Report
Introduction
The Minister for Treasury and Resources is pleased to present AAmendment No.3 to the Public Finances (Jersey) Law 2005 (“the Finance Law”). At present the Finance Law only requires that one year’s expenditure and taxation be approved by the States Assembly. The main purpose of this AAmendment is to propose changes to the Finance Law to establish a Medium Term Financial Planning Framework, whereby the overall income targets and spending limits are set for a period of years, equivalent to the term of a Council of Ministers. The Minister has also taken this opportunity to bring forward those changes agreed by the States in P54/2009, to extend the remit of the Comptroller and Auditor General.
For a number of years the States have sought to embrace longer term financial planning, most recently as one of the objectives of the. The objective of thein the current Comprehensive Spending Review which covers three years. Moving tois to define a Medium Term Financial Planning Framework, coupled with a longer term financial planning framework alongside improvements to financial management, will encourage more efficient operations and enableand the delivery of significantthe potential to deliver savings in public spending over a period of years. The proposed aAmendments to the Finance Law, an andd the changes already introduced to in-year financial management and reporting will support this improvement.
It is proposed thatAt present the (“the Finance Law”) only requires that one year’s expenditure and taxation be approved by the States Assembly. The purpose of this Amendment is to propose changes to the Law to establish a Medium Term Financial Planning Framework whereby the overall tax and spending limits are set for the term of a States Assembly or Council of Ministers.
The principle is to move away from two annual debates on spending and taxation. T the current annual Business Plan and Budget are replaced with an initial major debate on a Medium Term Financial Plan, which will determine the tax and spending envelope for a period of years. In addition, and an annual Budgets will be proposed over that period, which provide for the annual proposals forfocussed primarily on tax, funding and variations to expenditure within overall limits. The objective is to provide greater control of statesStates sspending, certainty for departments over a period of time, but to retain sufficient flexibility to manage emerging pressures and changes in priorities within overall spending limits.
The Medium Term Financial Plan provides certainty for departments with overall States spending limits and minimum department spending limits set for a period of years. The proposals provide flexibility within these spending limits, with central allocations for ccontingencies and growth and annual end year flexibility for departments. The States will debate the Minister’s proposals for growth and capital allocations annually in the Budget. The principle of longer term financial planning, and cCcentral cCoconntingencies within overall spending limits, is not a new initiative and has formed part of previous annual Business Plans supported by the States.
The proposals for a new Medium Term Financial Planning Framework have been consulted on widely with States members and officers. The consultation has included meetings with the Chairman’s Chairmen’s Committee, the Corporate Services Scrutiny Panel, the Chair of Public Accounts Committee and at wider briefings for all States members. Further briefings are also planned ahead of the States debate.
The consultation has resulted in a number of improvements to the initial proposals and. I in particular, there is a clear view that a separate debate should take place on any changes to the Strategic Plan process and, therefore, to the States of Jersey Law (“SoJL”). This can occur in parallel and does not require any changes to the Finance Law as proposed.
Other changes which have been developed as part of the consultation are in relation to the proposals around ccCentral creservescContingencies. The proposals now identify a specific allocation for growth, distinct from ccCentral cCcontingencies, to provide flexibility and scope to address urgent and unforeseen itemsemerging pressures and changes in priorities during the period of the new Medium Term Financial Plan. The proposals also seek to provide some flexibility around current discussions for a three or four year term of an Assembly and the timing of an Election Day within the calendar year.
The objective of this proposal is to have the required changes to the Finance Law that are necessary to define the new framework in place forin calendar year 2012. This will be in preparation for what would otherwise be the 2013 Business Plan and Budget process. The new Council of Ministers, elected in November 2011, will propose the first Medium Term Financial Plan. This will be the first Medium Term Financial Planset of proposal proposed by s from tthe new Council of Ministers to the new States elected in November 2011.
To expedite these changes, several other changes to the Finance Law, in relation to financial management and the role of the Treasurer, are intended to be brought forward as a second tranche of legislativeon changes in 2012.
The opportunity has also been taken to remove the States procedures associated with the lodging and debate of the Medium Term Financial Plan and the annual Budget. These will be brought back to the States to be incorporated into States Standing Orders alongside other States procedures.
