of profitability in the past three years, hotels have addressed this issue in a commercial manner and reduced costs, where possible. The one area in which there has been an inability to reduce costs is Government related charges, in particular local authority rates and items such as water and sewage charges. We again call on the Minister for the Environment, Heritage and Local Government to substantially reduce the burden of local authority rates on hotels and guesthouses. Competitiveness is a key factor in restoring the economy in general and the tourism industry, in particular. In 2009 the value of exported goods and services was estimated at €148.4 billion, of which €3.9 billion can be directly attributed to tourism, accounting for 2.6% of exports. This, however, represented a drop of 19% on the figure for 2008 and reflects a changed business environment and the dramatic shifts continuing to take place in Ireland and our markets abroad.

In the hotel sector occupancy rates have fallen by 15% since 2007 and are now at 55%, a level not witnessed since the early 1980s. Prices have collapsed, with falls of over 25% during the last 22 months owing to serious overcapacity in supply, the continued weakening of overseas markets and unsustainable support provided by financial institutions to insolvent hotels with high levels of funding exposure. This, combined with historically low occupancy levels, is threatening the survival of established and viable businesses, many of which are vital to the long-term strategic objectives of the tourism industry. What compounds matters even more is the lack of any initiative from the Government to deal with the burden of charges applied to businesses.

The 900 hotels in Ireland encompassing 60,000 bedrooms pay approximately €90 million a year in rates to local authorities. This equates to an average of €1,500 per bedroom which, in many cases, can be as high as €2,500-€3,000 per room. This represents 6% of the total take in a situation where the hotel sector accounts for 1.5% of GDP. We have members who pay in excess of €400,000 and €500,000 per annum in rates. Average revenue per room per night is estimated at €34.65. The average local authority rates figure in terms of the cost per room per night is €4.11 or an enormous 11.8% of revenue. Average EBITDA — earnings before interest, tax, depreciation and amortisation — per available room dropped from €9,786 in 2006 to €4,650 in 2009, which figure is expected to fall further to €3,500 in 2010. These figures were sourced from the Howarth Bastow Charleton report. Hotels no longer have the earnings to enable them to pay these rates.

Hoteliers have always been committed to providing good employment for their staff, supporting their suppliers, many of which are small local businesses, and giving an excellent service to their customers. However, in order to survive, hotels have had to implement severe cost cutting measures which include wage reductions, fewer hours rostered and reduced staff numbers, renegotiating supplier contracts and deferring renovation works and investments. Every cost area over which the hotelier has discretion has been seriously examined and costs reduced. In a recent survey 70% of our members said they had reduced employment levels year on year this summer and 82% were looking at reducing staff levels in the next three months. It is of great concern that, at a time when the number on the live register is at 455,000, hoteliers are being forced to make decisions to reduce the level of employment and service in this important export industry in order to pay the exorbitant amounts demanded in local authority rates.

The biggest single cost over which hoteliers and guesthouse owners have no control is local authority rates. Prior to the passage of the Valuation Act 2001 businesses could have sought a revision of their rateable valuations on a number of grounds, including a deterioration in the profitability of the business. However, the 2001 Act removed this method of seeking relief on the basis that the legislation envisaged that every rateable property would have its valuation revised every five to ten years. It is now nine years since the 2001 Act was brought into force and only three of the 88 rating areas have had revisions carried out by the Office of the Commissioner of Valuation. At this rate it will take over 20 years to complete the process in all rateable areas, notwithstanding the intention in the legislation that the revised valuations be further revised every five to ten years. The revisions which have been completed have resulted in the local authority rates liability of hotels being reduced by, on average, more than 30%. Based on this experience, it is reasonable to suggest that if the revisions were completed in the remainder of the country, similar results would be achieved. In the meantime hoteliers are being forced to pay excessive rates, particularly at a time of very difficult trading circumstances.

