06 November 2012
Sir, this debate represents a historic day for Jersey and this Assembly.
As we start this debate on this three year Medium Term Financial Plan and its proposed amendments, we are not simply making an administrative change to how we plan our finances. I believe we are taking an important step towards securing our Island’s future.
This debate is about doing things differently, and doing things better.
This is, without question, the most important financial decision the States will take in this Assembly. The Proposition seeks Members' approval to proposed income, net revenue and capital expenditure, both for the States and Trading Organisations.
The decisions will fix expenditure for the next three years.
Flexibility
It will allow all departments the flexibility to deliver efficiencies and it will encourage the kind of long-term thinking we have never been able to achieve before.
As Members will recall, earlier this year, we debated and agreed a Strategic Plan. This plan puts the resources in place to deliver those bold plans. We have a heavy duty of responsibility in the decisions we are called to make.
Whether a young person at school, a working family, a single parent or a senior citizen, this plan affects every Islander.
- it is a plan that invests to deliver the services that are fundamental to Islanders’ lives, especially in terms of health, jobs, housing and education
- it is a plan that sets out the most significant Capital Investment programme ever undertaken
- it is a plan designed to provide stability and certainty, to create jobs and stimulate growth
The Council of Ministers is confident that this Financial Plan will establish a solid foundation that will steer the Island through the global economic turmoil and ensure that Jersey can take advantage of economic growth when it returns.
Three-year planning
The support for the move to three-year planning was overwhelmingly positive, with 45 members voting in favour of the change in July 2011 – well over 80 % of Members. That decision resulted in a change to our Public Finances Law which has made today’s debate possible.
By voting for this to move to three year budgeting, Members have enabled us to plan better for Jersey’s longer-term future, which is one of the essential aims of the Strategic Plan. But the benefit is wider than that.
The States works with many external suppliers and funds numerous organisations, many of which are in the voluntary and community sector.
Together with Ministerial colleagues, I have been meeting regularly with many of these groups over the last year. I have been struck by just how much they welcome the certainty that this new approach to budgeting provides.
Both inside the organisation and outside it, time that was previously spent on the onerous task of annual budgeting will now be spent on managing, serving and caring, while delivering better value for the taxpayer.
It is significant that so many Members have recognised the importance of this change and I am very grateful for Members' foresight and support.
Team work
Indeed, it is representative of an invigorated spirit of teamwork that has become apparent over the last year. There has been constructive debate between Ministers and vital input from Assistant Ministers too.
This Plan is a culmination of a huge amount of work by the Finance staff across the States and the Treasury Team. I owe a large debt of gratitude, not least to my Assistant Minister and to the Treasurer of the States.
Many others have played an essential part – there has been consultation with the public, the private sector, the not for profit sector and every States Department.
I would like to thank the Chief Executive and the Corporate Management Board, the Chief Minister and the Council of Ministers for all of their hard work, challenges, input and guidance.
They have been involved in every step of the process to ensure that the plan that is before Members clearly aligns with the agreed Strategic Priorities and Resource Principals.
Scrutiny
I would also like to take this opportunity to recognise and give special thanks to the Scrutiny Panels.
A year ago, some people doubted that Scrutiny was going to survive, but in the formulation of the MTFP they have all shown themselves to be key independent partners, sometimes critical but always constructive.
Each panel has provided a full report to the Assembly with recommendations that have added value to our decision making.
While this is the first plan, it sets a high benchmark and has set a new standard for how we should work together in the future.
I offer my thanks to all Chairmen and their Panels, to:
- Senator Ferguson and her colleagues on Corporate Services
- the Deputy of St Martin and his colleagues on Economic Affairs
- Deputy Maçon and his colleagues on Education and Home Affairs
- Deputy Young and his colleagues on the Environment Panel
- the Deputy of St Peters with her small team on the Health, Social Security and Housing Panel
Corporate Services have also published two reports.
