Parish Rates: the States’ liability

STATES OF JERSEY

Lodged au Greffe on 13th May 2008
by the Minister for Treasury and Resources

STATES GREFFE

PROPOSITION

THE STATES are asked to decide whether they are of opinion -

to meet the cost of Parish Rates on public 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, and to increase the contribution by Parishes to the Island-Wide Rate by a commensurate sum, with effect from 2010.

MINISTER FOR TREASURY AND RESOURCES

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 Commerce 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 –

(a) The States should pay rates on an 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.

(b) The States should recognise the full cost of occupying property for comparative purposes

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.

(c) The States should recognise the full cost of occupying property to improve strategic decision making

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

(d) The States should pay rates to meet the cost of parish service provision and the Island-Wide Rate

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

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

Background

1.1 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”.

1.2 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.”

1.3 In response to an amendment to the Strategic Plan 2006 – 2011 tabled by the Connétable of St. Helier (attached as Appendix A), on 22nd June 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 et seq. – extract attached as Appendix B.]

1.4 A Working Party was established and met for the first time in October 2006.

1.5 This report represents the findings and proposals of the Working Party

2. Working Party Composition and Terms of Reference

2.1 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

2.2 The Working Party 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 Commerce from whom a written submission was received).

2.3 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.

2.4 The working party recognised that a consensus might not be reached as to the recommended way forward.

3. Current Position and Summary Impact of Change

3.1 The States do not normally pay either occupier or foncier rates on their operational properties.

3.2 Public buildings are exempt from both foncier and occupier rates in accordance with Articles 17 and 18 respectively of the Rates (Jersey) Law 2005.

3.3 The States do pay rates on properties where a third party is either owner or occupier.

3.4 If the States were to pay Parish Rates there would be more quarters in every 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.

3.5 If the States were to pay Island-Wide Rates (IWR) there would be more Non-domestic quarters throughout the Island. This would make it possible to reduce the IWR payable on Domestic quarters, or Non-domestic quarters, or on both.

3.6 However, the impact would depend upon the proportion of the Annual Island Wide Rates Figure (AIWRF) to be met from the Domestic or the Non-domestic IWR as set out in Regulations made by the States as recommended by the Connétables.

3.7 Such a reduction would be outside the control of individual Parishes. Any reduction in Non-domestic or Domestic IWR would apply equally across the Island.

4. Working Party Proposals

4.1 Proposal 1 – that the States, like other ratepayers, should be liable for both Parish Rates and Island Wide Rates on all their properties.

(a) The 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.

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.

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

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.

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

By not 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.

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

The States, 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.

4.2 Proposal 2 – that the additional cost to the States in meeting their rates liability should be contained within existing States budgets, except where such costs form part of a service whose costs are recovered in the form of charges to end users.

(a) In the United Kingdom, local and national government buildings are liable for National Non-Domestic Rates, subject to mandatory or discretionary relief, and the resulting costs are born by those organisations as part of their annual budgetary requirement.

(b) The Working Party considered that, as an overriding principle, total public sector revenue take (taxation and rates) should not increase and that the States should seek to absorb the additional costs within its approved future funding envelope.

(c) The Working Party was of the view that the States contribution should not be offset by a commensurate increase in the contribution to the IWR, which would have a ‘neutral’ impact on States finances.

(d) Where those costs form the basis for the recharge of a service whose charge is limited to cost recovery (e.g. car parking, planning fees, etc.), such costs should be passed onto the end user to maintain a ‘level playing field’ position when comparing States services to comparable services provided by the private sector.

(e) The proposal will have a distributional effect between ratepayers and taxpayers but it should not increase aggregate public sector expenditure (i.e. the combined expenditure of the States and all Parishes) above that required to provide the current level of services.

(f) The Working Party did, however, acknowledge that each Parish has the autonomy to determine whether the States contribution was reflected in full as a reduction in rates charged to parishioners or employed to provide additional services. Ultimately, this would be for the relevant Parish Assembly to decide.

(g) The net total additional cost to the States will be in the order of £1.65 million per annum at a 2006 cost base. This sum reflects the adjustment required to contributions by all ratepayers (including the States) to achieve the existing total rates yield.

(h) The vast majority of the States contribution to Parish rates (around £568,000) will be received by the Parish of St. Helier, with a further £120,000 received by St. Saviour. No other Parish would receive more than £38,000.

(i) On the 2006 rates base data, the estimated impact across Parishes of the States paying Parish rates is as follows –

Table 1

Estimated 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.

(j) Parishioners would also benefit by not having to contribute a total of £845,390 to the IWR fund.

(k) Thus, as noted above, the amount payable by the States in respect of Parish Rates is estimated to be £805,000. The States would also have to pay an estimated £845,000 for its IWR contribution, resulting in a total cost of £1,650,000 based upon the 2006 rates base data.

(l) The above estimate assumes that the overall Parish revenue requirement and contribution to the IWR fund will remain constant, as there is no increase in their operating costs, and the States contribution results in a pro-rata reduction to all ratepayers (including the States).

(m) Further detailed work is required to analyse the split between ministerial departments, however, departments that have ‘property hungry’ services, such as Health, Education and Transport and Technical Services, will bear the vast majority of the costs, either directly or through a recharge from Property Holdings.

(n) The 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 Working Party considers that this should not, in itself, be a reason to delay implementation.

4.3 Proposal 3 – that the transaction process must be efficient and effective.

(a) The 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.

(b) As 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.

(c) To achieve the objectives detailed in the rationale, costs should be allocated to the occupiers of buildings. In practice, the foncier and occupiers’ rates would be allocated either directly, as a charge to occupiers, or indirectly through an internal rental system.

(d) The proposed relationship structure is illustrated in Figure 1, below –

Figure 1 – Proposed Relationship Model