Under the Local Government (Rates) Act 1970, local authorities may, with the consent of the Minister for the Environment, Heritage and Local Government, introduce a scheme to waive all or a portion of the rates due by a class of ratepayers. The Irish Hotels Federation wrote to most of the rating authorities requesting that a 30% waiver of rates on hotels be introduced and every reply received indicated a refusal to introduce such a waiver scheme. Following representations made on behalf of the federation by the Tánaiste and Minister for Education and Skills, Deputy Coughlan, we received correspondence from the Minister for the Environment, Heritage and Local Government, Deputy Gormley, dated 20 July 2010, confirming that he had not received any application from a local authority in respect of a rates waiver scheme for the hotel and accommodation sector. He also indicated his belief the use of such a scheme in respect of commercial property would be unfair, as it was highly unlikely that a local authority would be able to absorb any shortfall, giving rise to a negative impact on other ratepayers. It is the view of the federation that the only option is for the Government to introduce emergency provisions providing for a 30% reduction in the local authority rates applicable to hotels and guesthouses until such time as these properties have had their rateable valuations revised, as provided for in the 2001 Act. The slow progress made by the Office of the Commissioner of Valuation in carrying out revisions has rendered the Act manifestly unfair.

We also call on each local authority to recognise the particular difficulties being faced by hotels at this time and agree to accept from them an amount that each property can afford to pay. We particularly urge them not to take legal action which would force hotels or guesthouses to close or go into receivership or liquidation. Our members are willing to pay a fair and equitable level but simply can no longer bear the rates imposed in this unprecedented environment when a process for the revision of valuations promised has not been completed. It is ludicrous that many hotels have been told that, if they do not pay the full amount due, they will be subject to court proceedings. This could only result in the further demise of hotels, with a knock-on effect on employees and suppliers to hotels. Many of our suppliers are small local businesses which now face their businesses being put at risk by local authorities threatening to use their strong legal position to force hotels to pay. This is an emergency issue for most hoteliers and guesthouse owners, as they just do not have the trading income or cash flow to pay the current level of local authority rates.

I thank the Vice Chairman for giving us the opportunity to address the committee. We will try to deal with any matters members wish to raise.

Deputy Joanna Tuffy

As I have to attend another meeting, I will be brief.

I am very sympathetic to the plight of hoteliers and members of the Irish Hotels Federation. The Labour Party has brought forward proposals to deal with the issue and it is important that it is not pitched as being local authorities versus hotels. It is much wider. However, hotels have unique problems owing to the seasonal nature of the business and the hit they are taking. There is a general problem with businesses and rates. It needs to be acknowledged that some local authorities have made a big effort to reduce rates in recent budgets. South Dublin County Council did so last year and Fingal County Council did something similar. Councils were allowed to keep the money saved from the cuts imposed on members of local authorities and it was used to reduce the rates bill for businesses. Most of those who work in local authorities are relatively low paid. Some 10,000 public sector jobs have been slashed since the end of 2008, of which 3,000 were in local authorities. Many of those affected were on temporary contracts. Three county councils have carried out the rateable valuation review which has led to a 30% reduction in rates. However, we need workers to do this at the Valuation Office and in the local authorities. There is a trade-off between how much rates can be reduced and the extent to which local authority services can be kept going and workers kept in their jobs.

I am sympathetic to what the delegates are saying, but when we are arguing about these issues, there is a tendency to suggest local authorities are being unreasonable — I am not suggesting that is what the delegates said — or that local authority staff numbers should be cut to solve the problem. Local authorities are struggling also. It is about us working together well as stakeholders and trying to share the burden as much as possible.

Deputy James Bannon

I welcome the representatives of the Irish Hotels Federation, IHF. We had other important business to conduct; the meeting should have started earlier to deal with correspondence. It was not our fault that there was a delay, but we had to scrutinise the important documents before us.

I am surprised by the correspondence between the Tánaiste and Minister for Education and Skills, Deputy Coughlan, and the Minister for the Environment, Heritage and Local Government, Deputy Gormley, who confirmed in his response on 20 July that he was not in receipt of any application from local authorities in respect of a rates waiver scheme. Local authorities are cash starved and there is a huge burden being placed on them because of the cutbacks in funding. Following that letter, I understand the IHF contacted every public representative to contact their local authority and relevant bodies. I received representations from many hotel owners in counties Longford and Westmeath and got onto the county manager to consider a reduction of rates or waiver, pointing out that not doing so could cost us jobs. I also spoke to the Minister for Finance and the Minister for the Environment, Heritage and Local Government.

