Wednesday, 17 February 2016

Money going to waste

The Jersey and Guernsey credit ratings have been downgraded for the first time from AA+ to AA by international credit rating agency Standard and Poor's. The agency blamed rising regulatory complexity and greater focus on low tax regimes by the G10 on the drop. (ITV News)

The document was evidently written before the budget for the new hospital, because it shows awareness of increased capital spend but not on that project:

"While we expect the government will continue to stabilize its state budget position over the next three years, we forecast that higher capital expenditure (mostly for a liquid waste facility) might contribute to delaying a return to surpluses until 2019, in line with our previous forecasts."

It also notes:

“After the introduction of a general sales tax in 2008, we expect further tax/fee increases would likely help if the fiscal gap were to widen”

Part of this is clearly linked to their note on the capital expenditure on the liquid waste facility, by which they mean a replacement sewage treatment plant, and probably also upgrading the sewage network, and for which the Minister for Infrastructure is trying to bring in a sewage charge.

This can be seen by examining details in the 29 Jul 2013 Waste Water Strategy which is a very good report on the problems with existing and very aged plant.

This notes Potential funding sources including:

• direct taxation (as currently);
• borrowing
• infrastructure charges to be levied on Developers (for which we have seen nothing!)
• direct customer billing for Sewerage and Drainage Services (as proposed in the Medium Term Plan)
• a combination of the above (potentially introduced in phases)

There is also Funding the Sewer Network Upgrade. The report notes costs of £135 million over 20 years:

“TTS has recently secured additional funding in the form of the Infrastructure Capital Programme for asset replacement, which contributes towards the provision of funding for rising mains, sewers and pumping stations. In order to meet the priorities and achieve sustainable management of the waste water for the next 20 years, investment in the infrastructure capital programme of approximately £135 million or £6.75m per annum over the 20 year plan period will be required to maintain or improve the levels of service and environmental status.”

This works out at an average yearly cost per property of approximately £170, allowing for the projected development, but not assuming any commercial income. The expenditure is a significant increase on recent levels, where the service provided has been funded directly from taxation. “

And on funding the Replacement of Bellozanne STW, it says:

“To enable Bellozanne STW to be replaced in the shortest possible timescale, additional funding would need to be secured, which would be a significant addition to the current allocated Infrastructure Capital Programme funding over the next 5 years. The estimated total project cost for the replacement of Bellozanne STW, including the relocation of the Clinical Waste Incinerator, is £75million, based on 2012 prices. This estimate is based on the feasibility outline design work completed to date, with the new Bellozanne STW being designed and constructed as a conventional activated sludge plant with carbonaceous BOD removal to achieve a BOD / SS standard together with Ultra-violet disinfection of the effluent. “

And it warns:

“This additional funding required for the new STW will either have to be funded by additional borrowing or direct taxation”

In fact, the contract has now been accepted by Doosan Enpure, as their website states:

“Doosan Enpure has been confirmed as the main contractor for a £50m replacement of the Bellozanne sewage treatment works (STW) in St Helier, which serves the Island of Jersey and is operated by States of Jersey Transport and Technical Services (T&TS).”

“The contract has been awarded on the basis of a framework agreement which will have two distinct packages of work. The first package is for a period of Early Contractor Involvement (ECI) to develop the concept design followed by a second package to Design and Build (D&B) the new replacement STW.”

The contract is awarded for £50m, so it will be interesting to see if any extra expenses of £75m are incurred - that was the original amount budgeted in the Waste Strategy document.

Regarding the sewage charge, this is being held back by legal obstacles, as reported in the Bailiwick Express:

“St Helier Constable Simon Crowcroft has vowed to fight a move by the Infrastructure department (formerly known as TTS) to set aside a legal agreement from 1952 that prevents the States charging St Helier residents for the disposal of waste.”

“The sale of the Bellozanne site by the Parish of St Helier to the States for the old incinerator included a clause that the States could never charge St Helier residents for waste disposal. But now, with a £10 million user-pays waste charge forming part of the plan to fill the £145 million deficit expected by 2019, the Infrastructure department wants to set that clause aside to get the charge set up.”

“If evenly divided between all Island households, the charge per home would be £223 per year.”

One question is whether it will be divided between all households, or whether it will be collected on an apportioned rates basis. We have no details yet, but this is the year in which the details not given last year were promised (alongside the health charge).

The move to indirect additional taxes – commonly referred to as “stealth taxes” because they usually present themselves rather deceitfully as “charge” rather than a “tax” – means Islanders will be worse off in 2016 as these taxes bite.

It is also not clear what scale of charges will be levied on businesses, but here is actually an opportunity to gain additional revenue from those businesses that pay no tax under zero / ten, and as a sewage tax, it could be levied using manpower returns to proportionately allocate a charge without breaching EU guidelines.

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