Sir, in presenting this budget I am pleased to report that Jersey’s underlying financial position is strong and has continued to strengthen during the past year, exceeding forecasts. This encouraging position has been made possible by prudent forecasting and tight fiscal controls. The Chief Minister and this government have not been prepared to take easy options, instead making, sometimes difficult and unpopular decisions, in the long term interests of Jersey.
There are of course continuing domestic and international challenges. Budget 2018 builds on the decisions we have made in previous budgets to give life to the plans and ambitions we set ourselves, in the Medium Term Financial Plan – 2016 to 2019 – a package of measures developed to facilitate investment in our public services and infrastructure.
We continue to face a period of unprecedented change in the global economic landscape and we can’t easily forecast what opportunities may present themselves for our Island; or indeed what potential threats we may need to manage. We have benefited from another year of strong performance from our investments, improving our ability to cope with the uncertainties that lie ahead. But there is no room for complacency, we need to retain flexibility, strengthen our reserves further and continue to manage our finances prudently.
Turning to the global economic position. This is relevant to Jersey, especially as an international finance centre trading with more than 200 countries worldwide. The IMF’s latest assessment of the world economy is that the global upswing in economic activity is strengthening. Although global growth in 2016, at 3.2%, was the weakest since the global financial crisis, it is projected to rise to 3.6% in 2017 and to 3.7% in 2018. The IMF points out that medium-term risks are still tilted to the downside.
They highlight that the upturn in global activity provides an ideal opportunity to tackle key policy challenges. One of these strikes a chord for Jersey – the need to improve productivity growth in the face of an ageing population. Closer to home, the IMF notes that the UK economy is bucking the global trend and that growth is projected to be slowing to 1.7% in 2017 and 1.5% in 2018. The downward revision is driven by weaker-than-expected growth in the first half of the year, as sterling’s weakness held back household real income and consumption.
The IMF also points out that the medium-term growth outlook is highly uncertain and will depend on how Brexit affects barriers to trade, migration, and cross-border financial activity. A weakening UK economy and currency, is a concern for Jersey with our close trading relationship.
Turning specifically to Jersey’s economic outlook, I am pleased to report that Jersey’s performance against this global backdrop has remained resilient to date. Employment is at an all-time high – with nearly 62,000 people in paid work. This follows better-than-forecast growth in GVA in 2016 of 1% – the third consecutive year of growth. And the Fiscal Policy Panel (FPP) expects the economy to grow by a further 1% in 2017. If that is achieved, it will be the first time that we have seen four consecutive years of economic growth since 2000.
However, the Panel is forecasting slower growth of around 0.5% in 2018. They continue to warn us that considerable uncertainty remains around these forecasts, given the levels of external uncertainty we face. Inflation has picked up – as it has in the UK. However, the fall in sterling will pose a challenge to growth in real earnings, which has been such a benefit in each of the last five years in Jersey.
The outlook for future economic activity and associated employment is positive. We do, of course, need to maintain our focus on supporting productivity improvements and continue to do all we can to mitigate uncertainty over Brexit and prepare for its outcomes. Average earnings were up 2.6% in the year to June. The housing market remains healthy and the much needed additional supply of affordable homes, a key policy, is being successfully overseen by the Housing Minister and delivered by Andium Homes and the Jersey Development Company (JDC). The JDC has now sold all 187 units in College Gardens: 107 open market, 40 under the shared equity scheme and a further 40 as social rented to the over 55s.
They have delivered, as part of the College Gardens development, more than £2.5m of added value for taxpayers, including 50 parking spaces for Janvrins School. Last Friday, they launched their latest scheme, ‘Horizon’, comprising 280 units and on first day eight units sold. The IFC continues to enjoy strong demand, with IFC 1 now 74% pre-let and IFC 5 56% pre-let.
Government policies and investment continues to focus on jobs, economic growth and diversification. Developing our exciting digital sector is key to this aim. Only last week I approved £529,000 of funding for a Digital Jersey project, from the Economic Productivity and Growth Drawdown Provision, to invest in an Internet of Things Lab - an exciting new concept. That will help both start-ups and our thriving telecoms industry develop new products and services, to solve problems locally, export abroad and attract inward investment to Jersey as a technology testbed.
