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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: • • • 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. 1 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. 2