Medium Term Financial Plan Addition proposed to States Assembly
This plan is an important one for Jersey. It sets the direction of the island’s public finances for the next three years. It makes the right decisions for the longer term . It manages the challenges, and seizes the opportunities, that are emerging as the world around us changes at an ever faster pace.
Uncertainty is affecting developed economies and emerging powerhouses alike. Technology is having an impact on every business and every government – and we want to get maximum benefit for Jersey from these changes.
Global trends are increasing competition for the investment, business and talent that every jurisdiction needs to remain successful. We are working to keep Jersey a great place to live, work and raise a family. Our population is ageing and working people are having to shoulder an increased burden.
This financial plan proposes how Jersey should respond to these challenges. It supports investment in our priority areas of health, education and infrastructure. It sets out how we are reorganising departments to cut costs and increase efficiency; saving in some areas to invest in our priorities, and maintaining the services islanders need while working towards balanced books.
The Brexit vote has added additional uncertainty to the economic climate. We have a small team that is determined to make Brexit a success for our economy. While we are surrounded by uncertainty, there are opportunities as well, and we must maintain certainty and stability to make the most of these opportunities.
I welcome the conclusion of our independent panel of economic experts. The latest economic assumptions from the Fiscal Policy Panel showed a slight slowdown in our economy in the short-term. Despite this post-Brexit drop in our forecasts they say the broad approach and package of measures proposed in this plan is appropriate. Their advice is clear - we have a plan and we should stick to it. We must avoid any knee-jerk reactions and ill-advised decisions which would add to the uncertainty surrounding us.
And as we maintain the discipline of a 3-4 year plan we must remember that while we no longer have to lurch from year to year, the plans for the third or fourth year will not be as detailed as for the earlier years.
Economic security provides a firm foundation that benefits every individual and every business in our island. Sound public finances and a robust financial system don’t happen by accident. They require tough decisions, action and persistence. We are keeping government costs under control, investing in health, education, infrastructure and economic growth, and regenerating our capital, St Helier.
This plan provides an extra £168 million for capital projects over the next 4 years. It sets aside more for Health, Education, and for projects that demonstrate they can boost economic and productivity growth. This is all vital investment - reflecting government’s strategic priorities.
One of our main priorities is health and social care. We are living longer – and we all want to remain healthy throughout our lives. But as the working population is not growing as fast as our older population, that comes with costs. And while we have substantial reserves compared to elsewhere our State pension scheme is ‘pay as you go’, with the cost of today’s pensions met by the current generation of workers.
This means that as the proportion of older people is rising, the proportion of workers funding their pensions and health care is falling. The Fiscal Policy Panel recommends a whole of government approach to preparing for an ageing population. We are thinking ahead - allocating additional annual growth funding of £40m to transform health and social care.
This money will be used to:-
· provide more services in the community
· keep people in their own homes for as long as possible
· meet the rising costs of drugs
· improve standards
· manage ageing demographics
· boost early intervention services for children – improving the life chances of our youngest and most vulnerable islanders
· improve mental health services
· invest in healthy lifestyle programmes – to reduce spending further down the line
This spending is in addition to more than £22 million additional investment agreed in our first Medium Term Financial Plan
This level of investment needs a new funding mechanism. That’s why we’ve proposed a new, income-based health charge. Removing this funding would put our finances under considerable strain.
The proposed health charge is a significant step towards a fully integrated funding mechanism for all health costs across the island. The proposed charge is income based, so the 30% of islanders whose earnings are below the income tax threshold will not pay anything towards it. Only taxpayers on the standard 20% rate will pay the full 1% by 2019. Most taxpayers are on the Marginal Rate and as they generally have an effective tax rate of less than 20% they would pay less than 1% for the health charge.
The charge would use the same criteria as for the Long Term Care charge, which is capped at £162,000. Using the same system means there are no new administration costs.
The Economic Adviser's impact analysis shows that this charge is a progressive step as the income it generates would be spent on health services. While spending on health and social services is generally considered to benefit all, the Institute for Fiscal Studies concludes that it most benefits lower income groups as that is where ill health is concentrated. Statistics show that spending on health care is especially beneficial for the elderly and vulnerable, who generally have more need for such services.
Investing in Education has been one of the main priorities since the government’s Strategic Plan was launched in 2015. We want to maximise the potential of every child, support families & raise standards. Our proposals will see additional annual growth funding for Education of £11m to improve standards, to cater for the predicted increase in school age children, and to help more students into higher education. Some of this increase in funding will keep class sizes down and drive up standards.
There’s also an extra £55m for capital investment – £40m for Les Quennevais, and £15m for Grainville and St Mary.
As well as investing in health, education and economic growth, £168 million has been set aside for capital projects over the next 4 years. That includes -
· £55m for school buildings
· £43m for sewage works
· £21m for IT systems
· £8m for the prison from the Criminal Offences Compensation Fund
Through Andium Homes - more than £200 million of government investment is transforming existing housing into decent homes standard, and building more affordable homes for islanders – both to rent and to buy through assisted ownership schemes. Keeping to our programme of investment in infrastructure will not only provide better, more efficient services but also fiscal stimulus for our economy and employment for islanders
Government departments are collaborating to improve living and environmental standards in St Helier, so the capital is a more attractive place to live, work and visit. This regeneration work is being spearheaded by the Environment and Infrastructure Departments, and the Parish of St Helier. It will focus investment in public space, travel and transport, improved standards for new and affordable homes and high quality office space.
It will identify opportunities to traffic-calm streets and reclaim space for pedestrians, cyclists and shoppers, while creating opportunities for new tree planting.