We are all aware of the changed economic climate and the reduction in visitor numbers. The cost of maintaining and keeping a hotel up and running is high. The cost of a bed for a night has fallen from around €100 to around €70. A huge burden is being placed on hoteliers and guesthouse owners. I know hoteliers who are facing legal proceedings owing to their inability to pay their full rates bill. We should request the Minister to give local authorities extra funding to maintain services. Deputy Tuffy has referred to the fact that two local authorities in Dublin revised their finances, but local authorities in Dublin have a very high income from rates, whereas those in counties such as Longford and Leitrim have to operate on a very low rates base and are finding it difficult to maintain services. We should, therefore, request the Minister to be lenient towards hoteliers and guesthouse owners because to do otherwise could cost us jobs. There are over 455,000 people unemployed. Perhaps the delegates might give us a figure for those who have lost jobs in the hotel and guesthouse industry in the last couple of years. That would allow us to make a stronger case on their behalf to the Minister for Finance and the Minister for the Environment, Heritage and Local Government.

Senator Ciaran Cannon

I congratulate Mr. Fenn and his colleagues on making both a comprehensive and disturbing presentation. Many of the groups which come here are sometimes alarmist or prone to exaggeration. However, the statement, "This is an emergency issue for most hoteliers and guesthouses owners," is most certainly true and I would not confine it to the hotel sector, as there is a timebomb waiting to go off in the commercial sector caused by rates. I am sure all of us have received representations from businesses which are on the brink of extinction and facing a very stark choice. They either pay their rates bill and go out of business, or simply refuse to pay and remain in business. I spoke to one such gentleman last night and he is going to court to fight to ensure the survival of his business. He will make the case that if he pays the rates bill for which he is liable to the county council, he will no longer be able to remain in business. He asked me what were his chances and I told him they were slim. The judge will not adjudicate on whether he should remain in business but on whether he is complying with the law. As it stands, it is not serving Irish businesses well when it comes to the payment of rates.

The system of assessment is hopelessly out of date. It does not reflect the reality of what is happening in the business world. It is extremely short-sighted because, as each business goes to the wall, the income base for the particular local authority diminishes. People are left unemployed and the State ultimately ends up paying more. We urgently need to look at how we calculate rates. I am conducting some research on how they are collected in other European countries.

My wife and I are publicans. Each year we pay our licence fee which is based on turnover. There is no assessment; no one visits the premises to check whether they are in good or bad condition. The owner simply submits the turnover for the previous year and, based on it, pays the licensing fee. I cannot see why a similar system could not be put in place for commercial rates. It should be based on the income coming into the business. If a business is not functioning well and earning a lot of money, it should not have to pay a large commercial bill. That is exactly what is happening in the case of businesses which have not had their premises assessed in ten or 15 years, the bills being levied on them for commercial rates do not in any way reflect their earning capacity in 2010. We urgently need to reassess how we collect rates, not only in the hotel sector but also across the entire commercial sector. We must make the system fair and ensure it reflects the real earning capacity of each business. Once that had been established, there would be no need to carry out revaluations every five or ten years. Rates would simply be based on the earning capacity of businesses in 2010 and subsequent years. The system is not working and must change quickly. People are going out of business every day and this is one of the major contributing factors to the problem.

Deputy Ciarán Lynch

I welcome the representatives of the Irish Hotels Federation. My first question is about the calculation of €2,500 per year in rates contributed across the country. I have been doing some sums and it equates to 50 bed nights at €50 per night, or 25 bed nights at €100 per night. Will the delegates break this down for us? I would be interested to hear their own calculations, as business people, of the average cost of rates per bed night. I know there are conflicting figures for hotel costs. I was in Athlone yesterday evening and the cost was €69 for a room, but it will possibly be cheaper this evening in similar hotels in certain locations in Dublin.

At a wider level in the industry there is a suspicion that there is not the same over-abundance of hotels as there is in more urbanised areas and that hotel costs are not actually falling in some areas. In some areas of Waterford the price of a room this weekend will be the same as that for a weekend stay two or three years ago. There is still the same value for money because there is a shortage of hotel rooms in some areas. I would be interested to hear what the delegates have to say in that regard.

Deputy James Bannon took the Chair.