Supporting a strong economy is essential to keep our public finances healthy. To demonstrate that point, as the economy grows so does States income. Total States income increased last year by £392 million (that’s 35%) – mainly through excellent returns on our investments. This is not revenue to spend, but strengthens our reserves to improve our resilience and provide a buffer against rising pension costs resulting from our aging demographics.
The Strategic Reserve grew by £104 million (or 13.5%). The Social Security Reserve Fund grew by £254 million (or 19%). General revenue income increased by £45.1 million – £30.4 million of which was from increased tax revenues, from a strengthening economy.
On the expenditure side, gross expenditure was down for the first time in many years and is down again this year on forecast. Overall Jersey’s balance sheet strengthened last year, increasing from £5.7 billion to a net asset position of £6.2 billion, and at the end of September this year I can report further improvement, with our income above forecast and expenditure down and investments performing well.
Our strategic reserve totalled £881 million, a 7.6% increase year to date, and the Social Security Reserve £1.7 billion an increase of 10.9% year to date. But we can’t expect to benefit from exceptional investment returns each and every year. And, as I already indicated, there are domestic and international challenges on the horizon.
Fiscal Policy Panel
The Fiscal Policy Panel reminds us that we should balance our budgets sustainably by 2018/19 while continuing to support the economy in the short term. The Panel has expressed concerns that this Assembly has failed to agree the main revenue-raising measures as laid out in the MTFP or, as yet, any sustainable alternatives. They cite the rejection of the proposed Health Charge and deferral of the Waste charges in particular.
As a result, this budget proposes a number of different revenue raising measures which, if approved by members, will raise a total of £10.2 million. This will go some way to addressing the loss of the health charge and keep us on target to balance our budget by 2019. Waste charges – if supported by this Assembly in next year’s budget, following further consultation, or a viable alternative will also be necessary to avoid a structural imbalance by 2019.
This means that we are not yet at the end of our fiscal challenges. It also means that we cannot yet relax our tight control of public expenditure including pay restraint. Especially with Brexit uncertainties looming.
Turning to Brexit… Almost 18 months ago, the UK voted to leave the European Union. This year, it is negotiating the terms of the divorce, the repercussions of which we cannot easily forecast yet – and that applies equally to the UK; the EU; and Jersey. We have, of course, been planning to ensure we are as prepared as possible for the risks and opportunities as they emerge. To this end we initially set aside £1.9m for BREXIT planning. A further £1.5m has also been ring fenced.
Jersey has a strong and productive relationship with the UK government and we are confident that our interests will be taken into account during negotiations. Only last week the House of Lords EU Committee wrote to the Secretary of State, David Davis, asking for assurance that Jersey and the other Crown Dependencies would be actively involved in the preparation for negotiations. The Chief Minister meets the Parliamentary Under Secretary of State every quarter. The Minister for External Relations and Jersey officials are doing an exceptional job working with Ministers and officials across Whitehall to ensure that Jersey’s interests are fully understood.
For Jersey, many areas are potentially impacted by Brexit. As a key industry, Financial Services is a priority Brexit issue and we are working with the UK Government to maintain our mutually beneficial relationship. The sector has been resilient and total employment is now close to the record highs seen before the global financial crisis. The industry has had to adapt to change and it’s encouraging to see that employment growth and tax contributions in the last few years have been strong.
It’s equally encouraging that more than 300 local students were recruited each year for the past four years as the economy has returned to growth. Jersey’s reputation as a well-regulated and transparent jurisdiction, which actively supports the development and implementation of international standards in financial services and tax administration, enhances our global standing.
Notwithstanding occasional negative media, often sadly misplaced and ill informed, I’m pleased that our responsible and firm approach is recognised internationally by those that truly matter.
A recent example, following an intensive review period, Jersey has just been given the highest possible rating by the OECD’s Global Forum on tax transparency. This is in recognition of our compliance with global standards on tax transparency and information exchange. We have been rated as compliant in all ten of the areas reviewed. This places Jersey in the top rank of countries who have completed both phases of the OECD review process – a higher rating than that of several major G20 economies, including the United Kingdom.
