Income support, food costs bonus, income tax allowances and/or exemptions – increases to offset GST on foodstuffs and domestic energy – addendum

STATES OF JERSEY

INCOME SUPPORT, FOOD COSTS BONUS, INCOME TAX ALLOWANCES AND/OR EXEMPTIONS – INCREASES TO OFFSET GST ON FOODSTUFFS AND DOMESTIC ENERGY (P.138/2008) – ADDENDUM TO REPORT

Presented to the States on 8th September 2008 by Deputy J.A.N. Le Fondré of St. Lawrence

STATES GREFFE

ADDENDUM

As noted in the report accompanying P.138/2008 ("Income support, food costs bonus, income tax allowances and/or exemptions – increases to offset GST on foodstuffs and domestic energy"), I stated I would lodge some further details concerning my proposals.

I therefore give some numerical illustrations below. I would add the strong caveat that these are just illustrations, and that any particular decision would (under my proposition) be in the hands of the Ministers for Social Security and Treasury and Resources. Obviously if Members were unhappy with any proposals brought by the Ministers, they could make amendments at that time.

The Statistics Department has calculated the gain to householders (by quintile) if food was exempted using the UK rules. Please note that when this is calculated back to arrive at a weekly food bill the figures may look a little light'. However, the reason for this is that the weekly food bill is not the same as the weekly shopping bill, which will also include non-food items, such as cling-film, cleaning products, etc.

In addition, these figures exclude alcoholic drinks and tobacco products. Finally, because these are the UK VAT rules, items such as chocolate digestive biscuits will be excluded (because they would continue to be taxed, therefore no benefit), whilst plain digestive biscuits would be included in the calculation of the benefit, as they are not taxed under UK VAT rules. Finally, please remember that these figures are averages, and there will be variations within each quintile.

There is also a separate column for domestic fuel.

Table: Average weekly impact of exempting food (UK rules) and domestic energy by quintile

As you will note from this information, the average total benefit to householders only exceeds £2 for the third quintile, who will be earning between £31,000 and £45,000 per year, with the top 2 quintiles benefiting the most.

If one uses the existing systems, we could target these monies in a better manner.

Please note that it is not easy to make direct comparisons between households by quintile as per the statistics department and the households impacted by income support, the GST rebate scheme or tax exemptions.

However, some suggestions/comparisons are overleaf (again, very much subject to formal proposals from the Ministers).

Both of the alternatives would cost either just below or just above (by £2,000) the sum of £5.8  million, being the amount of money that is available.

Note that these are purely examples, and they do need some fine tuning. However, as these examples demonstrate, it is possible to target those sectors of the population most in need in a far better way then the blunt instrument of just exempting food and fuel: i.e., to give a far greater benefit to the individuals we are trying to target, in particular those on low and middle incomes.

It is the principles that are important here, not (at this stage) the exact detail of any allocation. These examples are to demonstrate that £5.8 million can be used to give a significant benefit to many households on lower and middle incomes than would be received from exempting food and fuel.

In addition, these proposals will avoid unnecessary changes being foisted upon small businesses, as well as saving £300,000 per year by avoiding the additional bureaucratic costs that arise from ensuring compliance with the new rules. I trust members find these of interest.

Alternative (a) – one way of allocating £5.8  million

1. A   s ingle pensionerwith a small additional income(overandabove their pension) might have anincome of just over £16,000per year, and may therefore bepaying tax of around £800.According to the statistics department they would fall into quintile 1.The average benefit that such an individual would receive from exempting food and fuel wouldbeapproximately £1.62 per week (£84 per year). If tax exemptionlimits could be raised by5%, they would benefit by £3.49 per week (£181per year). [Total cost £4,500,000.]
2. Q u intile  2 can still include someoneonincomesupport (if for exampletheir total income was just over £19,500). Again,the average benefit that such an individual would receive from exemptingfoodand fuel would beapproximately £1.77 per week (£92 per year). For the total cost of just under £590,000,we could increaseIncomeSupportby £2.52 a week, £131 peryear, noticeably better than the benefit received from exempting food and fuel.
3. F o r an individual not paying tax and not receiving Income Support, wecould (for a cost of £710,000), increase the rebate schemeby £2.73 per week, £142 peryear.

Alternative (b) – alternative way of allocating £5.8  million – more funds to income support and GST rebate scheme

1. T h e same pensioner(notedin (a)(i) above) will fall into quintile 1.To reiterate, the average benefit that such an individual would receive from exempting food and fuel would beapproximately £1.62 per week (£84 per year). If tax exemption limits were raised by4.8%, they would still benefit by £3.35 per week (£174 per year). [Total cost £4,320,000.]
2. T h iswould enable IncomeSupport to beincreasedby £3perweek.The benefit received by those in quintile one and two from exemptingfoodand fuel from GST would be between approximately £1.62 and £1.77 per week (£84 – £92 per year). For the total cost of just under £702,000, wecouldincreaseIncome Support by £3 a week, £156 peryear, a noticeably better result.
3. F o r an individual not paying tax and not receiving Income Support, wecould (for a cost of £780,000), increase the rebate schemeby £3perweek, £156 peryear.

Note:  increases to tax exemptions benefit taxpayers who fall into the marginal rate of income tax, and therefore

give  benefit  to  thousands  of  households,  both  of  low  and  middle  income.  Obviously  the  greater proportionate benefit will be to those on lower incomes.

[1]

 Confirmed with Statistics Unit.