States Members' remuneration - abolition of means testing

STATES OF JERSEY

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STATES MEMBERS' REMUNERATION: ABOLITION OF MEANS TESTING

Lodged au Greffe on 21st October 2003 by the Privileges and Procedures Committee

STATES GREFFE

PROPOSITION

THE STATES are asked to decide whether they are of opinion

(a ) to agree to suspend Standing Order 44(1) to enable members to discuss a matter in which they

have a direct pecuniary interest;

(b ) to agree that the present arrangements regarding the provision of a means tested minimum income

and an expenses allowance to elected members of the States shall be replaced with effect from 1st January 2004 with a new remuneration scheme, available to all elected members irrespective of income from any other source, and that under the new scheme all elected members of the States shall, on application to the Treasurer of the States be able to receive income support and expense allowance up to a fixed maximum annual sum;

(c ) to agree that, under the new scheme, members shall make application to the Treasurer of the States

before 1st January each year indicating the sums they wish to receive for the following year, with the possibility of applying to amend those sums at any time during the year by giving at least one month's notice to the Treasurer;

(d ) to agree that for the year 2004 members shall be entitled to receive –

(i ) i n c ome support of up to £28,609 increased by a figure of 0.5% below the percentage rise in

the Jersey Retail Price Index at the end of 2003;

(i i) a n expense allowance of up to £9,629 increased by the percentage rise in the Jersey Retail

Price Index at the end of 2003;

(e ) to agree that for the year 2005, and for subsequent years, the maximum annual sum shall be fixed

following receipt of the recommendations of the States Members Remuneration Review Body to be established in accordance with the decision of the States of 13th May 2003;

(f ) to agree that payments shall be made to elected members monthly in arrears from 1st January 2004

and to request the Treasurer of the States to make appropriate transitional arrangements to ensure that no elected member suffers undue hardship as a result of the change to this method of payment;

(g ) to agree that elected States members who are liable to pay Class  2 social security contributions by

virtue of receiving remuneration under the scheme shall be able to apply quarterly to the Treasurer of the States for reimbursement equivalent to the secondary (employer's) element of those contributions; and

( h ) t o request the Privileges and Procedures Committee, in consultation with the Finance and

Economics Committee, to take the necessary steps to bring the new scheme into operation.

PRIVILEGES AND PROCEDURES COMMITTEE

REPORT

1 In t r oduction

1. T h e Privileges and Procedures Committee is requiredby its termsof reference, as agreed by the Statesin adopting P.23/2002, as amended, on 26th March2002, to bringforwardproposals –

" o n th e r e m uneration and expenses provision for elected members of the States, including roles such as ministers, chairmen of scrutiny committees, assistant ministers and others".

2. F o llowingthepublicationof its FirstReport,the Privileges and ProceduresCommitteeas then constituted responded to the consultation period byproducing a draft reportand proposition that it felt reflected commentreceivedat that time and this was lodged on 10th December2002asP.238/2002.However, following the elections at the end of 2002, the Privileges andProcedures Committee decided tore-open the consultationprocesstoallowthosememberswho did not respond prior to lodging, and newmembers, to have that opportunity. The Committee is grateful to all those who responded to the request for comments and, havinggiven them due consideration, hasmadethedecisionto withdraw P.238/2002and submit this newproposition.
3. T h e Committee has also now had the opportunity toconsider the impactof the proposition ofSenatorE.P. Vibert that was adopted on 13th May 2003 concerning the establishment of an independent States Members Remuneration Body which will make recommendations on the appropriate level of remuneration to be made available to elected members. The Committee, following discussions with Senator E.P. Vibert , has lodged a proposition concerning the establishment of that Body and this proposition should be considered in thecontextofthose proposals.

2. T h  e abolition of means testing

1. O f thosememberswhorespondedto the consultation exercise, a strong consensusemerged that the current system of means testing is unfair and inequitable. This concurred with the view expressedby the former House Committee RemunerationSub-Committee in their consultation document,(R.C.33/2001) published on 25th September 2001. The Privileges and Procedures Committee shares the viewsof the House Committee Working Party which was responsible for drafting that report which made the following commentsaboutthe present means-testedsystem –

4 .1 . 1  The Working Party recognised at the outset of its deliberations that the work of a States member

can no longer be regarded as a part-time amateur' pursuit. The Working Party was not, nevertheless, of the view that all States members should be full-time politicians and recognised that some members of the States currently combine their political duties with other employment or self-employment. The Working Party noted, however, that members who do this are often required to make considerable professional and personal sacrifices to undertake their work as States members and considered that it was particularly inequitable that the present system of means tested income support precluded some of these members from receiving any benefit other than expense allowance.

