Ladies and gentlemen, good afternoon and thank you for inviting me today.
I have been asked to speak to you in my role as Minister for Treasury and Resources, to which I was appointed to in June 2018 following 3 years as Minister for Social Security. However, I could just as easily be speaking to you as a businesswoman.
As some of you will know, I have been involved with the art restoration or conservation business for 35 years. I have worked on many beautiful and priceless collections in the UK and Jersey, including the Royal Collection of Portrait Miniatures, three and a half thousand of them, housed at Windsor Castle. I was awarded a Royal Warrant for this work in 2001 by Her Majesty, The Queen.
In 2011, I was persuaded to be part of a business team established to encourage more women into politics. So impressive were my powers of persuasion that I found myself ‘walking the streets’ and knocking on doors in the October election. The result, I topped the polls as Deputy for St. Clement and instead of spending my days with exquisite, irreplaceable objects that don’t answer back, I now work with politicians!
Art gives me a valuable background and balance in a life which is otherwise consumed by the pressures of politics and Ministerial decision making.
My experience of running my small business has also given me an appreciation of the pressures that businesses in our island face – as well as how government can help, or hinder, businesses in their quest for success. I appreciate the conflict that both businesses and government constantly have to grapple with, between planning for the long term, and dealing with the urgent, immediate and short-term issues. Few businesses that have succeeded in the long-term have done so by living from day to day.
We all know the figures – that many businesses fail, and many in their first year.
Poor business planning, poor research into product, market and customers, lack of funding, poor structure, poor leadership and poor decision-making are all reasons why businesses fail. Those businesses that succeed, by contrast, have generally thoroughly researched their sector. They’ve established a sound business plan, backed by sufficient funding to see them through lean times.
Government is no different – except we don’t have the freedom to fail, to move on and start up again somewhere else. We simply have to succeed.
The alternative is unthinkable – although some countries have tried, at catastrophic cost to their citizens. It’s not a path to be recommended.
So the principles of good governance are as important for a good government as they are for a good business.
As a Minister for Social Security in the previous government, I was responsible for bringing in almost all of the discrimination laws, including race, age, gender, disability and family friendly rights, many of which were overdue by some 40 years or more and part of good social governance. As Minister for Treasury and Resources – basically, the island’s Chancellor – it’s my job to protect the bank balance and financial security of the island.
I’m responsible for ensuring that we have the revenue streams to fund our operation, that we don’t spend more than we earn, and that we don’t price ourselves out of the global marketplace through unsustainable taxes. I have to ensure that we follow all the rules of financial best practice – both as a government and as the island’s biggest business.
Government finances are incredibly complex and the decisions I’m required to make often involve eye-watering sums of money. Of course, like an FD, I don’t just make this decision on my own.
There is a team of skilled and experienced individuals with me, who help to advise and support me, doing a great job every day in managing our island’s finances.
At this point I would like to acknowledge the enormous expertise and outstanding contribution to the island given by Colin Powell. The extraordinary respect that all had for him, means that I and I’m sure many of you, will miss him hugely.
Ultimately, though, advisers advise and Ministers decide. Thus the ministerial decisions rest with me, so I also have to make my own judgements.
That’s where I apply three very important principles, which give me guidance in how to deal with all the issues I face.
ABC – affordability, balance and common sense.
Some of you will have heard me talk about these principles, because they were in my election literature and also in my first Budget speech and Budget report last year, so I won’t labour this point. But I will say that for a Treasury Minister, I must always consider what we can afford and sustain– as a government and as an island.
This is particularly relevant to trying to make sure there is an understanding of the difference between recurring costs and ‘one off’ capital expenditure. This means not making spending decisions for which we haven’t got some certainty around funding.
But I know only too well the financial difficulties that arise when you don’t balance your income with your expenditure.
As Minister for Social Security, a key part of my role was to protect the States old age pension fund from being ‘leveraged’, as some called it, and the Health Insurance Fund from being raided without a sustainable plan, both of which would have been short term ‘political’ expedients, with significant longer term consequences.
The last government was committed to a level of public spending, and new streams of additional revenue to pay for them – for example, through commercial waste charges and the health levy.
But these new revenue streams were voted out by the Assembly – partly as a result of a campaign by this Chamber – leaving the government’s finances out of kilter from the start.
This left a legacy for the current government, which will get worse as we face a financial deficit of £30 to £40 million from next year.
As Minister for Treasury and Resources, I have a responsibility to ensure we’re balancing our income and our expenditure, while protecting both our Social Security and Strategic Reserve funds.