Deputy Ciarán Lynch

There is a proposal for a 30% reduction in local authority rates. I would be interested to see the proposed method of implementing this and know the legal position on a model of taxation that would create an exemption for one sector of an industry. That is not to disregard the merits of the proposal, but are the delegates suggesting this should be done specifically for the hotel and catering industry, or should it be considered as a model for businesses which are suffering in general?

Mr. Pat Chawke

Our experience is that the revaluations which have been completed in two boroughs since 2001 have resulted in a 30% discount, on average, in rates for hotels. All we are asking is that revaluations be done on time. The Comptroller and Auditor General stated in his report that the revaluation process had failed because it had taken so long to complete in two boroughs. We are asking to be treated as fairly as those in Dublin which have been revalued and achieved 30% discounts.

Deputy Ciarán Lynch

Rather than considering rates only, we might consider other ideas. The French Government allowed a reduction in VAT returns for the restaurant and hairdressing industry based on the achievement of certain performance indicators, including improved quality of service, greater employment, better investment in premises and so on. Has the IHF given any consideration to such an approach?

Acting Chairman (Deputy James Bannon)

We will take a question from Deputy Hogan next; Mr. Chawke may then reply.

Deputy Phil Hogan

I take the opportunity of wishing Mr. Fenn's predecessor, Mr. John Power, well. As chief executive of the IHF, he was a regular attendee at this committee and we had much interaction with him. I also congratulate Mr. Fenn on his appointment. He has come in at a different time, but that is the way the cookie crumbles. None of us can decide how things happen.

We are living in extraordinary times and must, therefore, consider extraordinary measures in coming up with solutions. The challenge we face in dealing with local authority funding is that it will not be possible to reduce rates by 30% for one sector without doing it for everyone else in the commercial sector. This is at a time when there is likely to be a further 8% reduction in the Estimate for local authorities in 2011. The only other way of dealing with the situation is to withdraw services in a considerable range of local government activities.

I was interested in the manner in which Mr. Chawke explained to Deputy Lynch what the delegates really meant: they want the valuation process speeded up in order that there can be a 30% reduction in rates. What we need, as a committee, is to treat this issue — it is an emergency for the hotel sector — in a way that allows for the provision of emergency resources for the valuation process. According to the figures provided, where revaluations have been carried out, reductions have been achieved for businesses in the sector. More resources need to be put into reviewing the valuation system under the Act.

The new Act has been an absolute disaster compared to the previous one, which raises the question of why we actually reviewed the Act in the first place. It was supposed to improve things. Can the delegates give us some indication of what the old Act would have done that the new one does not do? Perhaps we should reverse engines and return to the old Act. Perhaps the delegates could give us an idea of the legislation required. By putting it to the Oireachtas via this committee, we could put pressure on the Government, on an all-party basis, to give this issue priority.

Deputy Pádraic McCormack took the Chair.

Deputy Phil Hogan

I cannot understand the reason for the delay in the revaluations. Perhaps the delegates might give me the benefit of their experience.

I agree with the assertion of the delegates that competitiveness is the key to economic recovery, the survival of the sector and the realisation of its employment potential. The facts speak for themselves. Have there been meetings with the Minister for Tourism, Culture and Sport, Deputy Hanafin, and the Minister for the Environment, Heritage and Local Government, Deputy Gormley, to discuss these issues? Will the delegates give us some insight into their thinking or any proposals they have made for the period before the budget?

We now know that many mistakes were made in the sector, including the provision of tax breaks and a lack of planning. There are many NAMA hotels operating. Will the delegates comment on the impact that is having on the sector? In addition to the request for a 30% reduction in rates, how do they see the roll-out of the NAMA process affecting the sector?

Deputy Eamon Scanlon

I thank the delegation for its presentation. This is a topical subject. We had a meeting in Sligo yesterday with the county manager and his officials about rates. This is a problem not only for the hotel industry but also for smaller retail outlets which are paying excessive rents and unable to pay rates. There is no doubt it is a national issue.

My understanding is that rates are based on rental income — the rule of thumb is 0.5% of the rental value of a property in rural areas and 0.75% in urban areas. Rates are totally out of kilter with the statistics used to decide what they should be. What is the legal position in respect of this? I believe someone will take a case with regard to the rule of thumb and the position at the moment. I cannot disagree with the delegation and I thank the delegation for their presentation, which is very relevant. I support what they have said.