This assessment makes it even clearer to the international community that Jersey is no “safe harbour” for money laundering; tax evasion; abusive tax avoidance; or any kind of rogue operators. Jersey is a professional, well-regulated international finance centre, which expects those using our services to pay the tax that is due in the jurisdictions where it is owed. As the Chief Minister said in 2014 – and repeatedly since – we do not want (and we do not need) anybody or any company abusing Jersey’s tax system to evade taxation by their home jurisdiction.
We will continue to keep our laws; regulations; rules and procedures under review and seek to improve them if and when cases of abuse come to our attention. We will continue to work closely with overseas partners such as the OECD and the EU. The next stage of that dialogue, as the Chief Minister recently indicated, will be to review the case for strengthening our approach to testing the economic substance of entities seeking to do business from Jersey.
When this Council of Ministers took office, we asked this Assembly to support us in tackling many of the difficult issues which other jurisdictions have not been prepared to face. And those issues, in common with many western economies, are amplified by the ticking time bomb of our ageing demographics, which place increasing pressure on health services and pensions. It is, of course, wonderful that life expectancy continues to extend. The challenge for this Assembly is to see that as people live longer, they do so in good health and with dignity – with a good standard of living.
Our focus in recent years was to find affordable ways to fund the essential investment in our long-term infrastructure – and in priority public services, such as health and education. Other countries have funded investment with eye-watering levels of public debt. That’s not our approach.
At the beginning of this Government's term of office in late 2014, we started with a base budget shortfall of £28 million per annum by 2019. We recognised the need to invest an extra £62 million a year by 2019, principally in health and education. And we allocated £55 million a year by 2019 as depreciation or in effect for capital investment. Those three figures added together came to additional funding requirement of £145 million per annum by 2019.
You will recall the media frenzy at the time, with sensational headlines of: “£145 million black hole in public finances”. Let me be clear, there was never going to be a ‘black hole’ like that, not on our watch!
Our prudent approach to managing public finances required a funding plan to be agreed before agreeing that level of investment. That plan was the MTFP. Members will recall it was a package of measures to fund investment by supporting a strong economy, delivering efficiencies in the public sector, cutting costs and introducing some appropriate revenue-raising measures to recover the cost of service delivery where appropriate. A plan approved by this Assembly – something that all members can be rightly proud of.
We all shared an aim to plan and invest for the future: for our children and our grandchildren, and this Budget continues to move funds into the priority services that we agreed. It supports investment that boosts economic growth and productivity. There are few places that are prepared to limit their public spending to what they can reasonably afford, but I am committed to maintaining that principle.
Budget 2018 maintains a balanced approach. Preserving fiscal responsibility. Investing in the skills and infrastructure that will support the jobs of the future. It increases tax-free allowances – leaving more islanders exempt from paying income tax; and the vast majority keeping more in their pockets. It asks a small number of the very largest, most profitable companies in the finance and retail sectors to pay tax on their profits, for the first time since we introduced the 0/10 regime. And it asks future High-Value Residents to pay more.
Of course, some difficult decisions still remain. This Assembly rejected the proposed health charge and agreed to defer its decision on business waste charges. We need to progress the waste charge next year or find an alternative revenue raising measure. Now is the time to take a more realistic, pragmatic approach to how we pay for the services we consume. We have low tax rates and very high-quality services compared to most countries.
Those services need to be paid for, and it cannot always be right, in the case of waste charges, that they are paid out of the pockets of the general taxpayer when they are largely enjoyed by businesses. If we are to keep our taxes low, then we do need to introduce some charges which reflect the true cost of providing services to those who use them and can afford them.
Turning to the key Budget proposals…With regard to the specific tax measures which I am proposing this year, firstly, personal tax. I propose to increase the tax-free allowance for working age people by the June RPI figure of 2.5%. That will benefit 35,000 taxpayers. It will reduce a single person’s annual tax bill by £91, and that of a married couple or civil partnership by £156. Additionally, I am proposing to increase the second earner’s allowance by £850 – to £5,850. This will benefit 12,000 households. It’s an additional tax free allowance to married couples, aimed at fairness and an incentive to increase participation in the workforce. It also eliminates the inequity in the allowances available for married couples and civil partnerships on the one hand and co-habiting couples on the other.
