Distributional analysis of MTFP proposals
This report analyses the impact of the different proposals contained in the Medium Term Financial Plan Addition, as well as some options that have not been taken forward, on various households with different levels of income. It has helped to inform Ministers’ decisions and is being published so States Members and islanders can have access to the same detailed analysis.
The assessment should be balanced against other government priorities like the health of the economy and alternative ways of assessing fairness, like that between generations. Other objectives include the efficiency of public services, the competitiveness of the economy and the need to put finances on a sustainable footing to help secure economic growth and future prosperity.
The distributional impacts of policy changes are complex and not always clear cut, especially when they include changes in spending. Even where it is possible to consider the impact of measures on households of different income this is one part of the picture. To fully understand the situation it would also be necessary to take account of wider impacts in terms of wealth, welfare and impacts over people’s lifetime, all of which are difficult to assess.
Health and social services
Spending on health and social services is generally considered to benefit all, but particularly those in lower income groups. The Institute for Fiscal Studies concludes that as the largest item of public spending, health benefits lower income groups as that is where ill health is concentrated.
The proposed health charge is income based and the 30% of lower income households who do not pay income tax will not be required to contribute. It is proposed to cap the charge at the same Upper Earnings Limit as for Social Security contributions.
The impact of education spending on different households is less clear. However, a large proportion of the increase in education spending in Jersey is on the Jersey Pupil Premium, with a further increase in secondary education. This suggests that the increase in education spending will benefit those in lower income groups. There is also a £2 million increase in funding to help more people on lower incomes access Higher Education.
It is proposed to means test subsidies for nursery places for households with annual income of £85,000 or more and to reduce subsidies for fee paying schools. These measures will enable the Education Department to target its resources on those who are most in need.
A number of benefit changes were agreed last year as part of the first stage of the Medium Term Financial Plan. Changes were designed to target spending and encourage claimants to move towards financial independence.
The previous Christmas bonus provided nearly £85 to about 19,000 households irrespective of wealth. A new, means tested, Christmas bonus plus an expanded health scheme for people over 65 will offset much of the impact of this change.
Application of analysis
Ministers have been using this assessment to inform decisions in the MTFP Addition. The Treasury and Resources Minister, Senator Alan MacLean, said “This report looks at the draft options the Council of Ministers were previously considering. It shows that we responded to the impact of these proposals on various groups. For instance we are not introducing charges for health services at the point of use and we have provided an additional £2 million per year to help our young people go to university.
“There are other reasons for some of our proposals. Last year’s income support changes were chosen to encourage fairness and financial independence. Waste charges are being levied on commercial users to encourage businesses to manage their waste more efficiently.
“When looking at the impact of our proposals we must remember who are the principal beneficiaries of investment in our priority services. Spending on health services is considered to be progressive, pupil premium focuses on children who need support, older people will receive community-based health care so they can remain at home for longer. And we must also consider the overall impact of government spending and taxation, not just the measures proposed in this plan.
The Chief Minister, Senator Ian Gorst, said “This analysis shows that the £50 million we are investing in health and education is likely to benefit less well-off islanders, and hence can be considered progressive. This important investment in the more vulnerable in our community, both young and old, will focus on raising standards among pupils who need extra support and on treating patients in their homes for as long as possible.
“We have been considering the fairness of our proposals throughout their development, also taking into account the impact of where the money we save will ultimately be spent. We have looked at a number of ways to balance the contribution we need from islanders in order to achieve this investment. We think we have found the right balance - so we can allocate investment to the agreed priority areas of health, education and St Helier, while also upgrading our essential infrastructure, supporting the economy and keeping spending under control.”
View the analysis report here.