Andium will invest £200 million over four years to deliver affordable, quality housing that is also environmentally friendly and in line with the Island’s long-term goals of reducing emissions and energy consumption. And there will be 40 affordable shared equity apartments and 40 social rented homes provided as part of the College Gardens Development.
All this investment needs to be paid for, so we can maintain sustainable finances. The solution we are proposing incorporates an efficiency programme, reforming the public sector, growing the economy and limiting additional revenue.
We are redesigning services, driving efficiency, and reprioritising spending. It is right that every area of public spending makes a contribution to our long term plan for Jersey, and reforming the way we do things has been at the forefront of our thinking. How we deliver more for less, how we deliver quality in our public services, and how we deliver genuine value for money.
We recognise the central importance of both protecting the interests of taxpayers, and seeking to deliver world-class public services. We’ve spent time this year assessing the impact on services of some of the proposed savings. After a distributional analysis and ministerial review we have decided to focus on efficiencies - which don’t impact on islanders’ experience of services.
We have reduced the 2019 savings and efficiencies target from £90 million to £77 million and we have extended the period to deliver the remaining £13 million. This is so departments can find more efficient ways to deliver services – rather than cutting services to the public.
Every department is doing its bit for Jersey - making sure our organisation is working as well as it can for our long term future. The money should go on front line services for islanders, not on out of date, inefficient processes and back room duplication. We don’t want to undermine our strong public finances by employing any more people than we need or by spending unnecessarily.
Someone has to pay for the services we provide and that burden should not fall on our children, or on their children. We can deliver more for less – and that provides good value for taxpayers. We are embracing the spirit of constant innovation. It’s what drives our best businesses forward. And it’s what should drive government forward too. There are always ways we can improve, ways we can be more efficient and ways we can provide better value for money.
That’s something that should never change – whatever the government, whatever the state of the economy. It’s what the public will, and should, expect.
Another part of the solution is to boost the economy so it becomes increasingly competitive, innovative and technology-driven. Economic growth touches all areas of our economy – skills development provides qualified employees for our main industries and helps our young people into high quality jobs.
An extra £18m has also been set aside for specific projects that boost economic growth and productivity. The fund will support initiatives that generate extra tax revenues in the future and contribute to sustainable finances. Government is working to attract new business and to encourage innovation in our existing firms.
Our tax regime must not only compete with other international finance centres, but also remain stable and certain. In their most recent report the Fiscal Policy Panel stated “The uncertainty created in the aftermath of the referendum result has the potential to put pressure on the finance sector as investment into the UK may slow – but also could create opportunities if Jersey is seen as a safe haven in uncertain times.”
This comment highlights that stability and certainty are key to the Island’s success as an international finance centre. They are particularly important in the context of the Island’s tax regime. Any indication that the tax regime, particularly the business tax regime, is under fundamental review will create uncertainty that may see business redirected to other finance centres not suffering from the same uncertainty.
No tax system is perfect and the Council of Ministers is committed to improving the Island’s tax system in a measured way that brings in those affected by any potential changes
I turn now to vacancy management and its impact on our reform programme. During a period of service redesign we need flexibility – and posts that show up as vacant may not be. Some will be in the process of recruitment. Others may be filled with temporary workers – especially in areas like Health and Education which use bank nurses and supply teachers. And in areas where we are redesigning services, some work is being done by temporary workers – as this reduces the need for redundancies if work is contracted out.
In some areas staff funding is used to pay external suppliers. For example in the Department for Infrastructure some of the staff budget will fund contracts for Parks and Cleaning Services, with the remainder given up as savings, together with an FTE saving. Improving vacancy management is a positive aim but we must take care not to put services at risk or to remove much needed investment.
We are on the right track and we are keen to keep it that way. Recent statistics show economic improvement: -
· staying visitors went up 3% from 2014-2015
· retail sales went up 1% in the year to December 2015
· earnings increased by 2.1% in June this year
· total private sector employment is at an all-time high
· at 4% - Jersey has one of the lowest ILO unemployment rates in the world.
We have brought this plan to the Assembly because we want to maintain, even exceed these positive results. We want our continuing spending reductions to focus on efficiencies so islanders aren’t affected by service reduction.
We want a healthcare system that is a model of efficiency; a new hospital, under construction, on an agreed site and with an affordable budget; St Helier at the centre of a growing economy where people want to work, live and visit; a resurgent tourism industry that makes the most of our beautiful coast and countryside; an education system that prepares our young people for a variety of exciting employment opportunities; a housing market that provides decent homes for our community; a lean, 21st century public service that is respected and valued, and an island with strong public finances that islanders are proud to call home.
In conclusion – this is the right plan. It recognises the strategic challenges we face – income rising at a slower rate than in the past, an ageing population, the after-effects of the global recession - and it proposes sustainable, long term solutions.
It proposes a balanced package of measures, enabling us to invest in priority areas, like Health and Education, to deliver a modern, efficient public sector, to support economic growth and broadly balanced budgets.
It invests in the flexible, community-focused health & social care we will need as our society ages.
It funds improvements in education so all our children can reach their potential & develop the skills they need to live fulfilling lives and rewarding careers.
It keeps Jersey special by improving our town, preserving our outstanding natural environment and investing in our critical infrastructure.
It maintains the stability & certainty Jersey needs in wake of the UK’s Brexit vote.
It follows expert advice to stick to plan – providing flexibility by using reserves in the short term and planning for sustainable measures in the future.
What we need now is certainty to deal with uncertainties ahead - certainty, sustainability and stability breed confidence, both here in the Island and beyond. We should not put off decisions today that will become even harder in the future. This plan proposes vital investment that reflects our strategic priorities. Targeted investment, built on reform, restructuring and achievable savings.
As I said to you when we debated this plan a year ago – making these decisions is not easy, but it’s the right thing to do.