Jersey’s personal tax free allowance will rise to £14,900 for a single person. That compares to Guernsey’s allowance of £10,500, the UK’s of £11,500 and the Isle of Man’s £12,500.
Following a review into HVR’s and the recommendations it gave, I am proposing to increase the minimum annual tax payable by new High Value Residents to £145,000 from January 2018 and to review this figure regularly from 2025.
Following the review I announced in my last Budget, I am extending the definition of a financial services company so that more pay tax at the 10% tax rate. This will include companies that lend money, insurance businesses and company registrars, bringing us more into line with competing jurisdictions. I expect this measure to raise around £3 million a year.
I am also proposing to increase International Service Entity (ISE’S) fees, paid by businesses that don’t pay GST, and to require more companies to pay them. These fees currently raise more than £8 million a year and I estimate that this measure will raise an extra £1 million a year. The fees will, for the first time, specifically capture Alternative Investment Funds businesses, since they became subject to Jersey Financial Services Commission regulation.
In last year’s budget this Assembly overwhelmingly supported Senator Ferguson’s amended amendment to introduce measures to tax large retailers at 20% subject to it not impacting our zero-ten corporate tax regime. We have conducted a thorough review, including economic and distributional impact assessments. Following the review, I am now proposing to apply income tax at the 20% rate to the profits of a small number of large retailers making at least £500,000 of profit a year as agreed by this Assembly in principal last year.
Proposing a positive tax rate for the retail sector also brings us into line with Guernsey and the Isle of Man, who have already introduced a retail tax. A retail tax applied only to the largest retailers also addresses previous concerns about non-locally owned businesses were not paying tax in Jersey, because of the twenty or so business captured by the retail tax, 75% are not locally owned. It is estimated that this measure will raise £5.8 million a year.
I am proposing to increase the impôts duties payable on alcohol, petrol and diesel by RPI to maintain the real value. The duty on tobacco will increase by RPI plus 5%, with a slightly higher increase for hand-rolling tobacco, to continue equalising the duty rate.
On the environmental front…Vehicle Emissions Duty is charged when vehicles are first registered in Jersey, depending on the level of CO2 emissions or engine size. The duty was introduced to encourage islanders to choose low-emission vehicles. The COM are accepting an amendment to the budget measure from the Constable of Grouville, to amend the VED bands. This means people will pay more when first registering a car in Jersey.
VED is primarily aimed at changing consumer behaviour and encouraging people to choose less-polluting vehicles. There are limitations to VED as it does nothing to address the many older polluting vehicles in our Island. A review will need to look at the longer-term effectiveness of VED in delivering our broader environmental objectives. However it is encouraging to note that we are seeing a gradual move to electric and hybrid vehicles in Jersey. In 2011 there were 82 new registrations of such vehicles. That rose to 148 in 2016 and 140 in the first eight months of this year.
This is the funding allocated for investment in key public services in 2018.
In the first MTFP the majority of the growth allocation for departments was awarded ‘up front’. This time we made it clear that this MTFP was a package and that funding for growth or investment would only be awarded annually at each budget. Furthermore, any such funding would be dependent on departments firstly delivering their savings, efficiencies and user pays charges.
As a result of good work by departments last year, this budget is able to allocate more than £10 million of growth funding for 2018, largely to invest in priority services. Almost £8 million will be invested in Health and Social Services. Although £2.1 million has had to be reallocated to cover the cost, to the Department for Infrastructure, of the deferral of the liquid waste charges from 2018.
There is £11 million of growth funding set aside for 2019 that will be allocated in next year’s budget. However, the Council of Ministers is recommending that this growth funding should depend on the prior approval of £11 million of waste charges, or an equivalent revenue raising measure, for 2019.
The Medium Term Financial Plan allocated £168 million to capital projects over the 4 years of the plan – including £55 million for schools, £43 million for sewage works and £21 million for IT systems. In the MTFP £43 million was allocated to capital projects for 2018. Since then new capital funding pressures have emerged together with increases to some project costs, adding a further £14.85 million for 2018.
