Rates - the States’ liability

STATES OF JERSEY

RATES: THE STATES' LIABILITY

Lodged au Greffe on 16th September 2008 by the Connétable of St. Helier

STATES GREFFE

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to a g ree that the States should meet the cost of rates on public land and 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, with effect from 2010, and to request the Chief Minister, after consultation with the Minister for Treasury and Resources, to make appropriate provision in the Draft Annual Business Plan  2010 to meet the cost of this proposal.

CONNÉTABLE OF ST. HELIER

Background

On 13th May 2008, after considerable delay, the Minister for Treasury and Resources 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 recommendations of the Working Party set up by the Minister were that the States should pay rates, i.e., 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.

However, what the Minister proposed in P.68 was 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, but everyone else would be worse off. States members were 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. If P.68 had been debated it would have been defeated and the Minister could have washed 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 declined to do so. It was only when I had gone to the trouble of consulting my fellow members on the Working Party and the Comité des Connétable s, and had worked up a set of amendments to P.68 that the projet was withdrawn. The Minister made the following comment –

O n t he basis of all the information I have, it appears to me that my proposition and its accompanying

report are inherently flawed, to the extent that I should withdraw it. I am therefore advising you, as a matter of courtesy, at the same time as I notify the Greffier of the States.

I t s h ould be possible to produce a revised Report and Proposition quite quickly, but I should like to

involve you and (a member of the Working Party) in this process (assuming you were both willing to participate). I see no reason why a revised proposition could not be lodged quite quickly.

Several months have passed and there has been no attempt to progress the matter on the part of the Minister. I have, therefore, decided to lodge my own proposition in line with the recommendations of the Working Party.

Why the States should pay rates

The Minister's proposals in P.68 ignored the Working Party's recommendation that the States pay both Parish rates and contribute to the Island Wide Rates (IWR). If the principle is accepted that the States should pay rates – and the Minister appeared 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 was 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 report attached to P.68 is one of the weakest I have read. The Working Party's proposals are listed concisely on page  4 of P.68, 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 was 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 2 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 wider public sector' 2 has a marginal increase in 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 raised 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 proceeded to spend 3  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 argued that St. Helier would benefit in relation to other parishes which would be inequitable. The Minister appeared to forget that for decades the ratepayers of St. Helier have borne 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 ratepayersnow that is inequitable, not the prospect of their being the main beneficiaries of the States paying rates.

The Minister concluded his Counter position' with 2 further arguments which he appeared to believe reduced the States' obligation to pay rates –

1. Direct investment in St.  Helier by the States (e.g. reclamationschemes) increases the rates paid to that parish.
2. Public sector activity in St.  Helier leads to increased trade for small businesses and hencea higher level 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 third 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 housing, economic 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 returned to the supposed inability of States departments to pay rates. 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, but unsurprisingly 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. The Minister implied in his report to P.68 (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.'

There is really no excuse for delaying implementation of this long overdue measure, 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.)

The effect of this proposition, if approved, is that –

1. Parish RatesAssessors will be able toassesstherateablevaluesof States properties during2009;
2. the States will have to pay both ParishandIsland-WideRates;
3. the States will beunable to simply claw back via the Parishes a commensurateamounttooffset Parish Rates, but States departments will have instead to make efficiency savings,increasefeeswhereservices are provided,and,wherenecessary,seek increased revenuebudgets;
4. the States will have to paytheirrates bills from 2010,incommon with the restof the Island's businesses and householders.

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!

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 Parish Rates 804,610

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.

APPENDIX 1

PARISH RATES: STATES' LIABILITY (P.68/2008) – WITHDRAWN ON 1st JULY 2008)

REPORT

Background

Proposition  P.40/2004: 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 R.56/2005), 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  P.40/2006: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, 22nd 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 –

• 30th October 2006;

• 11th  December  2006  (where  Mr.  R.  Shead  represented  the  Chamber  of  Commerce  and Mr.  A. Pemberton, Finance Director for the Parish of St. Helier);

• 20th April 2007 (Mr.  A.  Pemberton attended; apologies were received from the Chamber of Commerc 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 8th 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 –

1. T h e Statesshouldpayratesonan 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.

2. T h e Statesshouldrecognise the full cost ofoccupyingproperty for comparativepurposes

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.

3. T h e Statesshouldrecognise the full cost ofoccupyingproperty to improve strategic decision making

By not recording the full cost of occupying property, the States are hampered when making decisions on property usage.