Medium Term Financial Planning Framework (Articles 7 – 9)
The new States and Council of Ministers will be in place from November 2011. In November 2011, tThe new Council of Ministers willould begin first preparation of the new Medium Term Financial Plan alongsidee a new Strategic Plan. The Strategic Plan, or similar document based on separate proposals for the SoJL, which willould be consulted on early in the process andwidely and will providefor States members with to have the opportunity to consider and shape the strategic objectives, which will thendebate to enable it to influence the Medium Term Financial Plan prior to lodging.
The diagram at Appendix A provides an overview of the proposed Medium Term Financial Planning Framework over the term of the States Assembly or Council of Ministers.
The proposals are for a Medium Term Financial Plan, (“MTFP”) for the period 2013 to 2015, to be prepared and replace the first Business Plan of the new Council of Ministers which would be lodged in July 2012 and debated in September 2012.:
The Council of Ministers would propose aanticipated States income target and the maximum States spending limits for the period of the Council, to determine a financial framework for sustainable public services at a level which can be maintained.
The Council of Ministers would also propose, for the same period:
- Minimum annual department spending limits, in order to give greater certainty to departments for
their Medium Term Financial Planning purposes, which enables departments to extend their planning horizons;
An a;
Annual allocation to capital from which allocations to individual capital projects would be proposed at each annual Budget;- A maximum annual allocation for
Ggrowth to provide for emerging pressures and changes in priorities to be addressed within overall spending limits. Detailed allocations of Ggrowth would be proposed at each annual Budget within these total sums;. and - An
Aannual allocations to ccCentral ccContingencies, including details of the Treasury and Resources Minister’sCouncil’s policy for use of cContingencies, which would include provision to manage urgent and unforeseen items within spending limits.and
A maximum annual allocation to Growth for the same period.
The spending limits would be proposed within a tax and spending envelope which will shows the anticipated financial position and cConsolidated fFund balance for the period of the Medium Term Financial PlanMTFP.
The requirement to present the cConsolidated fFund balance and demonstrate that it would not be overdrawn over the MTFP period of the Plan would bise an important integral part of the aaAmendments to the Finance Law.
The Medium Term Financial Plan will incorporate a Fiscal Strategy to be developed as part of the longer term financial planning framework. The Fiscal Strategy would inform the proposals for States income targets and subsequent year’s Budget proposals.
anticipated States income would be based upon a Fiscal Strategy covering at least the period of the MTFP and from which the subsequent years’ Budget proposals would be developed. The Fiscal Strategy would be an integral part of the MTFP document and process.
Although not a legal requirement, it is intended that for information purposes, the Medium Term Financial PlanMTFP would also provide States members with information to support the with the detail of individualindividual departments’ cash limits proposals for 2013, as part ofinBbPpAathis would be at the level of Service Analysis and provided for information.
The Law amendments also propose that the Medium Term Financial Plan should be debated at least two months before the start of the first year to which it relates. In the first year of the process this would enable the annual Budget to be debated alongside the Medium Term Financial Plan.
Annual Budget (Articles 10-15)
Following the MTFP debate in September 2012, Tthe Treasury Minister will ould prepare an annual Budget in each year of the period of the Medium Term Financial Planfor 2013, which willould be lodged in October and debated in December. 2012:
The first part of the annual Budget debate would relate to States income and would be based upon the Fiscal Strategy and anticipated States income target, presented as part of the Medium Term Financial PlanMTFP.
The annual Budget for 2013 would propose the individual tax, funding and any borrowing proposals for the budget year2013 and any transfers between Funds or Reserves.
The States and Department spending limits would not be revisited as these will be set in the MTFP for the period of the Council, although information would be provided to support the individual departments cash limits for the Budget year.
The Treasury Minister would, in consultation with the propose set out the Council of Ministers’, set out proposals for allocations from the annual Ggrowth for the year allocation agreed in the Medium Term Financial PlanMTFP to:
- Departments’
revenue spending limits; - capital projects; and
- the c
Ccentral cCcontingency, and with any balance to be returned to the Consolidated Fund.
The Ggrowth allocation is proposed to recognise that priorities may change over the term of the Medium Term Financial PlanMTFP and that other recurringemerging pressures will may need to be addressed. The Ggrowth allocation provides the flexibility for the Treasury Minister, after consultation with the Council, and the States to consider and address such challenges annually, but still remain within overall Medium Term Financial PlanMTFP spending limits. The growth allocation also provides an annual opportunity for a States member to influence the allocation of funding to emerging pressures or priorities within the overall States spending limits.