Senator Paudie Coffey

I will be brief because a lot of what I wished to say has been said already. However, I wish to acknowledge the contribution of the delegation. It is very important that we hear the message very clearly. It must come not only from the delegation, but from business and we must hear the way in which they are under serious pressure in the current economic climate. We have arrived at a stage where our local authority system is highly dependent on rates and this must be acknowledged at the outset. The delegation's experience of the severity of this at first hand must be acknowledged as well. The difficulty is how to actually address that.

Deputy Hogan outlined that if there were a 30% cut for the Irish Hotels Federation there would be other business queueing at the door requesting the same treatment. However, I agree that the old ways are not working. Senator Cannon made pertinent points about revising how the Valuation Office works or how it carries out its assessment. Should we be thinking outside the box regarding the possibility of self assessment? There is precedent for this with Revenue returns, where self assessment is used a good deal. Has the delegation considered other ratable systems throughout the EU to determine how they manage their rate systems and the role that rate payers play in that assessment, or does the delegation simply sit there with the pot and they come and collect? That pot is now running dry. The well is running dry and local authorities are still collecting or trying to collect. One can only get so much blood and one cannot get blood out of a stone and that scenario applies in this case.

The resources of the Valuation Office should be examined and exceptional allowances should be made for increasing staff if possible. Otherwise, the State will pay for it in other ways. There will be redundances in that sector and other businesses if people cannot pay their rates. Given the backlogs, it is not acceptable. I thank the delegation for bringing it to our attention. I did not realise the backlog was so serious. This is something all of us across party lines should address at every possible opportunity in the new term in the Dáil and Seanad. I believe old ways simply do not work anymore. We must start looking outside the box and at other mechanisms, whether it is self assessment, rates on profitability or whatever. There is work to be done and perhaps this committee has a role to play in this regard.

Senator Paul Coghlan

I am delighted to have the opportunity to say a few words, although I am not a member of this committee. I note there are some old friends opposite me and I am pleased to see them in here today to have their say. I refer to a point which does not impact directly on the subject matter but it is related. Deputy Hogan touched on the point about NAMA hotels. We are led to believe that there are 35 hotels now controlled by NAMA and the impact they are having is a matter of controversy that is raging. According to a recent survey, there are 12,000 to 15,000 surplus hotel rooms. Is that accurate? It was not a survey conducted by the delegation but will they comment on this? This is being alluded to on an ongoing basis in the press. Several, though not necessarily all, of these so-called NAMA hotels are providing very unfair competition for long-term people in the business, including family businesses throughout the country and true hoteliers in the proper sense. Their sustainability is being threatened by virtue of the tactics of some, though not necessarily all, of these. However, the delegation are experts, which I acknowledge, and I look forward to hearing a brief comment from them on this matter because I got into some controversy recently in Kerry with a colleague and former Minister with responsibility for tourism. Will the delegation remark on any discussions they have had with the present Minister for Tourism, Culture and Sport on that subject?

Mr. Paul Gallagher

I wish to address some of those questions. I thank all the Members for their questions. I refer to the questions from Deputy Tuffy to the effect that our call would probably affect staffing levels or salaries in local authorities. While that may be an inevitability, clearly there is a disconnect between the amount of pain and re-gearing of our businesses by cutting costs, which we have been doing over three years, and it is quite clear to us that local authorities appear to believe that they are immune to having to deal with the facts.

Deputy Joanna Tuffy

I am sorry to interrupt, but I was saying the opposite to what Mr. Gallagher has just said. I stated they are experiencing the pain as well and the federation must acknowledge that.

Mr. Paul Gallagher

I do not believe the local authorities have dealt with it sufficiently in terms of their competitiveness.

Deputy Joanna Tuffy

It is a Government decision. The Government decides on pay cuts. It is not local authorities.