I was very pleased to read the positive endorsement of the plan from the independent advisor of the Chartered Institute of Public Finance and Accountancy, CIPFA, who said “In terms of the primary objective, scope and detailed workings of the MTFP, the States of Jersey would certainly be regarded as a good example to follow.”
Economic context
Since the plan was first published there has been debate about the economic context, particularly the income projections.
In the last two weeks we have seen the UK beginning to emerge from recession and signs of optimism in the US. I recognise how difficult things have been during the economic downturn.
Despite a number of serious challenges, Jersey will emerge from the great recession in a strong position. This is in no small measure because of this Assembly’s historic financial prudence and because of the adaptability of Jersey people.
Tax receipts
I am pleased to report our actual income tax receipts for 2012 are holding up and are in line with our forecasts for 2013 and beyond. At the end of the third quarter GST receipts have also improved. But we can take nothing for granted.
The potential for global events to affect Jersey’s economy remains. From a slow down in China to problems in the Eurozone to the outcome of US Elections, there is continuing uncertainty.
However, because of our financial strength, we are able to put in place a plan with the resources to create the right environment for Jersey’s economy to grow.
Fiscal Policy Panel
One of the most important developments in recent years has been the creation of our Fiscal Policy Panel (FPP), whose independent reporting has instilled discipline in our financial planning.
Last night I published a detailed response to the FPP’s helpful report, which I hope Members have had a chance to read.
The FPP advice has been good. The panel previously advised on the Fiscal Stimulus measures which have worked.
To reinforce this I was pleased to note that the IMF has recently stated that fiscal stimulus had an even greater beneficial effect on economic activity than they had first anticipated. The multiplier effects are greater than first understood.
This is significant. As it means that our past fiscal stimulus and the stimulus in this Plan will make an impact.
Building on three-part plan
Sir, it is worth remembering that the MTFP builds on our original three-part plan to deal with the deficit we would have faced if we hadn’t taken corrective action.
- supporting economic growth through fiscal stimulus
- diversifying our tax base
- delivering savings
This plan includes the third year of the CSR savings. A huge amount or progress has already been made to deliver these savings. I want to give credit to the departments that have worked so hard to achieve these savings.
There have been many successful CSR initiatives, too numerous to mention – but I hope the addendum that has been published alongside the MTFP has been helpful to Members in making their decisions over the next few days.
Reductions in overtime, increasing efficiency in tax administration, reorganising the States’ plant nurseries, reducing fraud in Social Security and improving the management of States housing are just a few examples of the good work.
The approval of the MTFP will ensure we make further CSR savings, through the reform and modernisation of government. The Chief Minister will be explaining in more detail the next steps of the Modernisation Programme that is being developed with the Corporate Management Board.
Perhaps more importantly, the Comprehensive Spending Review is helping to change the culture across the organisation. The approval of the MTFP will take this cultural change further forward.
Growth
The Strategic Plan highlighted the need for more investment. The first draft of the MTFP provisionally allocated growth in 2013, 2014 and 2015.
However, the Council of Ministers received so many justifiable requests from departments it was decided that more investment was needed sooner. More help was called for to deal with:
- getting people back to work
- stimulating Economic Growth
- reform of Health and Social Services
As set out in the plan, the Council of Ministers and Corporate Management Board worked through a number of growth and funding options to find a solution. The Treasury worked to find ways to fund these high priority growth requests without further recourse to taxpayers.
This work resulted in budget reductions of £35million to fund the increased growth.
These budget reductions include cutting expenditure, working more closely with our neighbours, increasing income and reallocating existing budgets.
This is why we are now able to support stimulus for employment, the economy and also to begin the essential reform of Health and Social care.
Financial monitoring
The Treasury continues to improve its financial monitoring processes to ensure that this additional growth funding is properly applied. The monitoring of growth will be carried out through the consolidated reports presented quarterly to the Corporate Management Board and to the Council of Ministers.
