Good afternoon.
I’m delighted to be in front of what was always a friendly IOD audience in my previous role at Economic Development – hopefully that will still be the case in my new role.
I always like to start a speech with some positives and as I walked down here today in the brilliant sunshine I reflected on the improving economic mood from nearly all business sectors.
I reflected on falling unemployment figures as more jobs are created in the private sector.
Indeed, for the first time since the recession started in 2008 it is predicted that 2014 will have delivered the first GVA growth in our economy of 1.6%.
We need to build on this improving position but that takes investment which I will come back to later.
Dealing with public finances
In the meantime, I want to talk today about the challenges we face with our public finances and our plan for dealing with them.
It’s perhaps worth reflecting that my six years in my previous role as Economic Development Minister started in 2008 which coincided perfectly with the onset of the global financial crisis – I clearly like a challenge.
At both Economic Development and in my new role as Treasury Minister I followed in the footsteps of Senator Ozouf – one of us was lucky; the other clearly needs some luck.
So I stand before you at an interesting time.
Firstly, let me say that despite media speculation in recent weeks Jersey has strong public finances but there’s no denying the fact that we face some big challenges.
Unlike many jurisdictions we are in the fortunate position of having a strong balance sheet representing billions of pounds in assets and cash and low levels of debt.
The low levels of debt we do have are mostly linked to social housing, which generates income.
I say this not out of complacency – that is the last thing I feel – but simply as a reminder that we are starting from a position of relative strength.
This means we have more options than most to tackle the challenges we face.
But what are these challenges?
Well, in a nutshell, it’s a matter of ‘choices’ about how much we want to invest in improving and developing our public services between now and 2019.
Investment in health and education
The focus of much of the proposed investment is in health and education.
However, an ageing population is not surprisingly creating an increasing pressure on public finances.
Spending in areas such as health and the state pension is, regardless of new investment, increasing faster than revenues.
And the long global downturn - with interest rates lower for much longer than ever imagined - has continued to impact our revenues.
These are not challenges that are unique to Jersey but with a heavy reliance on our finance industry and specifically the banking sector it has taken its toll.
These and other factors contributed to revenue forecasts falling short.To be clear our income is not falling it’s just not rising as fast as originally forecast.
Every government in the western world has had to face up to lower revenues and we are no exception.
I am determined that we maintain strong public finances and plan now, prudently, to deal with the funding challenges we face rather than pass greater problems onto future generations as other governments often seem content to do.
Make no mistake to do this we will have to make changes that have not been seen or even contemplated in Jersey’s public sector before.
Better expenditure forecasting
As many of you here today will know forecasting expenditure tends to be quite an easy process and spending that money is even easier - especially for politicians with so many highly emotive and worthwhile demands on the public purse.
But, as you will also know forecasting income is much more difficult especially when those forecasts extend years ahead, in this case to 2019. Not surprisingly the longer the forecast period the greater the level of uncertainty.
To improve our forecasting I have established a new income forecasting group with new terms of reference and a broader remit.
Based on their advice, our current estimates are that if we invest in new and improved services - particularly in healthcare and education as well as essential capital for infrastructure - annual expenditure will be exceeding income by at least £125 million by 2019.
That is, of course, if we take no counter measures – which we will.
Within the £125m, the proposed investment in health and education alone amounts to £56m.
To put this proposed new expenditure into some context, if we do nothing other than factor in existing expenditure levels adding inflation and depreciation then annual expenditure would exceed income to the tune of £57m by 2019.
We have set out our vision in the draft Strategic Plan and outlined the additional investment required in the key areas mentioned.
In addition improving St Helier and of course, supporting a more productive economy with all the benefits that brings in terms of jobs and of course the taxes we need fund public services.
The first priority is to find as much of the funds necessary to make this investment in improved services by focusing on our existing expenditure.
Cut duplication of functions
We will reprioritise existing expenditure and cut costs where there is duplication of functions or where services are no longer a core priority.
Action needs to be taken now otherwise we run the risk of a structural deficit by 2018/19 that the FPP (independent fiscal policy panel) have warned us about in their recent report.
To be clear that potential structural deficit will arise if income and expenditure is not aligned by 2018/19 when the FPP estimate the economy should have returned to capacity.
But we do have a choice in how we approach it. We could choose the fast, apparently easy way. We could wade in and make indiscriminate, wholesale cuts that damage our economy in the short term and community in the long term.
The Council of Ministers has decided that the priorities should be:
- delivering economic growth
- accelerating the reform of the public sector to ensure we are as efficient as we possibly can.
As I have already said this is going to mean tough decisions including some redundancies, but we will work with our staff and their representatives to minimise the impact.
User pays charges
To the extent that these initiatives are insufficient to balance our income and expenditure we will consider other options like, a liquid waste charge or specific user pays fees where some existing services are clearly delivered below cost.
But, I must emphasise that any user pays charges will only follow an agreed program of reprioritising budgets, efficiencies and cost reduction.
There can be no interruption or failure to our essential public services. We must provide modern, effective support to Islanders who really need it.
We must continue to find ways to create a better environment to enable local businesses to sell competitive, innovative services to a global market, thereby maintaining and creating employment for more Islanders.
Increasing performance under these conditions calls for clear, strategic thinking. The changes we make will need to be transformational.
