Strategic Plan Resources Statement 2013 to 2015

21 February 2012

On 21 February 2012, the States will debate the proposed Strategic Plan for 2013 to 2015.

During the consultation phase of the Strategic Plan comments have been made about the extent to which the States will be able to afford to have growth in important service areas, for example like Health and Social Services and how this growth could potentially be funded. At the same time comments have been made about the need, especially in a time of economic downturn not to burden local people and the economy generally with more taxes. This discussion draft of the Resources Statement is intended to be an early illustration of the difficult choices that will need to be made later in the year as we develop the Medium Term Financial Plan.

The Council of Ministers is presently consulting on a new Strategic Plan for the States of Jersey for the period 2013 to 2015.  This Strategic Plan has 6 key priorities:

• get people into work
• reform Health and Social Services
• reform government and the public service
• manage population growth/migration
• house our community
• sustainable long-term planning

Jersey has a history of prudent planning and budgeting. The 2009-2014 Strategic Plan sought to reduce the impact of the global economic situation on Jersey’s residents, communities and businesses and to develop a plan to secure the long-term future of the Island. This was against a background of estimates that indicated that Jersey would suffer a deficit.

In the last Assembly the Treasury and Resources Minister proposed and the States approved a 3-part plan to ensure balanced budgets by 2013. As 2013 is the last year of this 3-part financial plan and the first year of the new Strategic Plan the Treasury believes it would be helpful to reflect on the impact on future years of falling short of the financial targets set within it.

Latest estimates show that the plan, together with better than expected income in 2011 resulted in a better than anticipated financial position as a result of the success of the three-part plan. Overall, this could result in a less significant withdrawal from the Stabilisation fund or a healthier balance on the Consolidated Fund and allow the new Council of Ministers more flexibility to deal with the difficult decisions that it will have to make in prioritising competing demands without recourse to tax changes or borrowing.

Before setting out the planning assumptions for the Strategic Plan 2013-2015, it is important to reflect on the achievements of the existing resource principles.

Three-Part Plan 2011 to 2013

Part One: Cutting spending through the CSR

Our monitoring in 2011 and 2012 clearly shows that departments are on track to achieve their savings, although challenges remain. Departments are actively engaged in delivering their share of the savings and there have been successes such as:

• reducing police overtime
• redesign of smoking cessation service
• re-structuring parks & gardens to drive efficiencies
• more efficient bus service
• reduce turnaround times for vacant States Housing producing savings
• employing staff in Social Security to help with fraud prevention
• increased efficiency in tax administration  

The Council remains committed to delivering our target of £65 million of CSR savings. Given the decision in the States “to maintain the grants of fee paying schools at current levels, pending publication of the forthcoming Education White Paper, and subsequent amendment to include non fee paying schools” this is a challenge that will need to be addressed.

In addition to the departmental savings steps are being taken across the States as a whole to reduce staffing and procurement costs. A thorough analysis of our options for delivering £14 million of the £65 million target is being undertaken from staff terms and conditions. It is clear that pay restraint will be an important feature of our plans for bringing States spending into line with States income. In addition a review of overtime, sick pay and other allowances is underway with a view to having a simplified and harmonised set of staff terms and conditions.

There is a great deal of hard work being done to change procurement practices, retendering to get better value for money and simply reducing our buying where we can, to deliver savings of £6.5 million by 2013.

Part Two: Economic Growth

The second part of the plan promotes economic growth, the new Economic Growth Strategy sets out the Council of Ministers’ approach to promoting sustainable growth in the economy.  The strategy will develop new high value opportunities in:

• exploiting e-commerce and intellectual property
• pioneering ICT and broadband technology, and
• exploring opportunities for renewable energy
• This growth strategy will ensure that Islanders continue to enjoy a good quality of life, job opportunities, efficient high quality public services and low tax rates

Economic growth and diversification will go hand in hand, underpinned by the objectives of a flourishing and diverse financial sector, raising the productivity of existing sectors and identifying new growth sectors.  To achieve this in 2012 Ministers will work with partners and make the most of joint resources.  For example, work with Jersey Telecom will be undertaken to continue to develop a world leading telecommunications infrastructure for the whole Island in order to create the conditions for future success.

This approach to economic growth will be supported by a new financial services policy, new skills and enterprise strategies and updated processes for licensing housing and employment.  The foundations for future growth will be laid to develop competition framework, investing in infrastructure, keeping the Island internationally competitive and maintaining economic and fiscal stability.

Part Three: Raising taxes through the Fiscal Strategy Review (FSR)

The third part of the plan set targets for raising taxes by £35 million.  GST was increased from 3% to 5% with effect from 1 June 2011.  In addition, employers are now required to pay an extra 2% on employees’ earnings between the Standard Earnings Limit of £35,336 and the Upper Earnings Limit £150,000.  This change also affects Class 2 contributions paid by the self employed and non-employed. Measures were also taken to increase revenues from high net worth individuals. The Council of Ministers is committing to bring forward a revised economic growth strategy in 2012 following the completion of the Strategic Plan.

Current Position on Delivering Against the Three-Part Plan

Our three-part plan is working. Our financial forecast shows a return to balanced budgets by 2013 and the improvement in the 2010 Final Accounts meant that an extra £10 million was left in the Stabilisation Fund at the end of that year. Nevertheless, there are challenges with achieving £65 million plan savings target, particularly in relation to Education and in achieving changes to terms and conditions of employment for staff. The planning assumptions set out on page six of this paper rely upon the delivery of the whole of the £65 million savings. 

Resource Principles: balancing taxation and spending

It is crucial to keep public sector spending under control so that the Island can remain competitive with relatively low levels of inflation.  If the States is to provide sustainable services to the public it is fundamental that we must take account of the economic outlook, be prudent in our spending plans, ensure that savings and efficiencies are implemented and not increase public spending unless it is matched by savings or additional income. 