4. T h e Statesshouldpayratestomeet the cost of parish service provision and theIsland-WideRate

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 £1.1 million 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.

APPENDIX 2

REPORT OF THE WORKING PARTY TO EXAMINE ISSUES RELATING TO THE STATES' LIABILITY TO RATES ON THEIR PROPERTIES

Background

1. P ro position P.40/2004: Machinery of Government:Relationship between the Parishesand the Executive' required, amongstotherthings, 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".
2. T h e Finance and Economics Committee duly undertook the review (reported in R.56/2005),but did not consider it  appropriate  to  make firm recommendations, "...until  the economic effects of the  Fiscal Strategy are clearer and theIsland-Wide Rate debated, accepted andimplemented."
3. In responsetoanamendment to the Strategic Plan 2006 – 2011 tabled by the Connétable ofSt. Helier (attached as Appendix  A), on22nd June 2006, the Minister for TreasuryandResourcesconfirmed that a working groupwouldbeset up with a commitment that firm recommendations will be produced in2007. [Jersey Hansard,22nd June 2006 – reference 1.12.2 et seq. – extract attached as Appendix B.]
4. A WorkingPartywasestablished and metfor the first time in October 2006.
5. T h isreport represents the findings andproposalsof the Working Party

2. W  o rking Party Composition and Terms of Reference

1. A Working Party  was established  under the Chairmanship  of the Assistant Minister, Treasury and Resources, Deputy John Le Fondré, comprising:

Connétable Crowcroft St. Helier

Connétable Yates St. Martin

Mr. C. Spears Chamber of Commerce Mr. D. Levitt Rates Assessor

2. T h e Working Party met on threeoccasions –

• 30th October 2006

• 11th  December  2006  (where  Mr.  R.  Shead  represented  the  Chamber  of  Commerce  and Mr.  A. Pemberton, Finance Director for the Parish of St. Helier).

• 20th April 2007 (Mr.  A.  Pemberton attended; apologies were received from the Chamber o Commerce from whom a written submission was received).

3. T h e terms of reference for the WorkingParty were agreed asfollows –

T o c o nsider 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.

4. T h e workingparty recognised that a consensus might notbe reached as totherecommendedway forward.

3. C  u rrent Position andSummaryImpact of Change

1. T h e States donotnormallypay either occupieror foncier rates on theiroperationalproperties.
2. P u blic buildings are exempt from both foncier and occupier rates in accordancewithArticles 17 and18 respectively of the Rates (Jersey)Law 2005.
3. T h e States dopay rates on properties where a thirdparty is either owneror occupier.
4. If t he States were to payParishRatesthere would bemore quarters inevery Parish. This would mean that a Parish could –

• Lower the rate per quarter and raise the same amount as before;

• Keep the level of rate the same and raise more revenue, or;

• A combination of the above.

5. I f  the  States  were to pay  Island-Wide Rates (IWR) there would  be more Non-domestic quarters throughout the Island. This would makeitpossible to reduce the IWR payable onDomestic quarters, or Non-domesticquarters,oronboth.
6. H  owever, the impact would  depend upon  the  proportion  of the Annual Island  Wide Rates  Figure (AIWRF) tobemet from the Domestic or the Non-domesticIWR as set out in Regulations madebythe States asrecommendedbythe Connétable s.
7. S u ch a reduction would be outside the control of individual Parishes.AnyreductioninNon-domesticor Domestic IWR would apply equally acrossthe Island.

4. W  o rking Party Proposals

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.

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

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.

3. P r oposal 3 – that the transaction process mustbe efficient and effective.

1. T h e Working Party considers that the transaction process should have the following characteristics –

• it must be simple to understand and operate;

• ongoing resource implications must be minimised for both the States and Parishes. It was recognised that the cost to set up the system would need to be quantified;

• the cost of implementation attributable to the Parishes should be allocated pro-rata to the respective Parish share of the States' contribution;

• once the basis for liability in terms of quarters has been established the schedule would only be updated for material changes (i.e. acquisition or disposal and significant change of use or size);

• to minimise resources and provide data assurance, data transfer between Parishes and the States should ideally be by standardised electronic media;

• Property Holdings will be the single interface with Parishes for all rates issues where the States are both owner and occupier.

2. A s part of its normal activity, Property Holdings will capture and record electronically material changes to

the States property portfolio. If a common electronic data transfer media can be introduced it is considered that

the cost of operating the billing process will not be significant for either the States or individual Parishes.