As you will have seen in our recently published Annual Report and Accounts, last year our expenditure exceeded income by £75 million. While this was mainly due to a downturn in investment performance and the “write off” costs of the hospital, clearly there is work to be done in achieving a balance.
We’ve been very fortunate in recent years that our investment performance has been strong, and income tax has exceeded forecasts. But these windfalls are not guaranteed, and are susceptible to volatility in the economic cycle and changes to global markets, both of which are outside our control. We need to operate more efficiently and at lower cost.
The Chief Executive is actively searching out those activities that can be improved, and more affordably, to deliver £30 million pounds of sustainable efficiencies in the public sector.
Revenue Jersey, the new name for the tax office, have stepped up our tax compliance activity, and last year we collected an additional £8 million pounds, by vigorously pursuing unpaid tax that is owed.
We are currently compiling several strategies, the ‘Government Plan’ to direct us for the next four years.
Unlike the MTFP, it will be far more flexible with an annual, rolling financial plan as opposed to the rigidity with set expenditure for four years in the MTFP.
This, as you will be aware, has resulted in many of the current problems, not least the industrial disputes. These won’t be easy discussions, but we MUST have the courage to make difficult decisions.
A new policy group has been formed (which I Chair) to investigate new and different ways of raising revenue.
It is simply untenable to expect a government to freeze its streams of income when it is faced with significant rising costs, such as in health, social care, education, I could continue, but this would be a long list.
When businesses face rising costs, and you have exhausted cost saving measures, you carefully consider raising prices. You do so with research and judgement, and consideration for your market competitiveness.
In Jersey, it seems as if taxes and charges are sacred cows, which should never be touched.
If the government has delivered substantial efficiencies and it still can’t afford to pay for the services the island requires, then the government will need an honest conversation with the island about how and where it will raise more money, or it will have to cut some services. Short term expediency versus long term sustainability. As I said in my Budget speech, ‘something has to give’.
Not a message with which many will be delighted, but we may have no alternative. So do we need to raise taxes, and if so, which taxes?
The short answer is, potentially yes.
We currently have some of the lowest rates of income tax, GST, and property rates in Europe, and our Social Security contributions are half of those in UK– yet we still complain about the perceived burden of taxation.
I’m convinced that if islanders want to continue to enjoy high-quality services, the Government will, as part of a balanced strategy, also need to consider appropriate revenue-raising and cost recovery measures for the future. But not until we have demonstrated that efficiencies are delivered and enduring.
Nobody wants to see permanent reductions in nursing, in policing, in fire and ambulance, in schools, in roads and sea defences, or in environmental protection. Quite the opposite, in fact.
We, as islanders, will have to be prepared to pay more into the system if we want to maintain these services. This applies to businesses, too.
The majority of businesses benefit from our Zero/Ten corporate tax regime and low property rates. Yet many baulk at the prospect of the government recovering the cost of dealing with commercial waste – something that they would pay for without question in almost all other countries.
We want businesses to pay a fair and proportionate contribution to public services. No-one should avoid paying the tax for which they are liable.
These issues, including GST, property rates and other charges or taxes, will be considered as part of the forthcoming ‘Government Plan’. I will refer later to the need to review personal income tax.
On May 21, next week, we shall be debating the new Revenue Administration Law. This new law provides a framework for Jersey’s tax administration system, spanning income tax, GST and other tax legislation. It deals with the administration of the tax system, not with rates or levels of taxation due by businesses or citizens. It will provide an effective and consistent approach to the administration of all taxes and, in due course, encompass social security contributions. It will make the rules on tax compliance clearer and the consequences of non-compliance much more transparent for everyone, making the system fairer for those who pay on time.
This new law will support Revenue Jersey’s new online filing system and give the government greater powers to recoup unpaid taxes. This, in turn, will benefit our future income streams, which we will need, for example to achieve our target of becoming carbon neutral by 2030. It will ensure a level playing field for islanders and businesses.
Under my watch, the Government will be scrupulous in only spending what we must, in securing best value for money, and always asking the question: do we need to do this?
That is my commitment to you – as the one who signs the cheques for the Government.
But I ask for a commitment from you too – not just to join with us in a responsible debate about long-term public finances, – but also to think more about long-term social progress and the government’s financial sustainability.
Businesses have a crucial role to play in developing our society as employers of people.The most successful businesses are those that genuinely value and support their staff. Business long-term profitability and sustainability is based on, and not an alternative, to investing in your people.
