Good afternoon.
It’s a pleasure to be able to address the members of the Institute of Directors, to take this opportunity to reflect on 2018, and to look ahead at the year to come.
2018 has been a year of significant political change for Jersey, and one that has led to renewal across the public sector.
A new States Assembly, a new Council of Ministers, a new Chief Minister, and a new – and hopefully better – way of working.
I am confident that we are on the right path to address the challenges the island is facing. I am confident that the Council of Ministers has the skills and commitment to see change implemented. And I am confident that we will achieve the best outcomes for all islanders.
The IoD certainly could not have selected a more timely date to discuss these issues. In fact, I hope you will forgive me if I leave promptly following lunch but, as you will be aware, we are now in the third day of a significant States Assembly sitting.
The Common Strategic Policy has been approved and the Budget is in the final stages of approval. There are further important matters on the Order Paper, including legislation requiring Jersey companies to demonstrate economic substance as sought by the EU Code Group on Business Taxation, and a proposed amendment to the 2019 MTFP.
Before I examine in detail the challenges and opportunities facing the Island in the year to come, I want to take a brief look back at 2018.
2018
It would not be an overstatement to say that 2018 represented a significant shift in the political leadership and management of the island’s government.
January saw the new States Chief Executive, Charlie Parker, take up his office. And whilst work had already begun from November 2017 on the reform the civil service, his arrival marked an important milestone in that journey.
In March, the proposed Target Operating Model was published, outlining the fundamental changes needed to ensure that the States is more efficient, more accountable and more cost effective.
In May, we had the first Spring election day, which saw the retirement of many long-serving States Members whose names will be familiar to this audience. All have given significant time and energy to the Assembly and should be thanked for their service to the island.
Their retirement has led to an Assembly with many new elected members from varied walks of life.
And, I am very enthusiastic about the current goodwill in the Assembly. Members who have served for many years said during the CSP debate that they are more confident now of a collaborative and productive relationship with their colleagues than ever before. I share that confidence.
From that new Assembly, we have built a Council of Ministers who sit across the political spectrum, and have a mixture of Ministerial and Scrutiny experience.
As a Government, we are committed to the five priorities contained in the approved CSP. No one priority is more important than another. But I imagine of particular importance to this audience will be our commitment to building a sustainable, vibrant economy.
I believe it is critical that we provide the economic framework that is necessary to deliver the evidence to assess and prioritise how and when we act – especially in light of the economic challenges we are facing.
Economic Challenges
The Fiscal Policy panel in their October annual report concluded that while growth improved in emerging and advanced economies over the past two years, risks to the global economy have increased.
As the OECD points out, these risks include financial market instability in some developing countries, trade tensions, ongoing structural issues in the EU and geopolitical risks.
Jersey is an inextricable part of the global economy, so these issues are real and serious for us. Nonetheless, we are showing positive signs.
The most recent Labour market statistics released in November showed total employment was 61,930 in June and overall employment in the private sector was 54,220. Both are the highest figures recorded to date.
I’m pleased to note that, taken together, the non-finance elements of our economy, saw a fifth consecutive year of growth in 2017, and the latest Business Tendency Survey suggests a positive picture in 2018, with expectations for future business activity at their highest in the last ten years.
However, we cannot afford to be complacent.
Whilst the Fiscal Policy Panel suggests that we could achieve GVA growth of around 1.6% for 2018, and 1.5% for 2019, GVA per person fell by close to 1% in 2017 to a record low – which reinforces the need for us to address our declining productivity.
The finance sector’s output also shrank for a third year running in 2017, although the sector is positive about future business growth and bank profitability, driven by the expectation of rising interest rates.
Looking more widely, the uncertainty surrounding Brexit, and the future path of interest rate rises are risks to the finance sector.
As is the ever-present threat of punitive regulations targeted at low-tax international financial centres.
Financial Services
One of the most pressing concerns being addressed by Government is the focus on the island by the European Union Code of Conduct Group on Business Taxation.
Later today we will debate the draft legislation on economic substance for companies.
This legislation is vital for promoting and protecting our reputation as a well-regulated jurisdiction committed to international standards in tax transparency and good governance.