Mr. Paul Gallagher

I know that but if their level of funding were reduced they would have to make tough choices as we have in our business. On that point, we have also shed a significant number of jobs in our industry. As we stated today, some 82% of our hotels will shed staff during the winter and they will be shedding between 5% and 25% of their workforce. While it might be preferable for local authorities not to do it, if they do not do it we will be doing it because we have no choice. The thrust of what we are doing today is that unless the matter of local authority charges is dealt with properly, we will continue to shed employment throughout the hotel sector throughout the country. As Senator Cannon alluded to, if our businesses go out of business, others go with us. It is not simply us; it would also be the butcher, the bread guy, the wine merchant, the farmer and the farm or trading companies. There is a knock-on effect. Even if 10,000 jobs go out of our sector, a multiple of that will be lost throughout the wider economy in support services.

I refer to the comments of Deputy Bannon. The letter we received from the Minister is on the record. We sought for him to issue an order instructing local authorities to reduce their rates. He has not done so on the basis that no local authority has approached him. Although our members have been very active on the ground talking to local authorities, I suspect they know they cannot afford to forego it in our sector because there would be subsequent knock-on claims from other sectors. However, I believe the revisions done in the three boroughs of Dublin have given us a very clear indication that based on the rationale and the calculations made by those local authorities, our members everywhere are completely disadvantaged against every other sector in the economy on the level of rates we pay. Our argument is not that we pay too much and everyone else should pay a great deal more. The rating levels that increased in the other rating businesses in the three revisions were not significant in terms of 30%. Our reduction of 30% did not push theirs up 30%; it may have gone up 1% or 1.5%. Our members realise now that we are paying €30 million more per year in local authority rates than we should be paying based on those revisions.

I refer to the remarks of Deputy Lynch. The calculation of the €2,500 is per room per annum. It is not for the whole hotel. In my hotel across the road, Buswells, I pay €125,000 per year. I am sure my colleagues would be very happy to elaborate on this point.

Ms Breda Keane

I can give an example. I am manager of a small hotel in Ballincollig, Cork. We have 78 bedrooms and we pay €248,000 per year. That is €3,108 per bedroom in the hotel, which is completely unsustainable.

Deputy Ciarán Lynch

Will the delegation simplify that? It would present a better argument as to the number of occupancies.

Ms Breda Keane

The occupancy for my hotel is 65%. We are one of the luckier ones in that we are above the national average in terms of occupancy level. There is a 65% occupancy level during the year.

Mr. Paul Gallagher

I wish to come back in here. The rate achieved last year in Irish hotels was €76.90. For every hotel room sold last year, that was the achieved rate. That is for every night a room was sold. For every night a room is not sold, we get zero. Our report holds that if hotels are only running 50% or 55% occupancy, one divides that €76.90 by two. That gives the income per room per night. If it was full every night of the year, it would generate just in excess €34. The rates per room per night is over €4, some 11%. It is significant that we pay a tax of €4 on €34 of revenue. We no longer have the ability to pay those rates. We have a perfect storm in our sector.

Everything that could go against us is going against us in terms of over-capacity. Senator Coghlan referred to over-capacity. Over-capacity stands at approximately 10,000 rooms.

Senator Paul Coghlan

I thought Mr. Gallagher said earlier that over-capacity stands at between 12,000 and 15,000.

Mr. Paul Gallagher

It is between 12,000 and 15,000 but it is a moving target. Over-capacity is related to demand. Obviously, therefore, if demand were to pick up the level of rooms would be on a sliding scale. Senator Coghlan is correct that over-capacity currently stands at between 12,000 and 15,000 rooms.

Senator Paul Coghlan

I was interested to know if the survey was accurate.

Mr. Paul Gallagher

It is. Fáilte Ireland will also shortly produce a report on this area.

Deputy Ciarán Lynch

On a point of information, Fáilte Ireland's assessment is that the over-capacity is clustered and is not an issue across the sector generally.

Mr. Paul Gallagher

That is correct. The development, in terms of product, has been predominantly on the east coast. There is a significant level of product on the outer ring of Dublin. In cities such as Limerick and Sligo capacity is double what the market can support. This is true also in respect of hot-spots such as Tralee and Killarney. Fáilte Ireland is currently compiling a report on this matter, which will be available in three weeks. We are working with it to identify what are the prospects for demand going forward. We need to match capacity and demand.

