Cost pressures lead Island’s local authorities to anticipate large rate rises for next year | Dec 2022

Global price increases and spiralling inflation cause winter of difficult decisions

Date: Thursday 01 December 2022

The Island’s local authorities are together facing significant budgetary pressures in the lead-up to the rate setting process for the 2023/24 financial year.

As the 31 January deadline for the setting of rates moves closer, it is already clear the local authorities are not immune to the cost pressures experienced by all sections of society and businesses. Inflationary increases suffered by suppliers ultimately have to be passed on and, consequently, high levels of rate increases are unavoidable. That is why the local authorities of Braddan, Castletown, Douglas, Port Erin and Port St Mary have jointly issued this message.

With Manx CPI (Consumer Prices Index) inflation currently running at just over 10%, local authorities are having to factor in an uplift of costs into their budget forecasts for next year. These do not just account for further cost increases, but also have to make good the budget shortfalls experienced this year due to the rapid surge in inflation since the current year’s rates were set back in January 2022, compounding the problem.

With a six per cent uplift in public sector pay awards for the current financial year, in addition to the sharp rises in energy costs experienced by all sections of society, the pressures are already high. The Department of Infrastructure has just announced that the Energy from Waste Plant domestic waste disposal fees are set to increase by 7.2% from April 2023, with the gate fee for wood set to rise by 199%, impacting the Island’s civic amenity site budgets. The Bank of England has also increased its base rate now to 3%, and with further increases anticipated in the coming months, the forecast cost of borrowing faced by local authorities has increased by 270%, further adding to budgetary pressures. This is significant as loan funding is the main source of financing for local authorities’ capital schemes.

Local authorities are acutely aware of the impact that the cost of living crisis is having on their ratepayers, and of the cost pressures faced by businesses. The risk of ratepayers struggling to afford paying their rates in full and falling into arrears is increasing, and residential ratepayers finding themselves in this position are urged to seek help from organisations relevant to their own individual circumstances. These include the Office of Fair Trading, the Manx Citizens Advice Bureau, Salvation Army, Age Concern, Treasury’s Social Security Division for those that may be eligible to claim benefits, and Government’s new Isle of Man Help for Households website (Help for Households (gov.im)).

Unlike Central Government, whose tax income position automatically increases as the working population’s income tax and National Insurance contributions go up, the same does not apply to local authorities who have a legal obligation to balance their budgets. Local authorities cannot just simply absorb a higher cost base, without increasing their rates.

With all of these scenarios, it is probable that many local authorities will have no choice but to levy a rate much higher than experienced in previous years. The authorities, of course, do understand that this will not do anything to ease the pressure on those ratepayers, nor businesses feeling the strain and it is with great regret that ratepayers need to be made aware that local authorities face an extremely difficult series of decisions in their rate setting announcements in the New Year.