It provides the means to fulfil the commitments made by Jersey to the Code of Conduct Group in November 2017, by imposing substance requirements on all Jersey tax resident companies undertaking relevant activities. And it ensures that we can enforce those substance requirements.
I hope, and believe, that the legislation will meet the requirements of the EU Code Group, which means that Jersey should be assessed “fully co-operative” and not included in the so-called “EU Blacklist.”
This legislation is the latest stage in Jersey’s compliance with international standards, building on tax transparency, the implementation of the anti-Base Erosion and Profit Shifting package, and – now – the requirement that Jersey tax resident companies have adequate people, expenditure and physical assets in Jersey.
I should emphasise that the proposed legislation codifies much of what is already done, across industry, in pursuit good practice.
I made that point to UK MPs Dame Margaret Hodge and Andrew Mitchell when they visited the Island on Monday.
I outlined to them the processes the Island has in place for sharing information readily with law enforcement agencies around the world.
I equally reinforced that Jersey enjoys a long-established constitutional relationship with the Crown, and it is not for the UK parliament to legislate for Jersey without our consent.
I do not doubt we will continue to face criticism from external parties, including UK MPs, for our business model. It is an argument that we must be prepared for and able to respond to robustly. A part of that will be around increasing our engagement with UK parliamentarians.
Navigating Brexit
The most important challenge faced by the island is the uncertain outcome of the Brexit negotiations
As you will know, the Government of Jersey’s Brexit planning has been developed on the basis of a ‘no deal’ or ‘Hard Brexit’ scenario since the UK referendum took place in June 2016.
That work was taking place before the referendum on a contingency basis, and we were able to present a Report to the States Assembly setting out our proposals the day after the leave vote. I was also able present that same Report to representatives of one of the newly formed House of Lords select committees on Brexit the following week, at the BIPA plenary.
Given recent developments within the negotiations and the increasing probability of a ‘no deal’ scenario, this has proven a prudent approach. We will know how prudent following the UK parliamentary vote on Tuesday.
Our fundamental objective has been to preserve the status quo of our existing relationship with the United Kingdom and to continue the benefits of our relationship with the EU, as under Protocol 3.
From Jersey’s perspective, we have been clear with the UK government that Jersey’s interests should be taken fully into account in the ongoing negotiations with the EU.
And, whilst I cannot provide you with an unequivocal guarantee that the Island will not be disadvantaged by Brexit - I can repeat that we have a strong and productive relationship with the UK government and I believe that our interests are being taken into account.
We have put the right measures in place for engaging UK Ministers, parliamentarians and officials.
That work has produced tangible results. At the end of November we entered into a landmark Customs Agreement with the United Kingdom, protecting our future trading relationship with our most important partner.
At the same time, we received confirmation in a letter from Lord Keen confirming the UK government’s commitment to the historic and valued constitutional relationship between the UK and Jersey, including reference to our Royal Charters - those ancient documents that are the foundation of our rights today.
I want to thank Senator Gorst, his predecessor Sir Philip Bailhache, and the team in External Relations, for their continued work to ensure the Island is prepared for and able to effectively manage the complexities of Brexit.
Whilst the impact on our financial services industry is tempered by the fact that we are outside of the European Union for services, there are areas where there are legitimate concerns.
Given the symbiotic relationship between the financial services sectors in the UK and Jersey, it is important to us that the UK’s financial sector remains successful.
Many leaders here today will also have EU citizens forming part of their workforce. We have put the Jersey EU Settlement Scheme in place to protect their rights and ensure they can continue to live and work in Jersey.
We are working with Jersey Finance, Jersey Business and other industry bodies to give the widest reach to our Brexit communications, and in the week of 14 January will be launching our “Ready for Brexit” campaign, to ensure that Islanders, businesses and leaders are aware of the practical effects of EU exit, and able to manage them appropriately.
I strongly believe that this planning will help put us in the strongest possible positon come March 2019.
A Public Sector that is fit for purpose
As many of you who have led change in professional services will know, it can be a complex and often-painful process for all involved.
It takes time for change to become embedded, and for the benefits to be perceived by frontline staff.
Complex confidentiality obligations and financial implications mean that communicating the reasoning behind changes can be difficult.
Firmly held views and opinions from long-serving members of staff must be taken into account, and opportunities for one to one communication made available.