Deputy Hogan asked about the possibility of a 30% reduction. I do not know if we are going to get that or not. We have been discussing local authority rates for as long as I can remember. In this regard, I mean going back more than ten years, at which time concern moved from the issue of unfair competition from bed and breakfasts to that which we are discussing today. The level of stress in the hotel sector is significant. Members of the federation will explore every avenue open to them to obtain a successful outcome, including legal challenge if necessary. While the latter is not a course we would take lightly given the costs incurred in taking legal action our members' backs are to the wall. We need a fair playing pitch. Hotels in three boroughs have had a benefit, which clearly indicates that the burden on the remainder of the sector is intolerable. We have been paying far too much for far too long.

Deputy Phil Hogan

What does the federation propose to do in regard to the Commissioner of Valuation?

Mr. Paul Gallagher

We have written to the Commissioner of Valuation. There are 88 rating areas within Ireland. We have no members in one of those rating areas, this matter has been resolved in three areas, leaving 84 to be addressed. We have sent registered letters to the local authorities in the 84 areas concerned asking when the roll-out for their valuation process will take place. We have received no information which would indicate the process will be speeded up. I believe it will be approximately 25 years before they get through the process.

Deputy Phil Hogan

Has the federation made any headway in resolving that problem?

Mr. Paul Gallagher

No.

Deputy Phil Hogan

Is it the Minister for Finance who should solve that problem? What is the reason for the delay? Is it a resourcing issue?

Mr. Paul Gallagher

The delay may relate to manpower and to the fact that what is being done is a huge undertaking. The 2001 Act has changed the way things are done. In the UK, the process is updated every five years and this is done overnight. Our system is antiquated.

Deputy Phil Hogan

Can we copy the UK system?

Mr. Paul Gallagher

We would do anything that would simplify the process.

Senator Coffey referred to self-assessment. I do not believe there is any appetite for self-assessment. We have looked at other rating areas and to our colleagues in the North of Ireland who currently pay roughly half the amount of rates we pay. I accept there are different jurisdictions and cost structures involved. We already know that our rates bills are significantly higher than our competitors in other European markets.

Senator Coghlan and others asked about unfair competition because of NAMA. The fact that NAMA owns or has control over 35 hotels is not in itself an issue for us. NAMA has a duty. We have called for the application of responsible principles by all financial institutions in their support of hotels right across Ireland. We have a problem with irresponsible financial institutions supporting insolvent unviable properties and in doing so not requiring them to pay capital or interest repayments on their loans, hence they are allowed trade in the marketplace at rates to customers far below the market in that area. What happens as a result is that competing hotels must reduce their selling rates, which, in many cases, are below cost. In the past four or five years hotels have had to fillet out the profits in their rates because of unfair competition across the marketplace. We have serious difficulty with the manner in which the market is being completely distorted owing to unscrupulous practice by a wide range of financial institutions in terms of their support of insolvent hotels. The market is completely artificial in that in the normal run of things if one's business fails because it does not do well or trade properly it closes. One does not see bank managers running hairdressers on Grafton Street or running furniture shops or garage forecourts. What one does see is insolvent unviable hotels in, in most cases, unusual locations being run by financial institutions.

Senator Paul Coghlan

Are they members of the federation?

Mr. Paul Gallagher

Some of them are.

Senator Paul Coghlan

Are there any sanctions the federation can apply in that regard?

Mr. Paul Gallagher

No, not really. The people concerned have individual relationships with their financial institutions, which is their right. We do not like unscrupulous hoteliers any more than we like unscrupulous financial institutions. It is interesting that the Government is supporting financial institutions which are supporting unviable hotels that are competing with hotels that are viable but are quickly becoming unviable.

Senator Paul Coghlan

Has the federation had any meetings with the Minister for Tourism, Culture and Sport?

Mr. Paul Gallagher

We have met on many occasions with the Minister for Tourism, Culture and Sport and Tánaiste and Minister for Enterprise, Trade and Innovation, to discuss these matters.

Senator Paul Coghlan

What are their views on the matter?

Mr. Paul Gallagher

It is difficult to state their views. There is a bit of a hang-up in that if they take action to close unviable hotels there will be many job losses, which would not look good in the press. We are shedding thousands of jobs and will continue to do so monthly until something gives in this scenario. I am sure my colleagues will support that view.