This means that actual performance is now closely monitored against expenditure and income projections.
We have also gone a step further and now publish a half yearly financial monitor. This all contributes to openness and transparency in our financial decision making, better controls and accountability and more information for taxpayers.
And investment in service improvement can reduce overall costs.
Falling crime figures, the lowest level of youth offenders - this is testimony to the effective collaboration and joint working of Home Affairs, Education, Health and Housing. That has not happened by accident.
I look forward to the Police having a new headquarters in which to continue this improvement.
Health and Social Services
Health, housing and jobs are all extremely important aspects of the MTFP, but perhaps the most significant is the planned increase in health spending.
Two weeks ago this Assembly approved the health policy set out in the White Paper. Our task now is to allocate the resources to deliver it.
On top of the £14 million of growth already earmarked for Health in the 2012 Business Plan, this plan proposes an additional £12 million, making a total increase for health funding of £26 million a year by 2015.
The reform of Health is set out in three phases as part of a ten-year plan. This MTFP provides the funding needed to implement Phase One. There is much work to be done. We still need to establish the best location for the hospital.
It is inevitable that further growth will be needed in the second phase. This funding will have to come from a combination of efficiencies, economic growth, contributions to long term care costs and reviewing the use of the Health Insurance Fund.
We have committed to delivering a detailed report on this by September 2014.
There is something in this Plan for all members of our community but additional investment in health and social care will benefit older people the most. The Council is delighted that there will be more and better care for older people in their own homes; care that will not just be provided by the States but also by our exceptional charitable organisations like the Alzheimer’s Association, who will supply additional resources with a charitable funded Admiral Nurse.
Housing
Sir, there was a pressing need to improve the quality and availability of both social and affordable housing in Jersey. New Proposals for Housing will be set out in the White Paper which will be debated by the States in the new year.
Until that debate takes place, budgeting for housing remains the same. We have not pre-empted the States’ decision on this important development.
Looking ahead, creation of the new Housing Association could enable the Association to borrow. While not a decision for today’s debate, this could facilitate much needed investment, maintenance and improvement so the Decent Homes Standards can be met and more new homes can be built.
Economic Growth
Another urgent priority is to reduce unemployment, keep people in work and create new job opportunities.
The ‘Back to Work’ initiatives have been extremely successful in developing skills and are already reducing unemployment. This Plan provides the funding to continue that good work.
A strong economy provides jobs and raises the standard of living for Islanders.
The Economic Growth and Diversification Strategy was designed to facilitate job creation and to better align inward migration to create high value employment for local people.
This Plan includes funding to deliver the aims of that Strategy, earmarking the first £5 million for the Innovation Fund, in addition to support for Jersey Finance and Digital Jersey.
The plan also allocates funding so our main source of income, the Finance Industry, remains strong and is able to grow.
Jersey already punches above its weight and our aim is to remain nothing other than the best and most highly regarded International Finance Centre of our size in the world.
The opening of a London Office to represent all Jersey’s interests, not just financial services, will strengthen our relationship with the United Kingdom and other countries represented there.
Sir, all these investments are designed to ensure that Islanders, whatever their circumstances, can enjoy a good quality of life, job opportunities and choices to reach their full potential.
The MTFP targets increased spending towards priority services, but it does so without the need to raise taxes.
As indicated in the draft 2013 Budget earlier this month, further tax-raising measures will not be necessary at this time – our focus will instead be on improving tax collection and anti-avoidance measures.
This plan allows taxation to remain low, broad and simple.
Responding to change
Even though we are setting a three-year plan, there is still some scope to respond effectively to changing economic conditions.
The total Capital Programme amounts to £222 million, with £56 million to be agreed in the 2013 Budget, £89 million in 2014 and £77 million in 2015.
By allocating funding to capital projects in this way, we are able to remain flexible and respond to changing circumstances.
The Council of Ministers proposes that contingencies of £19 million will be available over the next three years.
