STATES OF JERSEY
parish rates: the states’ liability
Lodged au Greffe on xxxx 2008
by the Minister for Treasury and Resources
STATES GREFFE
PROPOSITION
THE STATES are asked to decide whether they are of opinion -
to meet the cost of Parish rates on public buildings, which are currently exempt from both foncier and occupier rates in accordance with Articles 17 and 18 (respectively) of the Rates (Jersey) Law 2005, and to increase the contribution by Parishes to the Island Wide Rate by a commensurate sum, with effect from 2010.
MINISTER FOR TREASURY AND RESOURCES
REPORT
Background
Proposition P40/2004 ‘Machinery of Government: Relationship between the Parishes and the Executive’ required, amongst other things, the (then) Finance and Economics Committee to
“...undertake a review of the States land and property portfolio in order to bring recommendations to the States regarding the States’ liability to rates”.
The Finance and Economics Committee duly undertook the review (reported in R56/2005), but did not consider it appropriate to make firm recommendations, “...until the economic effects of the Fiscal Strategy are clearer and the Island-Wide Rate debated, accepted and implemented.”
The Connétable of St Helier proposed an amendment (No.2) to P40/2006: Strategic Plan 2006 - 2011, requesting the Minister for Treasury and Resources to “bring forward firm recommendations on the possibility of the States paying rates on its properties in 2006”.
The Minister for Treasury and Resources confirmed that a working group would be set up with a commitment that firm recommendations will be produced in 2007 [Jersey Hansard, 22 June 2006 - reference 1.12.2].
A Working Party was set up under the Chairmanship of the Assistant Minister (Deputy Le Fondré), comprising (initially):
Connétable Crowcroft St Helier
Connétable Yates St Martin
Mr C. Spears Chamber of Commerce
Mr D. Levitt Rates Assessor
which met on three occasions:
- 30 October 2006
- 11 December 2006 (where Mr R Shead represented the Chamber of Commerce and Mr A Pemberton, Finance Director for the Parish of St Helier).
- 20 April 2007 (Mr A. Pemberton attended; apologies were received from the Chamber of Commerce from whom a written submission was received).
and considered a number of draft reports, responding by e-mail and in writing.
The Working Party approved the report (tabled under separate cover attached as Appendix A), with final approval being received on 8 February 2008.
The terms of reference for the Working Party were agreed as follows:
To consider and make recommendations as appropriate on the following items:
- whether there is merit in the States paying Parish and Island Wide rates, or some equivalent payment, in respect of its properties;
- if so, what the financial impacts would be on the States;
- if the States should seek to defray these and, if so, how this could be achieved;
- the options for defraying these costs and the impact on parishes, ratepayers and/or taxpayers.
The Working Party recognised that a consensus may not be reached as to the recommended way forward.
The Minister for Treasury and Resources determined that to satisfy the amendment to the Strategic Plan, referred to above, a Report and Proposition should be prepared for lodging contemporaneously with the report of the Working Party.
Working Party Rationale
The Working Party, having considered carefully a number of options, agreed that the States should, like other ratepayers, be liable for Parish and Island Wide Rates (IWR) on all their properties.
The Working Party is of the opinion that this course of action is the correct one for the following reasons:
a) The States should pay rates on an equity basis
The States operates as a competitor with the private sector in the provision of certain services, for example office Facilities Management services, grounds maintenance etc. By not including an equivalent to the rates charge met by a private sector organisation, the States’ operations are artificially subsidised.
b) The States should recognise the full cost of occupying property for comparative purposes.
The lack of a rates charge skews comparisons with private sector service providers and public sector bodies in the UK when benchmarking on performance indicators.
c) The States should recognise the full cost of occupying property to improve strategic decision making
By not recording the full cost of occupying property, the States are hampered when making decisions on property usage.
d) The States should pay rates to meet the cost of parish service provision and the Island Wide Rate
Parishes incur costs associated with the occupation of buildings that are normally recovered through rates. In particular, the Parish of St Helier faces an opportunity cost of foregone rates when the States takes possession of a building that was in the private sector (e.g. Morier House), without any reduction in the Parish cost base.
