THE phased removal of tax relief for mortgages is under consideration as thousands face crippling repayments in the wake of interest-rate hikes, the Treasury Minister has said.
Deputy Ian Gorst confirmed that discussions were being held about the future of mortgage interest tax relief, which was cut as part of the 2016 Budget and is due to be phased out completely by 2026.
The scheme enables Islanders to claim tax relief on loan interest payments for the purchase or extension of their main property.
Many households coming towards the end of fixed-rate terms are facing the prospect of a massive rise in their monthly repayments after the Bank of England recently raised its base rate to 3%, with threats that further hikes could be coming.
Speaking at the Chamber of Commerce lunch yesterday, Deputy Gorst said that officials from his department had been holding talks with Island lenders to help those struggling.
He said: ‘An area of particular concern is the high mortgage costs facing some Islanders. The good news is that many are sheltered from rising interest rates through having fixed-rate deals.
‘While none of us would have wanted to see the rapid and destabilising rise in interest rates, it will be taking the heat out of the unsustainable runaway market.
‘But that is of no comfort to those Islanders who are not sheltered from fixed rates and those who have had to borrow at high earnings multiples in recent times, just to get their foot on the housing ladder.
‘Officers are in conversation with Island banks, who have assured the government that they will work with their customers to keep them in their homes wherever that is most appropriate and achievable. We will continue to monitor the situation and are considering the current phasing of the mortgage interest tax relief.’
However, he declined to give any further details as to what those considerations might entail.
The Treasury Minister also reiterated his belief that GST on food should not be scrapped. Later this month, the States Assembly is due to debate a proposition from Deputy Raluca Kovacs on whether the 5% tax should be scrapped from food items.
Deputy Gorst said: ‘ I remain opposed to departing from our policy of keeping GST low – at 5% – broad, and simple – to keep business costs low as well as government’s administration costs.
‘I stand by those longer-term tax policy principles. We always recognised that GST on food needed to be offset for people and it has been offset ever since GST was introduced through increased tax allowances, increased income support, and through the GST Food Bonus, which is now called the Community Cost Bonus.
‘While I understand and respect the motives of those who would propose this it would put more money into the pockets of well-off Islanders then those on the lowest incomes.’
He added that any plans to remove GST would lead to more red tape for businesses and would be unable to be delivered on a ‘timely basis’.
Deputy Gorst also said that, while the Island faced major challenges, the economy was well placed to weather the storm.
‘The end of very low interest rates, high rises to the cost of living, accompanied by full employment, is a set of circumstances that has stood some economic orthodoxy on its head. But what it has not stood on its head is the reputation gained by Jersey over decades for prudence, stability, affordability and sustainability in the management of public finances, something that is often absent elsewhere.
‘Strong public finances do not happen by accident, and at their heart lies a strong economy that has proven resilient in the face of many challenges over the last few years and decades.’