Treasury and Exchequer
Ministerial Decision Report
Variations to the co-funded payroll scheme – phase 3
- Purpose of Report
A variation to the Co-Funded Payroll Scheme (CFPS) Phase 3 to take effect for claims made in respect of November and future months.
- Background
Funding provisions were made in the Government Plan 2020-2023 in the General Reserve for funding needs that cannot be met from existing heads of expenditure in 2020. The Minister has increased the amount available in the General Reserve by transferring £65.3 million from the Treasury and Exchequer head of expenditure (MD-TR-2020-0035), approving an additional £99.99 million of expenditure (MD-TR-2020-0047) and making transfers of £28 million and £50 million from the Stabilisation Fund (MD-TR-2020-0055 and MD-TR-2020-0112).
The Minister for Treasury and Resources approved MD-TR-2020-0049, to establish the Co-Funded Payroll Scheme Phase 2, MD-TR-2020-0063 and MD-TR-2020-0100 to extend the scheme until 31st August and 31st December 2020 respectively.
CFPS Phase 3+
The CFPS Phase 3 was agreed to enable a gradual withdrawal of the Scheme in light of an improving economic climate. Since the Scheme was agreed in July, the public health context both locally and internationally has changed. High numbers of Covid-19 cases in both the UK and Europe have required the Island to introduce self-isolation requirements for many arriving visitors. Whilst the introduction of new national lockdowns in the UK, France and Germany have severely all but eliminated demand amongst tourists to travel Jersey. At the same time, recent increases in cases locally have necessitated changes to public health restrictions that have an impact on businesses’ ability to trade.
The combined effects of the evolving public health context mean that the economy is in need of greater levels of support than could be offered by the original CFPS Phase 3.
Under the CPFS Phase 3 the payroll subsidy available reduces over time from 1st September, with support tapering as follows:
Whilst this reducing subsidy may still be appropriate for businesses that are not materially impacted by recent events that are impacting the economy, it is not satisfactory for businesses that are significantly affected.
The above is now supplemented by CFPS Phase 3+, which provides a higher level of subsidy for some businesses. Up to a maximum potential subsidy of 60%, the subsidy available will move in line with actual detriment experienced in order to adapt to changing economic circumstances.
For businesses with detriment between 20% and 50% the amount of subsidy available will be the actual percentage detriment plus 10%. The maximum subsidy will be 60% so businesses with detriment between 50% and 100% will qualify for a subsidy of 60%.
The table below shows some examples for businesses with different levels of detriment:
Detriment | Subsidy |
20% | 30% |
23% | 33% |
34% | 44% |
50% | 60% |
70% | 60% |
CPFS Phase 3+ is intended to supplement the existing CFPS Phase 3 so only applies if it offers a higher level of subsidy than could have been claimed under the original CFPS Phase 3 tapered subsidy scheme. If the original CFPS Phase 3 offers a higher subsidy then the higher amount would be paid.
For example, a business with detriment of 21% in November 2020 will qualify for a 40% subsidy in accordance with the original CPFS Phase 3 rather than a 31% subsidy that would be payable using the CFPS Phase 3+ method.
Importantly, CFPS Phase 3+ allows the CPFS to be flexible and adapt to changing economic circumstances as, through it’s link to the level of detriment, the subsidy available is tailored to a business’ actual financial need up to a cap of 60%.
Compared with some other jurisdictions that offer tiered levels of subsidy, this detriment plus 10% approach also helps to ensure that businesses remain incentivised to improve performance rather than potentially suffering a sudden drop in the level of support that is inevitable with a tiered approach.
Risks
The risks inherent in the scheme are greater than would normally be acceptable by Government Ministers. However, Ministers involved in the development of the scheme have acknowledged and agreed to accept the increased risk, based upon the economic advice which identifies the likely substantial economic benefits of the scheme and the continuing unprecedented threats to the economy posed by the Covid-19 pandemic.
- Recommendation
Based upon economic advice, the business case, and after having weighed the potential economic benefits against the relative risks, the Minister is recommended to approve the variation of the CPFS to establish Phase 3+.
- Reason for Decision
Article 15(3) of the Public Finances (Jersey) Law 2019 states that the approval by the States of a Government Plan authorises the Minister to direct how an approved appropriation for a reserve head of expenditure in the plan may be spent (including on another head of expenditure) in the first financial year covered by the plan.
The current Policy for Allocations from the Reserve agreed by the Minister for Treasury and Resources on Friday 17th July 2020 sets the requirement for all allocations from the General Reserve (Covid-19) once approved by the States Treasurer to be referred for review to either the Council of Ministers or the relevant Competent Authorities Ministers and to seek comments from the Principal Accountable Officer (PAO) prior to submission to the Minister for approval.
The Minister for Treasury and Resources approved MD-TR-2020-0049, to establish the Co-Funded Payroll Scheme Phase 2 (with £46 million allocated to Customer and Local Services by this decision, a maximum cost of £138 million and further drawdowns to be approved by the Treasurer), and MD-TR-2020-0063 and MD-Tr-2020-0100 to extend the scheme until 31st August and 31st December 2020 respectively. The Minister has subsequently limited the cost to a drawdown of £125 million in 2020.
This variation was approved by the Council of Ministers on the 11th November 2020. The PAO was consulted on the 11th November 2020.
Following approval of the variation by the Council of Ministers, the Minister is satisfied that there is an urgent need to provide funding in the public interest and that threats posed to the economy warrant the higher than normally acceptable risks inherent in the extension of the CFPS, including the inevitable dilution of the Scheme’s efficiency.
A business case has been appraised by the Investment Appraisal Team and recommended to the Treasurer. On the basis that the Minister for Treasury and Resources and the other Ministers responsible for the Scheme have accepted that an extension of the CFPS will dilute the efficiency of the Scheme and increase the risks associated with it, and on the basis of economic advice that the benefits should outweigh associated risks, the Treasurer recommends that the Minister agrees the variations of the CFPS Phase 3.
Costs intended to be incurred between January and March 2021 is dependent on the approval of Government Plan 2021-2024.
- Resource Implications
It is forecast that the additional costs arising from this decision can be met from the £125m available for the CFPS in 2020.
The maximum available funding of £138 million allocated by MD-TR-2020-0049 was reduced by £13 million to a revised maximum funding of £125 million in 2020 by MD-TR-2020-0100.
Report author: Specialist – Business Cases | Document date: 11th November 2020 |
Quality Assurance / Review : Head of Financial Governance | File name and path: L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DS, WR and SD\2020-0143 Variation for CFPS Phase 3 |
MD sponsor : Treasurer of the States |
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