A similar argument can be made in respect of the States not contributing to the IWR, which results in parishioners’ contributions being higher than would otherwise be the case.
Counter Position
Charging rates on States properties achieves no net efficiency gain to the wider public sector and has a marginal increase in overall administration costs. In the vast majority of cases the taxpayer and ratepayer are one and the same, so all things being equal there is a broadly net nil impact on the individual member of the public.
The current funding pressures identified to the Council of Ministers suggest that there is little scope to absorb a cost increase estimated at £1.65 million without impacting on service provision.
Assuming a compensatory taxation measure is required to offset the impact, there will be a relative benefit to St Helier ratepayers/taxpayers combined costs and a relative dis-benefit to other parish ratepayers/taxpayers costs. It is difficult to see how such a measure improves equity between these two groups.
The States continues to invest heavily in the Parish of St Helier. The most obvious example being the funding of reclamation sites resulting in new developments that yield a rates return to the parish that would not otherwise exist.
In addition to direct investment, the presence of government departments in St Helier provides a significant increase in town centre trade, which drives the local business base, enabling a higher level of rates take from small businesses than would otherwise be the case.
Cost to the States and Resource Impact
On the basis that the States contribution added to the parishioner’s contribution (including the IWR element) amounts to the current total rates yield, the cost to the States will be in the order of £1.65 million per annum at a 2006 cost base.
The vast majority of the States contribution (around £1.1m or 66%, depending on the method of apportionment adopted) will be received by the Parish of St. Helier, with a further £287,500 (17%) received by St Saviour. No other parish would benefit by more than £100,000.
The Working Party considered that, as an overriding principle, total public sector revenue take (taxation and rates) should not increase. Application of rates to States properties would have a distributional effect but should not increase aggregate public sector expenditure above that required to provide the current level of services. However, it was recognised that each parish has the autonomy to determine whether the States contribution was reflected in full as a reduction in parish rates or employed to provide additional services.
In practice, individual parishes may seek to pass on some or none of the ‘windfall’ savings to ratepayers. If a commensurate saving is not made in States expenditure, this proposal could result in a marginal increase in public expenditure.
The Working Party considered that the States should seek to absorb the additional costs within its approved future funding envelope.
Proposal
The Minister broadly supports the Working Party’s argument for the States to pay parish rates on its properties on an equity basis, but does not consider it feasible to absorb the cost within already pressured States spending limits.
The Minister also does not consider it efficient to raise additional tax to provide a rebate to ratepayers - the effect of which is distributional but has no overall benefit to the population as a whole.
The Minister, therefore, proposes a ‘budget neutral’ approach whereby the additional cost to the States of meeting Parish rates be offset by an equal increase in the contribution by all Parishes to the Island Wide Rate (IWR), through an increase in the IWR levy.
The States would have to approve an amendment to the Rates (Jersey) Law 2005 to enable an increase in the IWR by more than the relevant RPI uplift. Should the States support the proposal, law drafting time will be sought either in 2008 or 2009, to enact the law change from January 2010.
If the proposal is accepted , the States will pay rates on its properties in full from 2010, subject to receiving a commensurate transfer from parishes into the IWR fund
Financial and manpower implications
The proposal will result in an increase in States spending estimated at £1.65 million and, if the proposal is approved the increased spending will need to be proposed in next year’s Business Plan. Overall the impact on the States financial position is neutral as the proposal requires an equivalent increase in States revenues from the Island Wide Rate.
There will also be a resource implication for both the States and individual parishes in developing and implementing a single, simplified system of recharging. No detailed work has yet been undertaken to determine the likely one-off and ongoing resource implications, but these are not expected to be onerous.
There are no additional manpower implications arising from this proposal.
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