14 September 2010
Sir,
I approach the debate today with a variety of thoughts in my head.
There is a thought which I suspect many members have, regarding the time this debate could potentially take. I am sanguine about this; we have faced similar concerns before. However it does encourage me to keep my remarks relatively brief, notwithstanding the important nature of the topic we are discussing.
I hope that other speakers also accept the need for brevity. There is a lot to cover, and key decisions should not have to be taken when we are all tired and perhaps frustrated.
More importantly I am thinking about the reason for having this debate this week. I am not questioning the need for it. On the contrary, I am stressing the importance of it.
We need this debate in order to set a clear direction for the years ahead. We need to be clear about the challenges we face, and we need to be resolute in our desire to resolve those challenges.
We approach the next few years in a relatively strong position. Thanks to good forward planning, and with the encouragement of the Fiscal Policy Panel, we have a Stabilisation Fund which is planned to see us through the current recession.
Indeed the Fiscal Policy Panel in itself is a strength, in that its members can give us independent, informed and objective advice. I hope Members have heeded their latest words of wisdom.
We have a general policy of avoiding borrowing, and we should not forget that thanks to the forward thinking of our predecessors we also have a worthwhile Strategic Reserve to be used in the event of a real catastrophe, which we could not solve unaided.
Previous generations saw the wisdom of not letting our spending exceed our income. We must follow that good example.
That is why the Council of Ministers is putting forward its vision for the future, based on a Business Plan which can ensure, which MUST ensure, that we have balanced budgets by 2013.
However there is one thing which worries me. Because we have done so well and come through this recession relatively unscathed, there are some who do not believe that we can possibly be facing a deficit of £100 million per annum in 2013 and beyond.
There are perhaps others who do not want to believe this, even though they accept that figures do stack up. Perhaps they hope that the Treasury Minister has some magic solution, perhaps some hidden funds or some unspecified change in tax revenues which will suddenly make all our problems disappear.
To all these people I have two words of advice. GET REAL!
The actual figure in 2013 may not be exactly £100 million. In fact it certainly won’t be. But whether it is £90, £100 or £110 million the fact remains that we are facing a problem which we have to address, and which we have to address without delay, and which we HAVE begun to address. It arises for various reasons which have already been spelt out, but whatever the reasons, the issue today is how to regain a balanced budget.
This week’s debate is therefore vital if we are to maintain our policy, our very successful policy, of facing up to problems early and finding the best solution for Jersey.
I say “the best solution for Jersey” because whilst we can learn from other countries, we also have to accept that we have many differences from other countries. The best solution for them may not be the best solution for us. An 80/20 balance between savings and taxation may work in some places; it may not work in others.
However that is a debate for later. What I am saying is that we have to find our own solution, and the quicker we can find it the quicker we can start to implement it.
I say “start to implement it” because the changes which are needed cannot take place overnight. They will need months of careful preparation and months, perhaps years, to implement. We start from a relatively strong base, but we can erode that base very quickly if we do not take decisive action now.
Decisive action by itself is not enough. It is also necessary to evaluate the consequences of any such actions, whether decisive or impulsive. For this reason I have to express my concern at many of the amendments before us today, because I am not convinced that people have thought through the consequences of them.
We have spent months on the Comprehensive Spending Review process, and we have not yet evaluated the outcomes of the second phase which will deliver the required £50 million savings.
Whilst the Business Plan before us today is well-planned, co-ordinated and reviewed in order that Ministers can be satisfied that it works, any changes we might make could have unforeseen consequences, and I do urge members that where they are in any doubt they should stick with the status quo of the plan, the carefully prepared plan, which we lodged.
There are those who complain we are not cutting spending quickly enough, but this Business Plan is part of a structured transition from global downturn to economic growth. It is the first step in a three year process and should not be viewed in isolation.
To those who question whether or not Jersey has actually seen any impact from the recession, I can say very definitely that we have.
For instance –
- The profitability of our financial services sector fell by almost half in 2009 – even excluding any large one-off fluctuations, the fall was still 25%
- 400 fewer people were employed in the finance sector last year
- unemployment has reached 1,250, with younger people feeling the effects more severely
- retail sales, particularly non-food items, have fallen
So although we can hope that the tentative signs of recovery continue to grow, we must prepare for a future in which tax receipts do not bounce back to their previous levels.
This Business Plan proposes a £12m reduction in spending for 2011. This is a year in which we are still using the stabilisation fund to maintain jobs and keep our economy in balance. We sometimes seem to forget how valuable the Stabilisation Fund has been in keeping our economy on an even keel.
From 2012 the stabilisation fund will be running out and we shall need to make more significant inroads into government spending. To start with, I am proposing a £25m reduction in spending for 2012 and £50m in 2013.
Some say we should cut more than that and indeed the Council of Ministers does not see £50m as necessarily the end of the road. What we do see is that £50m is a realistic target to meet by the end of 2013.
That has to be the first objective, not just for Ministers, but for all of us. Not only is it a realistic target; it is an achievable target.
It is clear that a reduction in spending of this level cannot be achieved without both changing the way we provide services and moving some services to outside agencies.
These kinds of structural changes need time and up-front investment to work properly and we have had to factor this into the figures for our three-year plan.
Members who question the need for this investment in reconfiguring our public sector are putting at risk the ability of the States to make the fundamental changes that are needed. If we are to create an efficient public sector run by well-motivated staff whose potential is fully utilised, we need to invest in making those changes.
It is easy to think short term and reduce the budget that’s been set aside for restructuring the organisation. But if Members agree to do this, we won’t be able to create the streamlined organisation that will see us into a successful future.
We have the opportunity to look at all our services, to reconfigure them, to develop an efficient, slimmed down States. If we don’t go ahead now, we will fail to cut costs, we will face increasingly unsustainable public finances and we will risk spiralling into ongoing deficits and debt.
The changes which need to be made if we are to significantly reduce our spending, not just in 2011 but in future years, will require us to make a one-off investment in restructuring the organisation. If we try to chip bits off the restructuring budget, we will not achieve our long term objective. We would be guilty of choosing short term gratification over long term financial stability.
So, can we find £50m in savings by 2013? The fact is that we have to. I cannot condone the alternative of resorting to higher levels of taxation.
I’m realistic enough to know that reaching this target will require an initial investment not just of money, but of time and staffing. Well-managed change takes considerable planning. I would sooner manage a few changes well and achieve real benefits, than promise a raft of changes which we cannot deliver properly.
This Business Plan is the culmination of work that began in January, a process which began with an assessment of all the financial issues the Island faced. That assessment concluded with the need for a Comprehensive Review of the way we spend public money.
Not the kind of review undertaken every year, but a comprehensive detailed review of all spending across the whole of the States organisation. Taking the best advice from both individuals from the IMF, and independent people who had successfully run and overseen Spending Reviews in other places, the Council set out a two stage process.
The first part of the Review is detailed in this Business Plan. Work is ongoing for the second stage.
As the outcomes of the major reviews forming part of the second part of the review process start to come together, the Council will produce a more detailed way ahead for 2012 and 2013 and beyond. This work will begin to take shape in the next few weeks.
The Council‘s six months of work aims to have produced a clear plan for Public Finances for the next three years.
It is a well thought out plan, and it is realistic.
It puts money where money needs to be spent, and it cuts spending elsewhere.
It acknowledges the pressures we face, but it is realistic about the way we need to address the future.
I urge Members to endorse the proposals of the Council of Ministers, and support this important first step in reforming our Public Services and balancing our Public Finances within 3 years in the way we have proposed.
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