States Meeting Transcript - 5th December 2013

STATES OF JERSEY OFFICIAL REPORT

THURSDAY, 5th DECEMBER 2013

PUBLIC BUSINESS – RESUMPTION..........................................................4

1. Draft Budget Statement 2014 (P.122/2013): second amendment (P.122/2013 Amd.(2)) - resumption................................................................................4

1.1 Senator S.C. Ferguson:..................................................................4

1. Deputy S. Pinel of St. Clement : ..........................................................7
2. Deputy J.A.N. Le Fondré of St. Lawrence : ..............................................7
3. Deputy K.C. Lewis of Saviour:.........................................................11
4. Deputy G.C.L. Baudains of St. Clement : ...............................................12
5. Deputy A.K.F. Green of St. Helier:.....................................................13
6. Deputy G.P. Southern of St. Helier:....................................................18
7. Deputy A.E. Pryke of Trinity :..........................................................20
8. Deputy J.G. Reed of St. Ouen:..........................................................22
9. Deputy J.M. Maçon of St. Saviour:.....................................................24
10. Deputy J.H. Young of St. Brelade : ..................................................24
11. Connétable P.J. Rondel of St. John:..................................................28
12. Deputy S.G. Luce of St. Martin:.....................................................31
13. Senator P.F. Routier:................................................................32
14. Deputy S. Power of St. Brelade:.....................................................32
15. Senator L.J. Farnham : ...............................................................33
16. Deputy R.G. Bryans of St. Helier:...................................................34

LUNCHEON ADJOURNMENT PROPOSED..................................................35 LUNCHEON ADJOURNMENT................................................................35

17. The Connétable of St. Lawrence:....................................................35
18. Deputy E.J. Noel of St. Lawrence : ..................................................37
19. Senator A.J.H. Maclean:.............................................................38
20. Senator I.J. Gorst : ...................................................................42
21. Senator A. Breckon:.................................................................44
22. Connétable S.W. Pallett of St. Brelade : ..............................................45
23. Connétable J. Gallichan of St. Mary:................................................46
24. Deputy M.R.Higgins:...............................................................47
25. Deputy T.A. Vallois of St. Saviour:..................................................48
26. Senator P.F.C. Ozouf : ...............................................................50

2. Draft Finance (2014 Budget) (Jersey) Law 201- (P123/2013):..........................64 Senator P.F.C. Ozouf (The Minister for Treasury and Resources):............................65

1. Deputy E.J. Noel (The Assistant Minister for Treasury and Resources) - rapporteur:...65

2. Draft Finance (2014 Budget) (Jersey) Law 201- (P123/2013) - Articles 1 and 2:......65

2.2.1 Deputy E.J. Noel: ......................................................................65

3. Draft Finance (2014 Budget) (Jersey) Law 201- (P123/2013) - Article 3 as amended:66

1. Deputy E.J. Noel: ......................................................................66
2. Senator L.J. Farnham :..................................................................66
3. Senator P.F.C. Ozouf :..................................................................66
4. The Connétable of St. Helier:...........................................................67
5. Deputy J.A.N. Le Fondré:..............................................................67
6. The Connétable of St. Mary:............................................................67
7. The Connétable of St. John:............................................................68
8. Deputy E.J. Noel: ......................................................................68

2.4. Draft Finance (2014 Budget) (Jersey) Law 201- (P123/2013) - Article 4: ..............69

1. Deputy E.J. Noel: ......................................................................69
2. Senator P.F.C. Ozouf :..................................................................69
3. Senator L.J. Farnham :..................................................................69
4. Deputy E.J. Noel: ......................................................................69

5. Draft Finance (2014 Budget) (Jersey) Law 201- (P123/2013) - Article 5 as amended:70

1. Deputy E.J. Noel: ......................................................................70
2. Senator S.C. Ferguson:.................................................................71
3. Deputy E.J. Noel: ......................................................................71

6. Draft Finance (2014 Budget) (Jersey) Law 201- (P123/2013) - Articles 6 to 13:.......72

1. Deputy E.J. Noel: ......................................................................72
2. Deputy G.C.L. Baudains:...............................................................72
3. The Deputy of St. Martin:..............................................................73
4. Deputy J.H. Young:....................................................................73
5. Deputy E.J. Noel: ......................................................................73

7. Draft Finance (2014 Budget) (Jersey) Law 201- (P123/2013) - Acte Operatoire:......75

2.7.1 Deputy E.J. Noel: ......................................................................76

3. Draft Income Tax (Amendment No. 43) (Jersey) Law (P.124/2013)...................76

1. Deputy E.J. Noel: ......................................................................77

1. Deputy G.C.L. Baudains:...............................................................77
2. Deputy E.J. Noel: ......................................................................77

2. Draft Income Tax (Amendment No. 43) (Jersey) Law (P.124/2013) - Articles 1 to 26 77

3.2.1 Deputy E.J. Noel: ......................................................................77

3. Draft Income Tax (Amendment No. 43) (Jersey) Law (P.124/2013) - Article 27:......79

1. Deputy E.J. Noel: ......................................................................79
2. Deputy J.H. Young:....................................................................79
3. Deputy E.J. Noel: ......................................................................79