3. T o achieve the objectives detailed in the rationale, costs should be allocated to the occupiers of buildings. In practice, the foncier andoccupiers' rates would be allocated either directly, as a charge to occupiers, or indirectly through aninternal rental system.
4. T h e proposed relationship structure is illustrated in Figure1,below – Figure 1 – Proposed Relationship Model

Parishes

Harbours &

Airport Property

Holdings

Housing Department

States Non- States either

Trading Landlord or

Depts Tenant Transaction

Advice

5. F o r properties managedby Property Holdings,where the Statesis both owner and occupierthere will be a single invoice from eachParishtocoverboth foncier andoccupiers' rates. Property Holdings will work with Parishes to determinehow this can beachievedusing the existing Parish billing process.
6. P r operty Holdings will pay the Parish rates demandon behalf ofStatesnon-trading departments and recharge internally within the States to the relevant budgetholders, either directly or through the proposed internal rents system.
7. S e parate billing and administration by Property Holdings will continue asat present where a thirdpartyis involved (i.e. where the States iseither Landlord or Tenant).
8. T h e WorkingPartynoted that eightParishes run their ratesontheITEXsystemand four Parisheson the Cronussystem, but proposalstostandardiseon a single platform were currently beingconsidered.
9. S h o uld the proposals of the Working Party be adopted, a detailed project plan that includesfinancialand other resourcerequirements will need tobecompiled.

5. C  o nclusions and Recommendations

1. T h e WorkingPartyconcludes that the current positionof the States nothaving a general liability for rates on theirbuildingsisunsatisfactoryand should notpersist.
2. It r ecommends that that the States should, like other ratepayers, be liable for Parish Ratesand Island Wide Rates on all theirproperties.
3. T h e WorkingParty is firmly of the opinion that the States shouldseektoabsorbthe additional cost of meeting their rates liabilities from withinexistingbudget allocations, exceptwheresuchcosts form part

of a charge that is recovered by end users of services.

4. T h e WorkingPartydoesnotconsider the associated administrative cost tobe excessive butbelieves that the transactionprocessshouldbestreamlinedtominimisebothParishandStates' resources in order that it is both efficient and effective. In ordertoavoid duplication of effort, and subject to States approval, such additional work should be undertaken in conjunction with proposalstoimplement an internal rent charging mechanism.
5. T he difficulties associated with absorbing the additional unbudgeted costs should not delay implementation of the WorkingParty'srecommendations.
6. O t her than the matters outlinedabove, the Working Party alsoconsidered the following,whichitfelt to be outside its termsof reference, but were worthy of further consideration by the relevant body –

• All Parish properties should be liable for both Parish rates and IWR;

• There appeared to be potential for utilising the apportionment of the IWR between domestic and non-domestic ratepayers as a fiscal strategy device. It appeared possible that such a solution could

(by increasing the proportion payable for non-domestic (i.e. mainly corporate) rates, and decreasing the proportion payable for domestic (i.e. mainly individual) rates), be used as a variation on the so-called Blampied' proposals, although was unlikely to result in significant revenue being raised.

APPENDIX A

STATES OF JERSEY

r

STRATEGIC PLAN 2006 TO 2011 (P.40/2006): SECOND AMENDMENT

Presented to the States on 19th May 2006 by the Connétable of St. Helier

STATES GREFFE

2006 Price code: C P.40  Amd.(2)

STRATEGIC PLAN 2006 TO 2011 (P.40/2006): SECOND AMENDMENT ____________

After the word "Appendix" insert the words –

", except that,

(1) in Commitment Six, Outcome 6.1, after Action 6.1.3 insert the following action –

6 .1 . 4  Bring forward firm recommendations on the possibility of the States paying rates on its properties

in 2006 (T&R)".

CONNÉTABLE OF ST. HELIER

In 2004 I persuaded the Policy and Resources Committee to include in the landmark Report and Proposition Machinery of Government: Relationship between the Parishes and the Executive' (P.40/2004) the proposal to investigate the States' liability to rates (Appendix 1); the Committee agreed to lodge an amendment to their own proposition, which was subsequently accepted when P.40 was debated on 25th May 2004, that they should conclude their investigations by July 2005. The Finance and Economics Committee duly produced a report Parish Rates: the States' liability' (R.C.56/2005 – attached as Appendix 2) in which, although they shied away from firm recommendations, they did conclude that –