The last Council of Ministers introduced the following resource principles in the last Strategic Plan.

Existing Principles

• Be prudent, taking account of the uncertain economic and financial outlook
• Identify and implement all possible savings and efficiencies. For 2013 and beyond we will optimize methods of service delivery, to improve service delivery and value for money
• No additional spend unless matched by savings or income
• The Stabilisation Fund will only be used during the economic downturn, as advised by the Fiscal Policy Panel, to fund the effects of reductions in States revenues or increased demand for States services, and to provide appropriate stimulus to the economy

These principles remain as relevant now as they were at the time. Given the overriding priority to balance the budget by 2013 it was essential for these resource principles to focus on managing States spending. For the period of the next Strategic Plan we will adopt the following additional principles: 

Additional Principles

Maintain balanced budgets and achieve an appropriate balance between taxation and spending.
Actively manage the Balance Sheet as well as the Budget by maximising investment returns within agreed levels of risk, rebuilding the Stabilisation Fund and optimizing the use of our physical assets (land and buildings).
Plan our expenditure on capital and infrastructure over the long term and consider carefully the appropriate sources of funding for major projects, including borrowing.

We will continue to manage our service delivery through the departmental structures, although increasingly the provision of these services can be seen to be cross-departmental. It is essential that our financial management framework provides departments with sufficient certainty of funding to allow them to manage within their cash limits so that they can provide the right levels of service for Jersey. The Medium Term Financial Plan allows for a longer planning horizon and gives greater empowerment and freedom to manage. More definite policies on the carry forward process, departmental contingency and departmental income are part of this revised financial management framework.

There is increasing recognition that we have to manage for the long term from a revenue and capital expenditure perspective.  Our capital investment decisions will look to the future so that we continue to invest in the right capital and infrastructure projects. Not only does this help departments deliver services, it helps boost the economy and safeguards the Island for generations to come. 

Resource Principles: Taxation

Jersey’s tax regime has developed over many years and more recently with the following key principles in mind.

• Taxation must be necessary, justifiable and sustainable
• Taxes should be low, broad and simple
• Everyone should make an appropriate contribution to the cost of providing services, while those on the lowest incomes are protected
• Taxes must be internationally competitive
• Taxation should support economic development and social policy, where possible
• These principles underpin our long term fiscal strategy

Looking ahead to resourcing the six priorities within the Strategic Plan 2013 to 2015

Background to Financial Position

The approval of the 2012 Business Plan and Budget has provided the States with a financial position of balanced budgets from 2013.

The 2012 Budget forecast :

• States income at £613 million in 2012 rising to £681 million by 2014
• States expenditure (net of depreciation) of £632 million in 2012, rising to £672 million in 2014
• Surpluses of £6 million in 2013 and £9 million in 2014
• These results do not rely on any major new taxes. However, long term funding of £6.1 million will be required for certain primary care services funded in 2011 and 2012 from the Health Insurance Fund

The spending limits will require the £65 million of CSR savings to be delivered by 2013 and that the requirement for significant pay restraint is delivered.  We will also need to live within our inflation assumptions.

The 2012 Budget forecast has now been revised and updated to provide a starting point for the development of the 3 year Medium Term Financial Plan.  The most current base budget planning assumptions for 2013 to 2015 for expenditure are shown overleaf in Figure 1.  The current planning assumptions estimate:

• Departmental Base Budgets before savings of £659 million in 2013 rising to £678 million in 2015
• Growth allocations of £6 million in 2013 rising to £26 million in 2015
• That CSR savings of £65 million will be delivered
• That new savings targets from 2014 will need to be set which will reduce the overall total of £710 million for expenditure currently shown in 2015  
• The current planning assumptions for 2013 to 2014 for income are shown in Figure 2, officers are presently working on income forecasts for 2015

The provision for growth allocations for services that are both a priority and under pressure and also for the use of contingency for in year unexpected events.  This gives the Council of Ministers some flexibility to manage over the longer term.

Total expenditure in Figure 1 is currently forecast to increase more significantly in 2014 and 2015 than in 2013 without further savings targets being set beyond 2013. The Medium Term Financial Plan will need to address these issues and determine further savings targets as part of the overall spending limits that will be proposed. These spending limits will also take account of the capital proposals for 2013-2015 arising from the extensive work on the Long Term Capital Plan. 

Summary 

In summary: 

• Our 3 year plan to deliver balanced budgets by 2013 is working
• We must achieve our £65 million CSR saving targets in order to live within our means
• By 2015 our planning assumptions include provision for growth of £26 million (£6 million in 2013, a further £10 million in 2014 and a further £10 million in 2015)
• Early work by officers suggests that the pressures presently faced by departments will exceed the growth allocation and this position will worsen if CSR savings targets are not met
• Full and detailed debate on service pressures and growth bids will take place
• with States Members full involvement as we work on the development of the Medium Term Financial Plan in the coming weeks
• The current base expenditure assumptions make no allowance for the savings that can be delivered from changes in methods of service delivery, changes in charging policy or changes in partnership working e.g. Guernsey.  The Council of Ministers fully intends to make savings in these years and the detailed proposals on delivery will be brought forward as part of the CSR process
• Alongside the development of the Medium Term Financial Plan the Treasury and Resources Minister also proposes to bring forward a Long Term Capital Plan for the States that will inform the three year capital programme for 2013-2015.
• Suffice to say, our early work demonstrates that there is sufficient flexibility within our financial estimates to enable the Council of Ministers to deliver against these proposed strategic priorities

Strategic Plan Resources Statement: Figures 1 and 2 (37.9KB)