It’s been a difficult few years for many Islanders. The world has changed permanently and out of all recognition since the onset of the global financial crisis in 2008. The impacts continue to be felt far and wide, including here in Jersey where our tax revenues have been growing more slowly while funding pressures continue to increase rapidly.
Many Islanders have seen their jobs threatened, their incomes stagnate or fall and their cost of living increase. I know how difficult that must be. But with less revenue to fund existing services, pressure to improve others like children’s services and mental health to name just two, and an ageing demographic, we simply have no choice butto make fundamental changes to the way we operate and fund public services.
Such change is unsettling, sometimes misunderstood, difficult and often unpopular. But I hope we can agree some basic principles –
- firstly that we shouldn’t spend more than we earn
- that it’s businesses and not Government that drives economic growth
- and that before distributing wealth, you have to create it
As Treasury Minister I want to keep us on the path to recovery, to maintain stability, rein in excessive or wasteful spending, and put in place the right policies and incentives to create the foundations for long term and sustainable growth.
We are not alone in the challenges we face. Indeed the reaction from Governments around the world to the impacts of the financial crisis have been unprecedented as they’ve struggled to protect their economies and citizens.
Eye watering levels of fiscal stimulus, QE, historically low interest rates, regulatory tightening, increasing charges and taxes - the list goes on. Many of these measures have distorted markets and disrupted traditional economic thinking, making forecasting even more unpredictable.
Jersey has had to deal with an ever-present spotlight focussed on the activities of finance centres. We’ve had to invest to protect our reputation and often misunderstood economic model where national and international media continue to be more interested in attention grabbing headlines than the underlying facts.
Despite these challenges the financial services sector has been resilient and although many jobs were initially lost, total employment in the sector has now recovered and is close to the pre-crisis levels. The industry has had to adapt to change and it’s encouraging to see between 2013 and 2014 total net profit went up by 25%.
We now have the highest ever number of people in paid work, we have pumped more money into the economy – spending more on services and capital projects than we take out in tax - and we have an increasingly positive suite of economic indicators : -
- the economy grew by 5% in 2014, the first growth since 2008
- GDP per head went up 3%
- average earnings are up by 0.8% more than inflation
- housing market activity is up 5%
- house prices in 2015 were 4% higher than a year before
- business activity is up by 18%
- and all this activity is supported by low inflation at 0.9%
If we look at the jobs market - latest figures show total employment at an all-time high of 59,080. And the seasonally adjusted figures showed there were 110 fewer people looking for work than a year earlier. These figures show clear evidence of a steadily improving economy with growing optimism from many business leaders across sectors.
But we have to continue to invest in economic growth and diversification to deal with the threats that lie ahead in this volatile, ever more competitive and unpredictable world.
At the beginning of this political term in late 2014 we set out the direction of travel through our Strategic Plan and our Medium Term Financial Plan. We said in the MTFP that there would be no significant changes to corporate income tax from 2016 to 2019. I stand by that. I also stand by our 20% rate of personal income tax.
It’s competitive in the international market place and competition, especially for international finance business, is becoming increasingly tough. And the reality for the majority of Islanders, thanks to Marginal Relief, is that most pay effective rates of income tax well below 20%.
I remain committed to the principal of low, broad and simple taxation. I believe everyone should contribute according to their means but that we must protect those who are vulnerable and on the lowest incomes. My focus is on creating a sustainable financial future - within a framework of fairness for all.
At the end of June we will be publishing the next instalment of our financial plan – the MTFP Addition (covering 2017-2019). We have a clear direction that supports the economy, keeps spending under control and allows us to put investment into priority areas of health, education, Infrastructure and economic growth.
Much of the detailed work is still being finalised with some difficult balances to strike, but the clear objective is for public finances to balance by 2019. There are few jurisdictions who plan in the medium and longer term as we do, but I can tell you now that the detailed figures for 2017-2019 will include further efficiency savings, stopping or reducing some services and restructuring or enhancing others.
In the last year this Government has been getting on with reforming the public sector and driving efficiencies and delivering savings. We don’t get everything right so, you’ll hear about areas where there is still waste and inefficiency, as in any organisation – but we will deal with that.
However the fact remains that in 2015 we took 2% or £12m of recurring costs out of departments budgets and a further £5m of one off savings – that’s £17m.