Increasing project costs include £5.6 million extra for the new Les Quennevais school, an extra £4 million for Grainville and an extra £1 million for St Mary’s Primary School. In addition new priority projects for Health and Social Services account for an additional £3.85 million. These include Orchard House and Autism Jersey. The additional capital has been funded by redistributing existing resources, largely from schemes that are not yet ready to commence, as well as from capital underspends accrued on completed projects.
Funding essential infrastructure projects from within existing resources is a responsible approach. £57.85m of capital expenditure is allocated in this budget for 2018. Expenditure that will support the economy and provide benefit for Islanders for generations to come.
Together this brings £45 million of investment in a new school at Les Quennevais, more than £8.4 million for Grainville School and £6.5 million to refurbish St. Mary’s Primary School. £8 million for the next phase of the Prison Masterplan. And £14 million for highways, sea defences and drainage works – including £7 million for Liquid Waste treatment.
I’m proud that this government has allocated more capital investment for this community’s long-term future than any government before. The funding to invest in improving public services, would not have been possible without reforming the way the public sector operates.
This Council of Ministers has led a major programme of public sector reform. A reformed public sector that can better respond to the demands of islanders, with more modern public services, designed around their needs, and at an affordable cost.
We also recognised the need to continue to modernise our policies, our planning and our infrastructure, so that Jersey can continue to attract and retain the businesses and the wealth they create, that we rely on to fund our way of life.
We started our programme of public sector reform programme in 2015 with a narrow focus on driving costs and waste out of our system, as an essential part of our package of measures for balancing public finances by 2019. Since 2015, we have saved £48 million, as departments have worked hard to find better ways to deliver services at less cost. We are delivering better value for money for taxpayers and eliminating wasteful expenditure.
But there is much more to do. During 2018 and 2019 a further £29 million will be delivered. But the reform programme is about more than just cost efficiencies, it's also about doing things better.
- it’s about reduced waiting times at the hospital
- it’s about treating more people in the community
- it’s about improved children’s services and better quality social housing
- it’s about using technology – providing services that are always on, 24/7, so people can access them when they want, not just when our offices are open
- it’s about Love Jersey – allowing islanders to report problems immediately;
- Bus Tracker – showing the real-time location of buses
- the Mobile Car Parking app – showing real-time car park availability
- the Active Jersey app – allowing people to book classes and hire facilities at our sports centres
- Tell Us Once – sharing information given to one department with others that need to know, so you only have to register a birth or death once
- and we can now pay to park using our phones
Sometimes, it’s about stopping doing things and having them done by others. Our parks and gardens and cleaning services are being run privately – at a lower cost to taxpayers.
A modern public service is creative, innovative, flexible and dynamic. And it should pull together, and work together, as one government, to serve our island. We don’t currently have that in Jersey, which is why we launched workforce modernisation, as an integral part of our reform programme, to create one public sector, serving one government.
We have just proposed the biggest change to pay, terms and conditions for a generation. We’re streamlining ten different sets of terms and conditions across the States into one, and reducing 75 pay grades into just ten. The new system is simpler, more transparent and fairer – employees doing the same kind of work will be treated in the same way across the organisation.
And we need it to do things differently, both to deliver better services and to plan and deliver policies and infrastructure that supports our future economic and social success. This is what our new Chief Executive will be focusing on – developing a single public service to deliver public services comparable with the best in the world. Building on the solid foundations of the public sector reform program, 2018 will see the pace of change accelerate. One Government, responsible and accountable, with all parts working together, to serve the needs of all Islanders.
Funding higher education
Sir, alongside today’s Budget I undertook to address an important issue for the young people of this Island. I am delighted to be announcing our plans for the future funding of higher education for Jersey’s students.
These have been formulated jointly between myself and the Minister for Education, with the support of the COM in response to the issues currently facing Jersey students and their families, when it comes to the costs of accessing higher education.
There is clear evidence that families in Jersey are suffering significant hardship whilst putting their children through university and others who don’t because they can’t afford it. That can’t be right. While additional funding has been provided by the Council of Ministers, of £2m per year, and the Education Department is doing fantastic work in widening the offering at University College Jersey and promoting overseas opportunities, more needs to be done.