The Treasury Minister would also set out the Council of Ministers’ proposals for propose the allocations to individual capital projects, within the maximum allocated in the Medium Term Financial PlanMTFP and from any Ggrowth allocation
The Budget would also include an indicative “rolling” forecast year for anticipated States income, States spending limits and individual department cash limits to maintain the planning horizon of the Medium Term Financial PlanMTFP to 3 or 4 years as appropriate.
The Budget would include supporting information to ensure all States members have sufficient information regarding the sufficient detail to inform States members and support the proposals for tax and funding measures and growth and capital allocations. InformationI
In subsequent years – the “In between years”
The proposal is that there would only be an annual Budget prepared and debated in December of 2013 and 2014.nformation would also be provided to support the individual departments’ cash limits for the Budget year. This would be similar to the current Business Plan Annex pages and be for information purposes only.
Central Contingency (Article 17)
Central ccContingencies or reserves are a fundamental part of longer term financial planning and of the Comprehensive Spending Review proposals. The purpose of the cCentral cContingency and the new Growth allocations is to provide essential flexibility to allow the Treasury Council of Minister, following consultation where appropriate, s and the States to manage emerging pressures and changes in prioritiesunforeseen and unexpected items within overall spending limits as part of thea Medium Term Financial Plan.
The cCentral cContingency will predominantly provide predominantly for in year and one-off pressures that could not generally be forecast as part of the initial department spending limits in the Medium Term Financial Plan or as part of the Ggrowth allocations in the annual Budgets.
The proposals require the Council of Ministers to provide, in the Medium Term Financial Plan, the principles and purpose of the cCentral cContingency and for the Minister to report at least 6 monthly to the States on any transfers to or from the Central Contingency that have been approved by the Minister.
Variations in heads of expenditure (Article 18)
Changes have been made in relation to permitted variations in heads of expenditure based on experience since the Public Finances (Jersey) Law 2005 was enacted. These changes also recognise, and recognising where possible, the comments of States members, the Public Accounts Committee and the Comptroller and Auditor General. The proposals reflect a general tightening of the provisions that allow variations in heads of expenditure, from those allocations agreed in the Medium Term Financial Plan and aAnnual Budgets. The proposals retain the end of year flexibility, which is integral to departments being able to manage spending limits overof longer planning horizons. Maria to draft para about CAG changes.
Extension of the powers of the Comptroller and Auditor General
The opportunity has also been taken to make amendments in line with the States agreement of P54/2009 to extend the remit of the Comptroller and Auditor General, although this amendment is not connected with the Medium Term Financial Planning process. The amendment will enable the Comptroller and Auditor General to consider and report on the-
- effectiveness of the internal financial controls and the internal auditing of those controls; and
- economy, efficiency and effectiveness of the use of resources
by those companies that are wholly or majority-owned by the States of Jersey. This will bring the Comptroller and Auditor General's powers in relation to these bodies in line with those applied to States departments.
Conclusion
The Minister for Treasury and Resources is pleased to present this AAmendment No. 3 to the Public Finances (Jersey) Law 2005, which proposes to formally introduce longer term financial planning to the States. The AAmendment will provide benefit to departments in terms of certainty of funding and enable planning horizons at a corporate and department level to be extended. The opportunity to introduce such a proposal, to change the term and the framework of States financial planning, only occurs at each change of States Assembly, and to deliver this AAmendment those changes critical to the new proposals have had to be prioritised.
However, tThe Minister has still been able to consult widely and is grateful for the views of States members and officers, which have influenced in particular the proposals with regard to the cCcentral cCcontingency, growth allocations and separate consideration of the Sstrategic Plan and States of Jersey Law.
The Minister commends this AAmendment to the States and will endeavour to ensure all the necessary procedures are in place to enable the new States to work within the proposed framework.
Financial Implications
There are no additional financial or manpower implications of adopting the Amendment. However, the introduction of a Medium Term Financial Planning framework will provide the stability and certainty in public finances to deliver more efficient operations and sustainable public services. The new framework will also provide the required flexibility to address emerging pressures or changes in priorities within spending limits and achieve greater control on overall States spending.
European Convention on Human Rights
APPENDIX A
OVERVIEW OF PROPOSED MEDIUM TERM FINANCIAL PLANNING FRAMEWORK
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