This is why I am working closely with the heads of all the States departments and why I have appointed two highly experienced external advisors.
Identify priorities and savings
Together, we will identify priorities and sustainable savings across the board, not just in separate departmental silos as in the past. I’m not prepared to accept one department making a saving simply to see it appearing as a cost in another department. That may have been acceptable in the past but not today.
I’m looking for a whole of government solution and, to that end, the Council of Ministers are working as a team intent on delivering results.
Change is difficult for any organisation but following a couple of years of largely preparatory work we are now beginning to see results.
For the sake of everyone the pace of change needs to accelerate to remove the uncertainty that is so difficult for staff.
Importantly, we need to get on with the job to ensure that we can afford to invest in quality public services without having to raise unnecessary charges or taxes.
Change is happening. Legislation to incorporate the ports will be debated by States Members in a few weeks. An incorporated Ports will remove £300m of capital funding pressures from the States over the next 25 years.
Last week, we announced our intention to combine the Home Affairs Department with parts of the Chief Minister’s Department. We have begun a review of Financial Services, External Relations and Economic Development functions.
We are looking at the organisation as a whole and we are asking ourselves: do we need so many departments, can we simplify service delivery, and how can we be doing more or at least the same for less?
So how do I and my fellow ministers intend to achieve better control of public spending? And what will be the timeline?
The Controller and Auditor General recently published a report on States financial management which raised 36 recommendations. To control our money better we have already started working to implement most of these recommendations
By the end of 2019 we aim to have:
- streamlined services into an effective, sustainable new model across the States, combining skills and eradicating duplication
- created an efficient, modern workplace
- rolled out effective digital services to Islanders through a smaller, more flexible workforce
- continued to prioritise economic growth, including targeted capital investment
- improved productivity and continued to fund the anticipated increase in States pension costs
The first of these aims, to streamline services, accounts for the largest area of potential savings.
Modernise the public sector
We have already embarked on a widespread programme to modernise the public sector.
Now, though, it is time to widen the scope and increase the pace of change.
Viewing the States as a whole, we will be looking at budgets against outcomes, measuring returns and finding opportunities to make organisation-wide improvements.
Deadlines, timelines, return on investment: these are the required norms in the private sector. They should be and they will be in the public sector too.
We are investing taxpayers’ money and we owe it to them to measure the return on that investment. Those returns may not always be financial but we must at least ensure that they are always measurable and transparent.
I have already mentioned the ongoing work to merge departments where possible, and to streamline their output and increase productivity.
Inevitably, this will have an effect on jobs, on pay negotiations and on future recruitment. Half of the public sector’s current spending is on staff. We will need to reduce that figure if we are to make any real headway. But as I have said, this cannot be done in a sustainable way if we just take a hatchet to it.
Instead, we will reduce the headcount using natural turnover, retirement and voluntary redundancy. But we will also, where necessary, have to use compulsory redundancy too. We will manage our vacancies with greater discipline.
Change patterns of behaviour
The first question every department should ask when a staff member leaves is: how much of this job needs to be replaced? Or how much of it is duplicated in other services or other departments?
This will require flexibility and a willingness to change past patterns of behaviour. It will not be easy. But it must be done – there is no choice.
In the past five years, the public sector has acquired 300 extra staff, pushing us over the 7,000 mark and that excludes temporary and contract staff.
However annual staff turnover is almost 9% so there is room for manoeuvre and options. In short we will introduce strong and effective vacancy management.
Then there is the question of where we accommodate our staff. At present, States workers are spread across two dozen offices. It’s little wonder that duplication and inefficiencies exist.
Relocating the majority of our workers into a single government building will create a much more productive and coherent work culture delivering services in the most cost effective way possible.
Such a move will take courage and significant funding but is a critical investment that we need to get on with if we want to deliver modern and affordable public services.
In its most recent report, our Fiscal Policy Panel recommended that "financing issues should not be a reason to delay or postpone important investments, particularly those which support productivity improvements and competitiveness."
I believe that we must show the resolve and the conviction to back development projects that will increase our productivity and keep us competitive.
Investment in digital capability
This is also true of the States’ investment in its digital capability, which is just as important as its real estate.
A large, complex portfolio of change is already up and running with our e-Gov programme - despite what you may have heard in the media.
By putting more of our services online, we are building a platform that will eliminate duplication, maximise our use of data, and allow teams across the States to work together with minimum fuss and maximum efficiency.
There are already many examples of this in action:
- the Planning Department has created an easier online applications process
- some Social Security contributions have moved online with more to follow
- the Health Department is combatting time wasted by non-attendance by moving its breast-screening appointments online
- a redesign of the government website has made it easier for mobile and tablet users and people with disabilities to access our services.
We will maintain and accelerate this investment in e-Gov, so we can move more and more services online, cut costs and continue these real, measurable efficiencies across all departments.
Our staff are at the centre of what we do. Many of them have been among the architects of this change.
Our draft Strategic Plan has set out the government’s priorities for the next three years. They are priorities we believe will benefit all Islanders – but they will come at a cost.
It will only be through new thinking, tighter and leaner services and, above all, through a willingness to be flexible and adapt to change, that we will find the resources to meet that cost.
Thank you.
gov.je