And so to the high level outline of what we are proposing. After careful consideration of a number of options, I am pleased to be able to announce today, that I am intending to extend the access to grants for tuition fees to all eligible students.
Those students in households with income of less than £150,000 will have access to a grant for 100% of their tuition fees. For those in households with income of £150,000 and above, the grant will cover 50% of the tuition fees. This grant will extend to the maximum cost of a standard UK degree (£9,500 in 2018), with additional sums for courses such as medicine, in line with the current scheme. This provides students with a choice of locations at which to study (University College Jersey, a UK university, or a European university). All but the most expensive fees will be paid through a States grant.
In addition, I plan to extend the current means-tested maintenance grant, which contributes towards living expenses, to more students and their families. At present students from a household with income above £63,500 receive no maintenance grant to assist with living expenses – I plan to increase that threshold to £95,000.
Currently, the Higher Rate (Child) Allowance is provided to parents of students in higher education. The allowance is currently worth about £3.5 million per annum and I plan to announce the removal of this allowance in next year’s Budget. This money will go directly towards funding student grants from 2020 onwards.
I believe that extending Jersey’s current grant-based system is a better option than the introduction of a loan scheme. We will avoid burdening our students and their families with additional debt, incurring the costs of administration and adding further borrowing to the States’ balance sheet.
The plans I have announced today will go out for consultation including the local student population and their families. Consultation with students and their families is a vital part of this process. The Minister for Education is keen to commence that consultation as soon as possible.
Overall this extra investment in our children, will be found from within existing resources in 2018 and 2019. On an ongoing basis additional funds will have to be found at about £4m pa and would need to be agreed by the next States Assembly.
Medium Term Financial Plan
Before the next MTFP a rigorous examination of spending levels, underspends and levels of contingency will be undertaken. Members must be clear that whilst from this examination some of this funding gap maybe resolved, this is on the basis that the current level of spend is not added to in the remaining period of this MTFP, and that outstanding measures in the current package or viable alternatives are delivered, most particularly the revenue raising measures in this Budget AND waste charges or an alternative.
I would like States Members to bear this in mind when considering the amendments in front of them today. Amendments which reduce the tax take or add to expenditure will make finding solutions to fund this investment in our children that bit more difficult to achieve.
In conclusion, Budget 2018 contains a package of measures that continues our prudent and responsible management of public finances, while continuing to invest in the future. It is a fine balancing act, to keep a sharp focus on short-term financial imperatives, while also protecting and investing in the interests of the generations to come. That is why we are proposing to ask a small number of businesses and future High-Value Residents to pay a bit more.
The post-Brexit world is an uncertain one, but Brexit isn’t the only challenge we face. The digitisation of financial services, the fourth industrial revolution, financial inclusion and our ageing demographic are all real issues that we have to address. Thankfully, our economy is in a strong place to deal with most challenges that are likely to emerge.
With our considerable reserves, minimal debt and net assets in excess of £6.2 billion, our public finances are more robust than those in most other places in the world. We want to protect this position and this Budget maintains the investment that will support our economy, create jobs and help improve the living standards for all of us in Jersey. And it does so in a way that is responsible and sustainable.
Funding for public services in the future can be delivered through taxes, borrowing, or stronger economic growth. Only the latter, economic growth, is a long-term sustainable solution for Jersey. It will ensure higher real wages and increased living standards. Higher taxes, on the other hand, will slow growth, undermine competitiveness and cost jobs.
Which is why I want to keep taxes as low, broad, simple and fair as possible. We are already borrowing to provide socially-valued amenities – and affordable housing. We will shortly be proposing borrowing for a new hospital, and we have firm plans in place to repay our borrowing without the need to ask for a direct taxpayer contribution. But borrowing to fund ongoing consumption is simply asking the next generation to pay for something that we want to consume today, but are not prepared to pay for ourselves. That’s not acceptable.
So we remain committed to controlling spending, growing our economy and balancing our budgets. In other words living within our means.
I strongly believe that we can continue delivering economic security, prosperity and a positive future for all who live in this remarkable Island.
I commend this Budget to the Assembly.