In total in 2015 and 2016 we have taken out a total of £38.1m in costs.
I can also announce today that, despite delivering the savings departments were required to make, many still underspent their budgets. This is perhaps not unusual as they are not, by law, allowed to overspend. In addition projects funded in one year can take longer than expected to complete for a number of perfectly valid reasons.
That’s why we have a system of allowing departments to carry forward some underspent budget to the following year – so they can plan ahead and complete the work they have begun.
However the underspend figure for 2015 was £25m – and as I’ve said that’s after savings of £17m had already been removed from their budgets.
We have agreed that £19m of 2015 underspends can be carried forward to complete key projects and meet spending pressures in 2016. We have also been able to return £6m to our current account – known as the consolidated fund.
Last year I told you that we would reduce our headcount using natural turnover, retirement and voluntary redundancy. I also made it clear that where necessary, compulsory redundancy would also be used. Since then we have established a voluntary release scheme.
104 of our people took VR – at a cost of £4.9 million. That cost will deliver ongoing savings of £4.1 million each year.
The biggest proportion of leavers came from management, administration and business support. We have now opened another VR scheme to support ongoing service redesign. Of the 159 expressions of interests received so far, 21 FTEs have been approved with an estimated saving of £520,000.
In total in 2015 we reduced our headcount by 165 FTEs and created annual savings of £4.6 million.
For some time now - “Do more with less” has been our mantra. Many of the savings we will be proposing in the next instalment of the Medium Term Financial Plan are about making better use of our existing resources – removing duplication, harnessing technology, cutting down on our use of external consultants wherever possible.
Examples of other savings include a review of our recruitment process that saved £55,000 per year.
Customs are intercepting more suspect packages and have reduced staff overtime by nearly 44%. Twenty e-gov projects are running across the States – not just saving money but improving the customer experience. Official notices from the government are now online.
My own department has a leading role in helping all departments transform and deliver better value-for-money for taxpayers. And we have a lot going on to improve our tax system. Most businesses and employers can already lodge most of their tax returns & declarations electronically. But there is more to do to make that digital experience effortless.
We are investing up to £9 million pounds and we aim to offer Online Filing & Assessment for personal taxpayers. This will be a significant step and is long overdue. As part of that work, I have agreed with the Social-Security Minister that we’ll ensure people can make their social-security contributions at the same time, online – an important saving, especially for self-employed people.
But the modernisation of the taxes system is not just about a new computer and online activities.
We need to review aspects of our tax law to ensure it remains relevant and effective in the digital environment. We’ll need to look at due dates for filing and payment; the sanctions available for non-compliance with tax law; greater use of civil sanctions for defaulting; and how best to exploit new tools and techniques for spotting error and fraud.
It’s clear that some taxpayers choose not to pay what they should; or, from lack of understanding, fail to pay what they should. Data is hard to assemble with increasing volumes of financial data from international and domestic sources. But we will do more to deter those who actively seek to avoid paying their fair share, and we need to do more to help those who are simply getting their taxes wrong.
I announced in my last Budget that, alongside introducing new approaches to tax compliance, I will offer a Taxes Disclosure Opportunity in 2017. This will permit all taxpayers – both individuals and corporates – to review their tax affairs and make a voluntary disclosure of any errors - or indeed misdemeanours – and to wipe the slate clean. The exact terms of the opportunity, including the timing, are being worked up.
The road ahead
We are not making savings for savings sake, we are making them for a purpose. We don’t know what will happen to the global economy. We don’t know when the next turn of the cycle will come.
We can back infrastructure investment and innovation, but success comes from a collective effort – government, business and the wider community.
The business community demonstrates the values we share – of self-reliance, of building for the future, of innovating to solve problems. Without your success there are no jobs, no resources for public services, no sustainable future.
My goal for this term of office is to see -
- a lean, 21st century public service that is respected and valued
- a healthcare system that is a model of efficiency
- a new hospital – under construction, on an agreed site and with an affordable budget
- a 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 rewarding, highly skilled work
- a job market with exciting opportunities and low unemployment
- a housing market that provides decent homes for our community
- an island with strong public finances that islanders are proud to call home
This government is a government that is making decisions for the benefit of future generations - keeping Jersey a place we can be proud to pass on to our children and grandchildren.