4 .1 . 2  The Working Party recognised that there is a long tradition of honorary service in the Island and

accepted that some members of the States and others in the Island may be opposed, as a matter of principle, to the idea of paying members. Nevertheless the Working Party recognised that the States have already, on many occasions, accepted that arrangements for income support should be in place to allow members to devote themselves entirely to their political duties if they so choose and believed that this reality must be reflected in any revised arrangements concerning remuneration. As set out above the Working Party's research into the position in other jurisdictions showed that Jersey appears unique in discriminating in the means tested system that is currently in place.

2. T h e Privileges and Procedures Committeethereforeproposes that the presentmeans tested systemis

replaced with a new scheme in which all elected members would initially be entitled, irrespective of income from

other sources, to receive sums up to the maximum sums available under the present scheme, updated on 1st January 2004 in accordance with the existing mechanism for increases (namely RPI minus 0.5% for the income support part of the payment and RPI for the expense allowance). As shown in the proposition the maximum sums from 1st January 2004 would therefore be £28,609 plus RPI – 0.5% as at 31st December  2003  for  income  support  and £9,629  plus  RPI  as  at  31st  December  2003  for  expense allowance. For 2005 and beyond the sums will be agreed following the receipt of the recommendations of the States Members Remuneration Review Body.

3. U n der the new schemememberswouldbe able to apply before 1st January eachyear to request the amount they wished to claim for the following twelve months. There would be the opportunity for members to apply to change the sumbeing claimed bygivingonemonth's notice to the Treasurer if their circumstances changed.
4. A l though the Privileges and Procedures Committee recommended in P.238/2002 that the sum available to members should be increased beyond the present maximum figures the Committee accepts that any change in the figures (apart from the agreed annual increase) isnow a matterfor the independent Review Body to consider and, as a result, the figures proposedinthe proposition will apply for 2004only.The Committee neverthelessbelievesstrongly that the abolition ofmeans testing is a matter that shouldbe resolved by the States before the Review Body begins its work so that the Body is clear that the recommendationsit will make would apply to all members irrespective ofincome from othersources.

3. S e n sitivities

1. T h e Committeeisconsciousofthe sensitivities surrounding the abolition ofmeans testing and aware that the  concept of honorary  service  remains  an important one in the  Island,  not  just  in  the  political environment. The Committee fully accepts that some elected members will have nowishtoacceptany remuneration for the service they give tothe States and there would, therefore, be no obligation for members to apply to receive remuneration if they did not wish to. Nevertheless, the Privileges and Procedures Committee shares the view of the former House Committee Remuneration Sub-Committee that itis quite unfair that electedmembers of the States who have outside sources of incomebeyond the current minimumallowableamountshouldbe precluded from receiving adequatecompensationfor the many hours they spend on theirStates duties. The Committee believes that thosememberswho maintain outside employmentorself-employmentalmost inevitably suffer somedirect financial cost as a result of their membershipof the States and it is quite inequitable that many are currently precluded from claiming any incomesupportat all. TheCommittee's view is therefore that electedmembersshouldsimplybe entitled toapply to the Treasurerofthe States to claim the amount that they feltwasappropriateup to the maximum allowable.
2. T h e Privileges and Procedures Committee would reiterate that the present means tested system, as examined in R.C.33/2001, appears to be totally unique amongst the various jurisdictions examined by the WorkingParty including Guernsey andtheIsle of Man,where comparisons are perhaps more appropriate than against larger jurisdictions such as the U.K.ParliamentatWestminster.
3. T h e Committee hasformedthe view that suitable remunerationandexpenses should also provide a means of compensation for electedmembers, to enable them to plan and save for theirownfutures,in a similar way that they advocate policies relating to prudent future financial planning for all citizens, for the benefit of the Island and its community.
4. P ro viding suitable remunerationandexpenses will hopefully encourage States members to come from all walksof life, rather than be narrowly representative of the electorate. Giventhe need that the majority of elected States members have to maintaincommitmentsand responsibilities outside the Assemblyand their Stateswork, (such asmortgages and families), it is perhaps even more importantto attract and retain as broad a membershipaspossible to the States.
5. T h ere is, atpresent,noaccurate information available about the total cost' to an individual as a result of

being an elected member of the States, although indications are that many members incur greater expenses than

the £9,629 + RPI being proposed. In addition, it is apparent that this cost will vary greatly depending on the member's individual circumstances. Some members rent office accommodation to use in connection with their States' duties, others employ full or part-time secretarial support and some need to meet the cost of child care in order to attend to their States' duties. Others may already have access to office accommodation or simply work from home. The Committee researched average costs and discovered that office space costs between £15 and £25 per square foot, hiring a secretary costs a minimum of between £15,000 and £20,000 per annum (some members share the services of a secretary) depending on their skills and role, and childcare can cost from £4/hr to £8/hr depending on the age of the child and the qualifications of the carer.

