Council of Ministers response to food and fuel price rises

Deputy Labey has lodged a Proposition to zero rate GST on food and domestic fuel. The Council of Ministers will be supporting the proposal on food, but opposing it on domestic fuel. Zero rating domestic fuel would have most benefit for people with large houses and swimming pools, but would have much less effect for people who already cannot afford to properly heat their homes. The Council’s intention is to increase winter fuel allowance and invest in home insulation and energy efficiency. This will directly help those who are least able to afford heating and will also have an environmental benefit.

The Council of Ministers have always opposed zero rating of food because they wanted a low flat rate of tax that was as simple as possible to administer. This aim remains as relevant today as it has always been. However there has to be a response to the unprecedented increase in food prices and removing GST on food will have a direct effect on costs for everyone. It has also now been possible to update the estimate of GST income based on the first quarter of operation. The initial estimate is that the annual income from GST could be about £50m, which is £5m more than the target. Ministers have always maintained that they will only raise the taxes that are required and as there is now no need to charge GST on food it makes sense to remove it.

The council also intends to not only maintain all of the current rates of Income Support but also fully uprate them for inflation. These rates have already been increased for the effect of GST on food, so those on lower incomes will have a direct and additional benefit. Given that the package is targeted towards those on low incomes it also makes sense to defer any reductions for people who are receiving transitional relief. Those changes will therefore be deferred until October 2009 to coincide with the next uprating of benefits for inflation.

The package also proposes an increase in Winter Fuel Allowance by 20% and a freeze duty on petrol in this year’s budget.

The Council is very aware of the need to ensure that assistance with fuel costs does not have an adverse environmental impact. Therefore we intend to introduce a programme of home insulation and energy efficiency measures which will help people reduce their fuel use and improve their comfort.  It is intended to propose amendments to the Business Plan to create this programme that would be managed by an independent Energy Trust. An initial investment of £1m plus a contribution of £500,000 from the JEC, would be used to start the programme in 2009 and continue into the future.

For States tenants it is proposed to accelerate the currently planned programme of insulation and double glazing. This will help them reduce the cost of keeping their homes warm and comfortable.

Taken together the Council of Ministers believes that this is a good balanced package which will help all Islanders, and specifically target those who need most help. The approach is also good for our environment as it will aim to reduce fuel use at the same time as improving people’s comfort and well being.

These changes will be presented to the States as amendments to the Business Plan with any changes necessary in the Budget. It is expected that they will become effective from January with GST changes following in spring next year.

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Notes to editors:
These proposals are in addition to the measures which have already been put in place to reduce the impact of GST on low to middle income groups: