Parish Rates - the States’ liability (P.68-2008) – amendments

STATES OF JERSEY

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PARISH RATES: THE STATES' LIABILITY (P.68/2008) –

AMENDMENTS

Lodged au Greffe on 17th June 2008 by the Connétable of St. Helier

STATES GREFFE

PARISH RATES: THE STATES' LIABILITY (P.68/2008) – AMENDMENTS

1

For the words "Parish Rates" substitute the words "Rates".

2

For the words "public buildings" substitute the words "public land and buildings". 3

Delete the words ", and to increase the contribution by Parishes to the Island-Wide Rate by a commensurate sum,".

4

For the date "2010" substitute the date "2009". CONNÉTABLE OF ST. HELIER

REPORT

After considerable delay the Minister for Treasury and Resources has lodged a proposition that the States should pay rates. Among the hundreds of propositions put forward in the 10  years of my membership of the States, P.68/2008 must rank as among the most half-hearted and doomed to failure.

The Working Party's recommendations are that the States should pay Parish and Island-Wide Rates on public use' land, and that the States should absorb the additional cost, except where such costs are part of a charge recoverable from service users. What the Minister is proposing is that the States should pay only Parish Rates, and that they should claw this money back in a greater contribution by the Parishes' to the Island-Wide Rate. Ratepayers in St. Helier and to a lesser extent in St. Saviour would benefit from such an arrangement, bu everyone else would be worse off. States members are effectively being asked to ask the ratepayers of 10 or 11 parishes to pay more in order that the ratepayers of one or two parishes should pay less. The Minister has done the maths and knows the likely outcome of the debate – P.68 will be defeated and he can wash his hands of the messy subject of the States paying rates.

It was suggested to the Minister that he withdrew his proposition and had further discussions with the Working Party that he set up, but he has declined to do so. This stance is all the more surprising when one considers the defects in the wording of the proposition itself. In the first place the word land and buildings' should be used in place of buildings', a defect which the second of my amendments seeks to remedy. (The Law uses the term land' which is carefully defined. In general, in forms and notes about rates, the expression land and buildings' is used.) Furthermore, it is illogical to request the States to increase the contribution by Parishes to the Island-Wide Rate (IWR) as the Parishes do not contribute to the IWR – they collect it on behalf of the States. Indeed, the proposition displays a fundamental lack of understanding of the operation and interrelation of the Parish Rates and the IWR.

The Minister has ignored the Working Party's recommendation that the States pay both Parish rates and contribute to the IWR. If the principle is accepted that the States should pay rates – and the Minister appears to accept this in the first line of the final section of his Report (Proposal' – page 6) – there is no reason why the States should be treated differently from any other owner or occupier of land. This is particularly true if it is believed that the States should operate on a level playing field with the private sector: under the Minister's proposal, the operator of a private school, for example, would have to pay Parish Rates and the IWR at the Non- domestic level but a school run by the States would not pay the IWR. An added difficulty of the Minister's approach is that the computer systems operated by the Parishes are designed to prevent an individual who is paying the Parish rate from defaulting in payment of the IWR.

The Minister implies on page 3 underBackground' that the Working Party tasked to address this subject took a year and a half to produce its report (between October 2006 and April 2008), whereas its final draft was made available to the Assistant Minister in July 2007. Some minor adjustments were made and typos corrected but it was signed off in August that year. It is, therefore, disingenuous for the Minister to claim that final approval (was) received on 8th February 2008.'

The report attached to the proposition is one of the weakest I have read. The Working Party's proposals are listed concisely on page  4, with clear statements of the reasons why the States should pay rates. These are reproduced below –

1. P r oposal 1 – that the States, like otherratepayers,shouldbe liable for both Parish Rates and Island Wide Rates on alltheirproperties.

(a) T h e Working Party is of the opinion that this course of action is the correct one for the following reasons:

• The States should pay rates on an equity basis.

T h e S tates 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.

• The States should recognise the full cost of occupying property for comparative purposes.

T h e lack of a rates charge skews comparisons with private sector service providers and public sector

bodies in the UK when benchmarking on performance indicators.

• The  States  should  recognise the full  cost  of occupying property  to  improve strategic decision making.

B y n ot recording the full cost of occupying property, the States are hampered when making decisions on

property usage.

• The States should pay Parish rates to meet the cost of Parish service provision.

P a ri s hes 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.

• The States should pay their share of the Island Wide Rate.

T h e S tates, by not contributing to the IWR, requires a higher level of contribution from the parishioners of

all Parishes than would otherwise be the case. A commensurate States contribution would provide scope for a reduction in the rates demanded from all parishioners.

The Minister's response to this is contained under the heading Counter position' – in itself a curious phrase in this context when we recall that this Working Party was set up by the Minister himself and staffed by the Treasury and Resources Department – in two short paragraphs, the arguments in which can be summarised as follows –

According to the Minister, the State paying rates –

1. achieves no net efficiency gain to the widerpublicsector'
2. has a marginalincreasein overall administration costs'
3. (will impact) on service provision'.

The first point can be rebutted by referring to the recommendations of the Working Party: States' service delivery is artificially subsidised, cannot be properly benchmarked with local private sector or UK public sector service delivery, and States decision-making on property usage is hampered by the fact that the full costs of its property holdings are not taken into account. Increased efficiency will be one result of the States paying rates because it will enable the States property portfolio to be managed more effectively and with more realistic assessment of revenue budgets.

The second point is debateable – surely the information systems in States departments can manage to remit an annual rates payment? Or did the Minister mean negligible' rather than marginal'?

The third point raises the all too familiar spectre which confronts anyone who suggests that departmental revenue budgets should be trimmed. For several years now, and in spite of dire predictions of service cuts, States departments have shown themselves able to make efficiency savings, and there is no reason to think that further savings cannot be made. In any case, if there are – and I believe the Working Party has shown this to be the case – good reasons for States departments to fulfil their obligations by paying rates, it is no more acceptable for the States to object, than it would be for a private business to do so.

Perhaps aware of the paucity of these arguments, the Minister proceeds to spend three paragraphs playing the centuries-old political trick of trying to drive a wedge between the Parish of St.  Helier and the rest of the Island: if

the States were to pay rates, the Minister argues that St. Helier would benefit in relation to other parishes which would be inequitable. The Minister appears to forget that for decades the ratepayers of St. Helier bore an unequal proportion of the burden of welfare payments, with the equalisation of the payment for non-native welfare only occurring in May 2006. Addressing the position of St. Helier' was one of the objectives of P.40/2004: Relationship between the Parishes and the Executive' and the Working Party chaired by the then Deputy of Trinity , accepted that it was unfair that St. Helier ratepayers funded a range of public amenities including toilets, parks, gardens, street-cleaning and litter-bin emptying within the Parish, the majority of which are funded out of general taxation where they are provided elsewhere in the Island. It is the predicament of St.  Helier ratepayers now that is inequitable, not the prospect of their being the main beneficiaries of the States paying rates.

The Minister concludes his Counter position' with two further arguments which he appears to believe reduce the States' obligation to pay rates –

1. Direct investmentinSt. Helierby the States (e.g. reclamation schemes) increases the rates paid to that parish.
2. Public sector activity inSt. Helier leads to increased tradeforsmallbusinessesandhenceahigherlevel of rates take'.

The first point is a common misunderstanding about the operation of the rates system. The argument that St.  Helier parishioners are set to benefit from a rates windfall as the bulk of the Island's development is to be concentrated in that parish is fundamentally flawed, as anyone who has attended a Parish rates' Assembly will know. The effect of increased rates income is to lower the amount per quarter, or penny rate' that is required to meet the Parish's expenditure. Increased development in St.  Helier means increased rates income, but if that exceeds the cost of the extra services required there is no windfall to the Parish but a lower Parish rate will be set.

It is worth noting that despite the equalisation of native welfare payments achieved in 2006 by the creation of the IWR, St.  Helier ratepayers of today still pay the fourth highest rates in the Island. What is more, had the States paid rates on public use' land (including buildings) last year, the position of St.  Helier on theleague table' of rate payments would probably only have been altered by one place.

Over the past decade the States of Jersey has been keen to endorse and implement policies which concentrate development, traffic, noise, et cetera, in St.  Helier – how can they propose to deny this parish the rates income that is needed to maintain high levels of service and to lower the rates paid by St. Helier ratepayers in relation to those paid in other parishes?

The second point makes no sense at all: there is no link between increased trade for small businesses and the amount of rates paid. Or does the Minister mean that increased economic activity will lead to the creation of more businesses? If that is the case, the second argument is the same as the first and is similarly flawed.

The last section of the Report returns to the supposed inability of States departments to pay rates. Although work on the 2009 Business Plan is well advanced, Ministers have known for some considerable length of time that it was feasible their departments would become liable to pay rates and should have planned accordingly. They had a clear steer from the Machinery of Government Review (P.40) in 2004 and a report by the Finance and Economics Committee the following year; at that stage more time was bought by the claim that the issue of the States paying rates could not possibly be debated until the economic effects of the Fiscal Strategy are clearer and the IWR debated, accepted and implemented.' One year later, in 2006, the States adopted my amendment to the Strategic Plan requesting firm recommendations on this matter be brought forward later that year. Subsequently the Minister  for  Treasury  and  Resources  set  up  a  working  group  and  committed  to  bringing  forward firm recommendations one  year later, in  2007.  The  Working Party's  proposals were actually completed  in the summer of 2007, and the Council of Ministers should have included the matter in their work on the 2008 Business Plan,  even  if  there  appears  to  have  been  no  hurry  on  the  part  of  the  Minister  to  bring  forward  his firm recommendations as agreed in the Strategic Plan.

There is no excuse for delaying implementation of this long overdue measure until 2010, indeed I understand that the original proposition from the Minister gave 2009 as a target date. However, according to the minutes of the Council of Ministers' meeting of 8th May 2008, "it was reported that the Bailiff had invited the Minister for Treasury  and  Resources  to  reflect  on  whether  the  changes  proposed  could  be  delivered  in  2009.  Having considered the matter, the Minister for Treasury and Resources had decided to lodge au Greffe' a revised report and proposition inviting the States to determine whether the recommendations of the working party should be adopted with effect from 2010." (As an aside, it should be pointed out that P.68/2008 does not contain the recommendations of the working party.)

If one accepts the findings of the Working Party – as the Minister says that he does, albeit broadly on an equity basis,' on page  6 of his report – there is no good reason for delaying implementation of the Working Party's recommendations. The Minister cites already pressured States spending limits' as a good reason for further delay, but I suspect that if the States do decide that they simply cannot afford to pay the rates which the Working Party set up by the States has advised are due, owners of businesses in Jersey (some of which provide services in competition with the States) will protest at unfair competition, while individuals struggling to make ends meet in the current economic climate will declare that they cannot afford to pay rates either!

The effect of these amendments, if approved, is that –

1. the States will have to pay both ParishandIsland-WideRates;
2. the States will beunabletosimplyclaw back via the Parishes a commensurateamountto offset Parish Rates, but States departments will have instead to make efficiency savings,increasefeeswhereservices are provided,and,wherenecessary,seek increased revenuebudgets;
3. the States will have to pay their rates bills next year,incommon with the restof the Island's businesses and householders.

There are no manpower implications in the amendments.

