Download Primary and Secondary Benefits Notes

Housing Department
SUPPORTING NOTES
Principles of Primary and Secondary Benefits
When considering an application for a housing licence, whether prospectively for a
statement in principle or for a particular individual, for the purpose of assessing
essentiality to the community, the benefit of a business activity to the Island has typically
been judged on:
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Its levels of profits and the tax it pays on those profits.
Its consumption of goods and services, including the remuneration of staff and the
tax paid on that remuneration, which circulates money around the economy
generating a “multiplier effect”.
Its level of capital investment.
On this basis, an indication of the benefit of a business’ activities could be determined
from its Profit and Loss Account and Balance Sheet.
It was apparent that this approach was not uniformly the best because, for some
businesses, a proportion of benefits do not actually “stick” to Guernsey; for instance, net
profits are remitted to off-island owners or use is made of off-island providers of goods
and services. The net amount that sticks to Guernsey is considered to be the primary
economic benefit to the community and this cannot necessarily be determined from the
conventional business accounts.
The tax paid on business profits has generally (excluding concessionary and exempt
arrangements) been a consistent source of Primary Benefits.
The adoption of a zero - ten tax package will have a significant impact on how business
profits are taxed and how resident and non-resident owners of all companies trading in
Guernsey will be treated for tax purposes. Research undertaken as part of the review of
fiscal policy has highlighted the degree of off-island ownership of businesses across all
sectors together with the pattern of remittance of profits.
For these reasons an assessment of the Primary Benefits delivered by a business, that is
the proportion of its turnover that sticks to Guernsey, will be a key element in the
consideration of the economic essentiality of a post for which an application to obtain a
housing licence is being made.
Also included in the assessment of Primary Benefits is the issue of whether those benefits
would be lost to the Island if the licence sought were not to be granted or whether there is
the possibility of substitution where some other local enterprise would step in and deliver
those benefits.
Applications for housing licences on essential economic grounds will therefore need to
present financial information in a way that Primary Benefits can properly be assessed. If
anything, the information requested is more akin to that contained in a Cash Flow
analysis rather than a Profit and Loss Account but with monies spent on goods and
services split between those sourced from local and off-Island suppliers. As such a split is
not required for the production of either published or internal accounts, the Application
Form accepts that this information will be approximate and based on a best assessment.
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Similarly, it is accepted that the allocation of profits between that retained locally and
remitted off island may also be an approximation.
Whilst the level of financial benefit generated by a business is a key element,
particularly for export earning businesses where the opportunities for substitution may be
limited, the Island also needs to sustain a diverse range of business activities.
Businesses may therefore provide so-called Secondary Benefits, such as by supporting
other essential business activities (including acting as a gateway for funds to be invested
through other local institutions) and/or offering employment opportunities that may deliver
social or environmental benefits that, in exceptional circumstances, may override what
would otherwise be the inadequacy of Primary Benefits and justify the granting of a
housing licence.
Applications for housing licences on essential economic grounds will therefore also need
to present supplementary information on any Secondary Benefits delivered by the
activities of the enterprise involved.
Whilst the emphasis in these Principles is on the needs of new or expanding businesses,
it is acknowledged that existing businesses may need to evolve in order to maintain their
positions, which can, in turn, result in changes to the nature of the skills of employees
they require. Accordingly, when applicable, consideration will be given to the implications
on such a business of the Housing Department not granting the housing licence sought
by reference to any expected changes in the level of Primary and/or Secondary Benefits
generated by it.
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