Vice Chairman

What action do members propose we take?

Deputy Phil Hogan

I propose that we write to the Minister for Finance in respect of the Commissioner of Valuation to see what can be done to speed up the valuation process.

Vice Chairman

Will the joint committee also write to the Minister for the Environment, Heritage and Local Government?

Deputy Phil Hogan

The Minister for Finance is in charge of the Valuation Act. We should look at all options, including the UK system, in order to speed up the process.

Ms Breda Keane

A member, possibly Deputy Hogan, asked what is the problem with the 2001 Act. The problem is that it removes the ability to appeal in respect of change of circumstance. For instance, where previously we would have had the right of appeal because of changed economic circumstances, that right no longer exists. We also no longer have the right to seek an adjustment in our rates owing to seasonality. If, for instance, because of a lower occupancy demand we were to close a floor of bedrooms we would still have to pay rates on that floor of rooms.

Deputy Phil Hogan

Why was the Act changed?

Mr. Pat Chawke

It was changed, according to the Comptroller and Auditor General, because of the acknowledged anomalies and inequalities in the system. The Minister, when the Act was changed in 2001, gave an undertaking that the entire revaluation of the country would be completed within five years.

Deputy Phil Hogan

Would it be better to return to the old system pending completion of the valuation?

Mr. Pat Chawke

As explained by Ms Keane, under the old system we had the right to appeal a change of circumstance. My business will go to a three-day week from the middle of next month, which obviously will impact on my earning ability yet I will get no leeway on my rates. My staff have taken a 15% pay cut and will get less work in the winter yet the county council insists I pay full rates.

Deputy Phil Hogan

We realise there is a problem and what is being done under the current Act. We are now trying to establish the solution to the problem. Would it suit hotels better if the old Act rather than the new one applied?

Mr. Pat Chawke

The old Act allowed us the right to an appeal. However, because of a lack of resources, that appeal could take longer than any of the businesses have.

Mr. Paul Gallagher

Many of the businesses awaiting revision under the Valuation Act 2001 will not exist by the time the Valuation Office comes to do that job. I do not know what has to be done to make this work. This is not just the case in our sector and I am sure it applies in many other sectors but we have a real problem and this is the important message we bring to the committee today.

Vice Chairman

It appears there is general agreement with the case and arguments made by the federation.

Deputy Phil Hogan

In light of this proposal I propose we write to the Minister for Finance about the Valuation Act and submit the Irish Hotels Federation's submission about the crisis. One of the solutions would be to find a way to speed up the valuation process.

Deputy Ciarán Lynch

I do not think the local authorities are going to contact the Minister, Deputy John Gormley with regard to the case made by the Irish Hotels Federation and the delegation may be aware of this. However, the delegation's attendance before this committee should be brought to the attention of the Minister. I do not think he can now be in a position to state that no correspondence has come his way and therefore he is unable to respond to the federation. It behoves the Minister to give the delegation a response whether that is good, bad or indifferent and not just say that because the local authorities have not contacted him, he is not going to give the federation a response. This message should be coming from this committee meeting. The Minister, Deputy Gormley, should issue a reply one way or the other to the federation.

I also support Deputy Hogan's proposal. Mr. Gallagher referred to sectoral interests and zombie hotels. In my constituency of Cork South-Central, the Wilton shopping centre is on its way into NAMA. There is the bizarre scenario in which the landlord is opening up vacant units in order to compete with trading businesses. This is similar to the case with regard to the federation's members. We are now entering a surreal world of business in which a form of parallel universe exists. Legitimate traders who are sustainable are experiencing huge difficulties but there exists this quasi-financial structure trading at an entirely different level. The Irish Hotels Federation is protecting real jobs for the long term which are sustainable and are up against programmes which if the market was to take its natural course, would be gone to the wall by now.

Vice Chairman

Is the committee agreed on Deputy Hogan's proposal? Is it proposed to write to the Minister for the Environment, Heritage and Local Government? Agreed.

I thank the members of the delegation for the presentation and I apologise for the delay in beginning the meeting. I thank them for a very fine and comprehensive presentation.

The joint committee adjourned at 5.15 p.m. until 2.30 p.m. on Tuesday, 5 October 2010.