Departments are being encouraged to develop their own contingencies to manage any pressures as they arise. They will need to demonstrate that they have considered all measures before they need to approach the Treasury for contingency funds.
A new process for carry forwards is also in place to ensure departments have greater certainty. This is crucial to departments as it enables them to manage changes in priorities over the three years.
The Council of Ministers will also consider any further opportunities for budget reductions or efficiency savings that may arise from the Public Sector Reform and Modernisation Programme.
This will create the potential for additional flexibility particularly in 2014 and 2015.
In summary there is flexibility in the annual decision making on the capital programme, flexibility in contingencies and flexibility in carry forwards.
Balance Sheet
There has been a great of deal debate in the past about revenue expenditure and the budget. Less attention has been paid to the States balance sheet. While this debate is mainly about current expenditure, we must continue to actively manage the balance sheet.
The States needs to make better use of its assets, particularly land and buildings. In the period of this Plan, steps will continue to be taken to make optimum use of buildings and to rationalise office accommodation.
The Plan identifies the income received from the controlling interest in the Island’s utilities: Jersey Water, Jersey Electricity, JT and Jersey Post and also the States of Jersey Development Company.
Now a more active shareholder, the States is working with all of these companies: developing their businesses, serving Islanders, joining in with employment initiatives and, where possible, generating international opportunities for economic growth and diversification.
These strong relationships have enabled us to achieve an extra dividend from Jersey Post of £4.5 million.
£15 million will go towards funding the capital programme and therefore support the local construction industry and £5 million will seed the Innovation Fund which will help to grow new businesses for the future.
Active management of the balance sheet can result in an overall improvement of the financial position for Jersey, as well as safeguarding the assets of the Island for future generations.
Pensions
Jersey’s balance sheet is strong but as Members will be aware, it does carry liabilities to the two employee pension funds, PECRS (for public sector workers) and JTSF (for teachers). This plan provides a further £3 million per year by 2015 for the earlier repayment of this pre-1987 debt.
We will come to Senator Farnham’s helpful amendment later.
A technical working group is evaluating options that will make public sector pension arrangements sustainable, affordable and fair for the long-term. Their initial findings will be reported later this year.
I am confident that all these elements will both deal with the historic liability and provide a strong foundation for the future.
Long term planning
One of the strategic plan objectives was long term planning and work on long term planning does not stop here. We are also looking at long-term planning for capital and revenue. As I explained earlier the medium term financial plan does in itself enable longer term decision making.
But we plan to do more...
The Council of Ministers has now formed a Ministerial Sub Group with the specific remit of longer term planning.
Their output will include a 25 year capital programme and 10 year revenue plan.
Conclusion
Sir, This Medium Term Financial Plan delivers growth in essential services, balanced revenue budgets in all three years and support for the economy while maintaining the current system of taxation.
It does so by making careful use of existing resources, by seeing through the final stages of the CSR and by setting out a flexible capital programme that can provide both improved services and fiscal stimulus.
We are in a unique position to be able to achieve this level of economic stimulus without drawing on strategic reserves or incurring debt.
This Plan:
- provides a way for us to support our vital industries and develop new ones
- helps those who are out of work and need support
- ensures that we will be able to continue to provide our Health and Social Care services, and to improve on them
- invests in infrastructure that will hold our Island in good stead
And it means that we will be able to spend our time doing what matters – serving our Island community efficiently and providing better value for money.
Understandably Jersey has suffered a lack of confidence over the last few years because of the difficult changes that have been necessary to secure our economic stability.
Some Islanders have doubted that Jersey will ever return to prosperity and growth. Some people even believe the best is in the past.
I don't.
In proposing this Plan, I believe the best is yet to come. And by the ‘best’, I mean a return to economic growth, increasing job opportunities and a well- funded, well-run public sector providing services we can be proud of.
On that optimistic note, I commend this plan to the Assembly.
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