The financial implications are set out in the Working Party's report, attached as an appendix to P.68, and are approximately £1.65 million per annum based on 2006 assessments, but the exact sums will, of course, be affected by the number of quarters assessed by the Island's Rates Assessors. Other factors include the level of Parish rates set by Parish Assemblies and the split between Domestic and Non-domestic IWR to be set by Regulations as recommended by the Supervisory Committee. Of particular relevance is section 4.2 of the Working Party's report –

2. P r oposal 2 – that the additional cost to theStates in meeting their rates liability shouldbecontained within existing States budgets,except where suchcosts form partof a servicewhosecosts are recovered in the form ofcharges to endusers.

1. In the United Kingdom,localandnationalgovernment buildings are liable for National Non-Domestic Rates, subject to mandatory or discretionary relief, and the resulting costs are born bythose organisations as part of their annualbudgetaryrequirement.
2. T h e Working Party considered that, as an overriding principle, total public sectorrevenue take (taxation and rates) should notincrease and that the States should seek to absorb the additional costs within its approved future fundingenvelope.
3. T h e WorkingPartywasof the view that the Statescontribution should not be offset by a commensurate increase in the contribution to the IWR,which would have a neutral' impact onStatesfinances.
4. W here thosecosts form the basis for the recharge of a service whose charge is limited to cost recovery (e.g. car parking, planning fees, etc.), such costsshould be passed onto the end user to maintain a level playing field' position whencomparing States services to comparable services provided by the private sector.
5. T h e proposal will have a distributional effect between ratepayers and taxpayers but it should notincrease aggregate public sector expenditure (i.e. the combined expenditure of the States and all Parishes)above that required toprovidethecurrentlevelofservices.
6. T h e Working Party did, however,acknowledge that each Parish has the autonomytodetermine whether the States contributionwas reflected in full as a reduction in rates chargedto parishioners oremployedto provide additional services. Ultimately, this wouldbe for the relevant Parish Assemblyto decide.
7. T h e net total additional cost to the States will be in the orderof £1.65 million perannum at a 2006 cost base. This sum reflects theadjustment required to contributions by all ratepayers (including the States) to achieve theexistingtotalrates yield.
8. T h e vastmajorityof the States contribution to Parish rates (around£568,000) will bereceivedby the Parish of St. Helier, with a further£120,000 received bySt. Saviour. Noother Parish would receive more than £38,000.
9. O n the2006 rates base data, the estimated impact across ParishesoftheStatespayingParishratesisas

follows –

T a b l e 1

E s ti m  ated Indicative States Contribution to Parish Rates by Parish

Parish Parish Rates

(£) Grouville 4,070

St. Brelade 37,720

St. Clement 14,470

St. Helier 567,725

St. John 2,765

St. Lawrence 4,195

St. Martin 6,435

St. Mary 2,540

St Ouen 7,200

St Peter 29,785

St Saviour 119,975

Trinity 7,730 Estimated States Contribution to 804,610

Parish Rates

Note:

This table shows what the position would have been in 2006 if the States had paid Parish Rates on all its properties (excluding any contribution in respect of IWR).

This illustration should not be regarded as a prediction of the specific benefits to Ratepayers or Parishes if the States were to pay Rates.

10. P a r ishioners would also benefit bynot having to contribute a totalof £845,390to the IWRfund.
11. T h us, as notedabove, the amount payable by the States in respect ofParishRates is estimated to be £805,000. The States would also have to payanestimated £845,000 for its IWR contribution, resulting in a total cost of £1,650,000 based upon the2006ratesbasedata.
12. T h e above estimate assumes that the overall Parish revenue requirement and contribution to the IWR fund will remainconstant,as there isnoincrease in their operating costs, and the States contribution results in a pro-rata reduction to all ratepayers (including the States).
13. F urther detailed  work is  required to  analyse the split  between  ministerial departments, however, departments that have property hungry' services, such asHealth, Education andTransportandTechnical Services, will bear the vast majority of the costs, either directlyor through a recharge from Property Holdings.
14. T h e  Working Party  recognises  the  competing financial  pressures within the States.  The cost  of implementing these proposals is not included in the current States forward financial forecast, but the WorkingParty considers that this should not, initself,be a reason to delayimplementation.