When that change includes a wholescale review of pay and contractual terms, the difficulties of overcoming misconceptions about change can be compounded.
This is the position the Government of Jersey finds itself in today.
We are engaged in a comprehensive exercise to modernise our service and overcome legacy issues.
We have no common operating system and spend millions on data every year.
We have over 3200 job descriptions and use more than 100 spreadsheets to close our annual accounts.
The benchmarking of our IT systems scored 2.3 out of 5, on a scale where below 3 is suboptimal.
We also have fundamental issues to address on pay.
That pay deal made to public sector staff is designed to achieve greater pay equality across the public sector, ensuring that the greatest benefit is for those at the lower end of the scale.
The current staff pay bill of £359 million a year already accounts for nearly half of the States’ annual budget. Forecasts for 2020 show deficits of £30–£40 million. Paying all staff in line with the Retail Prices Index would add more than £9 million a year, forever, to pay costs, and would further increase the forecast deficit
As Chief Minister I'm committed to the expenditure limits as set out in the MTFP period, including those for 2019.
Therefore, to be able to create a balanced MTFP from 2020 onwards, it is critical that we create revenue savings in 2019 NOT one off savings.
I am taking a prudent and fiscally responsible position in order that our books are balanced.
The industrial action that is to take place tomorrow is not desirable, but I want to be clear that we are not in an emergency situation. We will continue to offer essential services to all Islanders throughout this time.
I hope that, as business leaders, you will continue to support the Chief Executive in his work through this period and that, like me, you share in the vision of a more efficient and cost effective public sector that will emerge in 2019.
Implementing the Common Strategic Policy
Knowing the challenges facing Jersey in 2019, where do we go next?
Following the unanimous approval of the CSP, we have a clear mandate from the Assembly to implement our plan and begin to make the improvements Islanders want to see.
The next step is to take our strategic priorities and put them into action.
Before the end of the year we’ll propose transitional arrangements for 2019 which will enable us to start work on our priorities within the financial constraints of the current MTFP. Then, in Summer 2019, we’ll propose a four-year Government Plan 2020-23, which will provide the fine detail of government activities.
The Future
I have no misconceptions about the difficulties we are facing. 2019 will potentially be one of the most challenging years that this Island has faced in recent memory.
It is our responsibility, for residents, businesses and investors in the Channel Islands, to provide the reassurance and leadership needed to successfully navigate these challenges.
In the face of risks, we must also embrace opportunities open to the island.
The Government is committed to enhancing Jersey’s international profile, and to developing broad-based relationships with international partners based on shared interests.
I was delighted to have been in Hong Kong and China earlier this month, meeting regional policy makers, representatives from the financial services industry, as well as digital entrepreneurs to raise awareness of the expertise and high-quality services that Jersey has to offer.
We were able to rebase our presence in the region, and have returned with a number of opportunities for further engagement and the enhancement of business links.
Last month, the Minister for External Relations was also in the UAE for the opening of Jersey Finance’s new presence in the Dubai International Finance Centre. Next week he will be travelling to Kenya and Rwanda, building on the substantial work that we have undertaken in those countries over the past three years to create enduring relationships and enter into bilateral agreements.
Beyond financial services, we must look to the increased opportunities presented by our tourism, culture and the digital sector.
2018 also marks the fiftieth anniversary of Jersey Overseas Aid. For the first time we have a Minister for International Development who has dedicated portfolio, is making headway in building Jersey’s reputation in the provision of global aid, and has ambitions to make Jersey a world leading Centre of Philanthropy.
As we look forward to 2020, and the 75th Anniversary of the Liberation of Jersey, we should take the opportunity presented by this celebration to spread a message to our international partners about all that is good about Jersey; its people, its culture, its businesses and its international connections.
Conclusions
For the first time in many years, we have a compelling vision for the future of the Island, and the tangible impacts we can make on Islanders lives.
We have a States Assembly who support that vision.
We have a new structure in the public sector to support us in implementing that vision.
And we have a Council of Ministers who are committed to seeing that vision made real, working in partnership with businesses to achieve success.
Despite the challenges we face, I am confident that we can achieve that success and continue Jersey’s reputation as a small jurisdiction that rightly punches above its weight. One that will continue to develop a successful international profile in 2019 and the years to come.
Thank you.
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