16 February 2015
Jersey is better prepared than many countries to deal with the significant economic, social and environmental changes we are facing, but our population is ageing and our income is rising at a slower rate than in the past.
As medical science enables us to treat more illnesses, health care is becoming more specialised and more expensive. We need to change the way we provide health services and we need to invest in our education system. While that will benefit us all, it will also cost a significant amount.
Economic growth
To help meet these costs we need to support economic growth, which means increasing productivity through:
- raising skill levels
- increased competition
- inward investment
- enterprise and innovation
- investing in our infrastructure
Economic growth is one of the Council of Ministers’ main priorities, to ensure Jersey can adapt to a fast-changing world. The others are health, education and St Helier.
Savings
Another way to help safeguard investment in priority areas like health care is to make savings and efficiencies in the public sector.
The 2015 budget has already identified the need to address the impact of reduced income forecasts. 2015 budgets have been reduced by 2%, so departments are identifying £12 million of efficiency savings in 2015.
In its recent report, the Fiscal Policy Panel (FPP) said that productivity, efficiencies and savings are appropriate measures, alongside economic growth, to help address any structural deficit.
The report said that the States ‘should always be looking for ways to improve its efficiency and that of the wider economy’.
It also recommended that we should develop a plan ‘that will address any structural deficit by 2018 and 2019’ while taking care to continue to nurture the economic recovery.
Our plan
Our income and spending forecasts are being remodelled based on the FPP’s comprehensive analysis of Jersey’s economic position. But on existing forecasts, and if planned spending goes ahead, we will have a shortfall in the region of £50 million by 2019.
This planned spending includes provision for pay, inflation, uprating benefits and an agreed 2% annual increase in the health budget. It also includes an allocation of £35 million per year for capital projects.
In order to cover this £50 million, ministers have asked their departments to find savings and efficiencies. This is 7.5% of our current total spend, and means saving 1.5% each year from 2015 to 2019.
The reform programme will move into a redesign phase, providing more services online and ensuring provision is lean and efficient.
That figure may be enough to balance the books on current spending plans and income estimates, but it doesn’t allow for investment in health and social care, or for improving education.
Departments have also been asked to look for a further £30 million, in £10 million tranches. They will need to identify the impact this would have on services so that ministers can make informed decisions about how to target further savings, if they're required.
After an initial expenditure review a report will be presented to the Council of Ministers in March. More detailed proposals will be developed for the Medium Term Financial Plan in June.
Transforming health and social care
The FPP has said it's important that we develop a strategy for managing the financial consequences of an ageing population. We have already given this a lot of thought. We regularly review the Social Security funds and have an agreed plan for transforming health and social care, but to implement it fully requires significant funding.
So as well as making savings and encouraging economic growth, we are also investigating other ways to fund health care. This could mean an extra charge, but research on this option has yet to be completed.
The Social Security Department is working on ways to deal with the impact of an ageing population on pension payments, because if we don't prepare, the cost of paying State pensions will increase faster than the income received from contributions.
Capital spending
The FPP has said that important investments that support productivity improvements should not be postponed in view of Jersey’s strong asset base and balance sheet, so we will continue to invest in capital projects that support economic growth.
This means plans to build a new police station, finance centre, and hospital will continue, and the Council of Ministers will be considering opportunities for investment in St Helier as one of its priorities.
Summary
To summarise:
- FPP has highlighted the risk of a structural deficit, depending on detailed income and expenditure figures in the next MTFP. If there is a structural deficit, the FPP recommends addressing it by 2019
- Jersey starts from a position of strength. We have made significant savings in public expenditure without facing the austerity experienced by other jurisdictions. We have low levels of debt linked to social housing, which generates rents, and significant assets
Ministers have agreed to tackle any deficit through:
- economic growth, including targeted capital investment
- productivity improvements
- efficiency improvements within States and wider economy
- an initial £50 million public sector savings and efficiencies target from 2015 to 2019 to help balance the budget, on current estimates, by 2019
- redesigning services, providing more online, becoming leaner and more efficient
- investigating whether an extra £30 million savings is possible, and what the impact on services would be
- investigating possible ways to fund health care
- identify options for funding State pensions as the population ages
Next steps
Financial forecasts are being updated and ministers will be developing proposals in the coming months through a spending review.
More details will be available before the Strategic Plan debate in April, and final figures will be published as part of the next Medium Term Financial Plan in June.
The Treasury and Resources Minister, Senator Alan Maclean, said “We know we are facing some challenges in the coming years, if we want to invest in the priority areas identified in our strategic priorities. We have already asked departments to find £12 million in efficiency savings this year, which is one of the measures identified when we presented budget 2015 to the Assembly last year.
“Now we are looking at a number of different scenarios to determine what effect different levels of savings would have on the public sector and its services. Final figures will be presented with the next medium Term Financial Plan.”
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