4. S o c ial Security contributions

1. T h e Committee considers that the present system ofreimbursementof a sumequivalentto the employer's social security contributions, reinstated in 2002, works adequately and should continue for the time being. For the avoidanceof doubt, the Committee would pointout that electedmembersremainresponsible for the payment of the employee's contribution if they are liable to make contributions and the reimbursement concerned is simply equivalent to the payment that would bemade by the employer in a normalemployer-employee relationship.
2. T h e Committee is mindful that, because of the requirements of the Income tax law, members are effectively taxedtwice on this amount, as therefund is, for the purposes ofincome tax, treated asincome. The Committee has therefore requested the Employment and Social Security Committee to consider bringing forward a legislative changeto enable Statesmembers to be treated asemployed' so that this anomaly can be rectified.

5. M  e thod ofpayment

1. U n der the current schememembers are paid quarterly in advance.Thismethodcauses a certainamount of additional administrative work for the States Treasury and canalsobeinconvenientifmembersleave office during the period in respect of which payment has already been made as it is necessary for repayments to be made. The States Treasury has indicated that it would significantly ease the administrative burdenifpayments to members were made as part of the monthly payroll process so that members,incommon with States'employees,wouldbe paid monthly inarrears. The Committeebelieves that membersmayalso, after the transitional period, find this methodmore convenient for financial planning.
2. T h e changeover to the new systemcouldleadto a short-term difficulty formemberswhowouldhaveto budget for a 4-monthgapbetweenpayments.The proposition thereforerequests the Treasurer to make appropriate transitional arrangements to ensure that nomember is unduly prejudiced by the changeover. The States Treasuryhas indicated that this couldbeachievedby paying one month in advance at the start of the new system with that amountbeing recovered over a period ofseveralmonthsunder the new system.

6. D  if ferent levels ofremunerationformembers with positionsof responsibility

1. A s stated in paragraph  1.1abovethe Committee's terms of reference require it to consider whether different levels ofremunerationshouldbemade to members with particular positions of responsibility (Ministers, Chairmen of Scrutiny Panels, Assistant Ministers etc.) inthenew ministerial system.
2. A s canbeseen from the proposition theCommittee is notintendingto address this issueat the present time. It isnotyet clear what the actual workload will be for thosememberswith these positions of responsibility and the Committee considersit would beprematuretomakerecommendationson this matter at the presenttime.Inaddition the Committee isaware that there are strongly held viewsamongst memberson the desirability orotherwiseof introducing such additional paymentsandtheCommittee intends toconsultwidely before bringing forwardproposalson this issue.

7. F i n ancialandmanpower implications

1. T h e abolitionof means testing will inevitably havesome financial implications asitisalmost certain that some memberswho are unabletoclaimincomesupport at the present time will do so under the new scheme. Neverthelessit is difficult to quantify with any degree of certainty theimpactof the changeas memberswill,as stated above, be freeto claim the sum that they wish up to the maximumand it is possible that somemembers will claim nothing oranamountwhichisless than the maximum.
2. T h e 2003 budgets for members' incomesupport and expensesallowance are £663,500and £470,600 respectively, making a totalof £1,134,100. Thesesums would beclearly inadequate to meetthetotalcost if allmembers decided to claim the maximumamounts as shownin the table below.

2003

Maximum Expense Allowance claimable = 9,629 Minimum Income Support claimable (max) = 28,609 Total maximum claimable = 38,238

Based on all 53 elected members claiming:

Total expense allowance = 510,337 Total minimum income support = 1,516,277 Total based on all members claiming = 2,026,614

T h e re are, in addition, Social Security payments for the year 2003 estimated in the sum of £40,000.

3. D u ring 2002 all members claimed theexpense allowance. Not all membersaccepted all or part ofthe incomesupport allowance. The total amountofexpensesandincome support paid to membersduring 2002 was £1,312,519. This equates to an average figure of £24,764permember.Although final figures for 2003 will notbe available untilthe year end the expenditure to the end of Septemberamountsto £693,460 for expensesallowance and £378,834 for expense allowance,making a total of £1,072,294. If this levelof expenditure continuedto the yearendthe2003 total would be £1,429,725.
4. T h e Finance and Economics Committee was successful inobtainingan increase in the budgetsfor States members' remuneration during the FundamentalSpendingReviewprocess for 2004 and, as a result, the available budgetsfor2004(which have now been transferred as ring-fenced' amounts to the Privileges and ProceduresCommittee) are £805,500 and £538,600, making a total of 1,344,100.Itisimpossible to tell whether these amounts will beadequate if the new schemeis adopted although,onbalance,itis unlikely that they will and any shortfall willneed to bemet from theGeneralReserve.The Privileges and Procedures Committee has submitted a growth request for an additional £760,000 to the 2005 FSR process which is basedon all 53 members claiming the maximumpossibleas the Committee is of the view that it is prudent to budgetfor that total if all members are entitled toclaim. If there is any excessin the budgetattheendof2005 it will, becauseof the ring-fencing' arrangement, be returned to general revenuesand not retained bythe Privileges and ProceduresCommittee as a carry forward.
5. T h is proposition has no implications for themanpower resources of the States and should,in fact, leadto some efficiencies becauseof the proposed new methodofmonthlypayments.