A happy and engaged workforce is a loyal and productive workforce, with lower staff turnover and more discretionary effort. With this in mind, I ask you to move beyond the, arguably, short-term thinking that has led some to oppose the proposed new Family Friendly Employment Law. Instead consider the long-term benefits to your businesses of looking after your employees.
86% of women in Jersey are in employment, and yet we have nothing in our law to protect the rights of breastfeeding mothers returning to work. The first few weeks and months of a child’s life are crucial for parental bonding. Yet in the 2016 Jersey Lifestyle and Opinions Survey, it was revealed that around two-thirds of new fathers had not taken any paternity leave.
In terms of other changes that may affect businesses, we need to consider the statutory introduction of work place pensions.
We ask Chamber to engage actively in these issues and, hopefully, become champions, not opponents, of these changes.
In my view, many of these changes are overdue and make common sense.
Something else I’m determined to change is our archaic personal income tax system.
This has been the subject of repeated criticism and scrutiny, perhaps unsurprising, since the fundamental building blocks are largely unchanged since it was introduced in Jersey in 1928. In the 90 years that have elapsed since then, our society has changed beyond all recognition, while our personal income tax system has stayed rooted in the past. I’m committed to securing the reform we need and that islanders want, especially in regard to the taxation of married women – not just because I’m a woman myself, but because it is ridiculously outdated and unfair for a woman to be a ‘chattel’ of their husband in the current tax law.
Earlier this year, we launched a public consultation to ensure we’re capturing public opinion.
I’m now awaiting the outcome of this consultation and aim to bring forward recommended changes as part of the 2020 Government Plan.
A further necessary reform is updating the Public Finances Law. Again this is not the law that will change tax levels.
I hope to introduce new legislation in June, which will allow improved flexibility and the appropriate financial management and governance framework to control Government finances. This framework will ensure that the States Assembly rightly retains overarching responsibility for making those important decisions on financial policy and the allocation of financial resources. It will provide a better balance between the Assembly retaining decision-making responsibilities, and the flexibility for government to deal with change in a managed and timely manner
As with any organisation, circumstances and priorities can and do change very quickly and we need to be able to respond to them.
I’ve talked about my experiences as a businesswoman and a politician with two Ministerial roles.
The most significant lesson I have learnt over the years is the need for long term sustainability.
That means long-term planning and looking at the bigger picture. As Treasury Minister, I receive constant requests for funding from both departments and external organisations. It’s not just about affordability – it’s also about the relative benefits of competing demands for funding.
I must carefully weigh up each of these requests and assess the long-term benefit of each one – not in isolation, but in the round, compared to other requests. But not all States members agree.
For example, a recent States decision to increase funding for the Arts by £2.3 million pounds per annum, i.e. recurring expenditure, should, in my view, have been considered against competing and, to many, equally deserving bids for funding which currently come to over £100 million pounds per annum.
We cannot afford to meet all bids and to consider bids in isolation makes no sense to me.
I am also involved in future decisions over funding the next steps to progress the new hospital.
I will challenge all bids for additional funding on so called ‘further exploratory work’, to seek to ensure that such bids come with clear outcomes, timelines and overall budgets.
I’m sure you may have questions on this later.
To conclude, I will relate a situation about what it’s like to be the other side of the fence from the government, as an applicant for funding.
What happens when a government thinks only about the short term.
I have been Chairman of Brig-y-Don Children’s Residential Home for about 15 years.
In 2008, some 10 years ago, we were employing 17 staff and could accommodate 9 children at any one time. We were constantly living on the edge, financially, so we applied for an additional £40,000 to our government grant that would enable us to continue to function.
The decision over this grant was passed from official to official and Minister to Minister, over several years forcing the closure of the Home and the redundancy of the staff in 2008. The consequence of this, was that 17 people lost their jobs, children were displaced, and some of them were sent to care in the UK, at vast expense.
For want of a £40,000 increase in the annual grant, it ultimately cost the Government £750,000 per annum.
If proper process had been in place and the government at the time had taken a long-term, rounded view, they could have saved the taxpayer hundreds of thousands of pounds, kept people in work, kept children in a place they felt safe, and kept children with particular needs in the island.
This experience has strongly influenced my views as a Minister – both as Social Security Minister and as Treasury Minister.
And it has forged my determination to ensure that the decisions I take look to the long-term, and not just to the here and now.
My mandate of A,B,C - Affordability, Balance and Common Sense continues to apply to the decisions in life both personally and professionally.
In a very uncertain Global Climate, I hope the ABC of Treasury will steer a steady course.