4. Draft Income Tax (Amendment No. 43) (Jersey) Law (P124/2013) - Articles 28 to 34: ...........................................................................................80

3.4.1 Deputy E.J. Noel: ......................................................................80

5. Draft Income Tax (Amendment No. 43) (Jersey) Law - Acte Operatoire: ............81

3.5.1 Deputy E.J. Noel: ......................................................................81

4. Draft Income Tax (Prescribed Limit and Rate) (Jersey) Regulations (P.125/2013)...81

1. Deputy E.J. Noel: ......................................................................81

1. Senator F. du H. Le Gresley:............................................................82
2. Deputy E.J. Noel: ......................................................................82

2. Deputy E.J. Noel: ......................................................................83
3. Deputy E.J. Noel: ......................................................................83

4.3.1 Senator P.F.C. Ozouf :..................................................................83

5. Minimum Wage: Amendment (P.135/2013)............................................83

5.1 Deputy G.P. Southern :..................................................................84

1. Senator P.M. Bailhache : ................................................................86
2. Deputy T.M. Pitman of St. Helier:......................................................86
3. Deputy G.C.L. Baudains:...............................................................86
4. Deputy R.G. Le Hérissier: ..............................................................86

6. Agent of the Impôts: Appointment (P.144/2013) .......................................87 (In Camera proceedings)......................................................................87

ARRANGEMENT OF PUBLIC BUSINESS FOR FUTURE MEETINGS ....................88

7. Deputy J.M. Maçon (Chairman, Privileges and Procedures Committee): ...............88

1. Senator L.J. Farnham :..................................................................89
2. Deputy J.A.N. Le Fondré:..............................................................89
3. Deputy J.A. Martin of St. Helier:.......................................................89
4. Deputy T.M.Pitman:...................................................................89
5. Senator P.F.C. Ozouf :..................................................................89
6. Deputy J.M. Maçon:....................................................................90
7. Senator F. du H. Le Gresley:............................................................90

ADJOURNMENT................................................................................90

[09:33]

The Roll was called and the Dean led the Assembly in Prayer.

PUBLIC BUSINESS – RESUMPTION

1. Draft Budget Statement 2014 (P.122/2013): second amendment (P.122/2013 Amd.(2)) - resumption

The Deputy Bailiff :

We now resume debate on the Budget Statement.

Senator S.C. Ferguson:

Did the Minister for Treasury and Resources want to say something, Sir? The Deputy Bailiff :

I was not sure whether he did or not.

Senator P.F.C. Ozouf :

I was just exchanging a note with the Greffier, Sir, just to indicate - nothing to do with the Budget - my intention to defer P.93.

1.1 Senator S.C. Ferguson:

One thing we have not dealt with in this debate is the economic outlook. While the Minister for Treasury and Resources is relentlessly positive, I must add a note of caution. The U.K. (United Kingdom) is recovering, but the growth they are exhibiting has a number of components. Much of this growth is the wrong kind of growth. It is fake growth based on government and household borrowing and shoring up businesses - they call them zombie businesses - that are living off subsidies and low interest rates rather than contributing much of value to the economy. House builders, for example, have been boosted by the government's Help to Buy Scheme and the days of the 95 per cent mortgage are back. The services sector expanded at a healthy 0.7 per cent in the quarter and at least part of that is genuine, created by the resurgence of Britain's important financial services industry, but a lot of it is service brought in by a government that spends half the nation's income and by households that are borrowing more again. When interest rates are rock-bottom, borrowing makes perfect sense. Saving, of course, does not, but without savers there are no funds

available for rational investment in the viable businesses of the future. It was low interest rates, loose money and excessive borrowing that created the boom-bust cycle that burst in 2008. Will the U.K. avoid it again? This is one of our biggest customers and this is before we look at Europe and the rest of the world. In the Corporate Services Scrutiny Panel review we said that the economy is still fragile. Our G.V.A. (Gross Value Added) has fallen for the last 4 or 5 years. Financial services have fallen from 53 per cent of G.V.A. in 2000 to 40 per cent in 2012. In 2010 the share of G.V.A. derived from the finance sector fell below that of the non-finance sector. In the meantime, and unsurprisingly, the public sector has grown strongly over the past couple of years. The Fiscal Policy Panel complained that the economic coverage in the Budget Statement was scanty. Added to this, the Economic Advisers Department has discontinued the economic summaries and the input-output table model has also been stopped. Normal practice for government is to consider the economic climate before launching into a detailed budget, but we have cut back on this vital information. The Minister for Treasury and Resources has accepted some of these comments and I am hopeful that he will listen and we can convince him of the efficacy of the input-output table. They use them in Wales, in Scotland and the U.K. and they have even had input-output tables for projects in Sheffield and Manchester. There are structural changes to the tax system in this Budget, but where is the discussion of the economic effect? There has been no estimate of the structural deficits within the finances of the States, which the F.P.P. (Fiscal Policy Panel) wanted last year. Added to this, there was the question raised by our adviser from C.I.P.F.A. (Chartered Institute of Public Finance and Accountancy) who commented on the £5.5 million difference between the M.T.F.P. (Medium-Term Financial Plan) baseline position and the Budget and I have been muttering about this for the last couple of days. The Assistant Minister tells me that the higher education allowance and marginal relief are covered by the increase in Income Tax receipts, which are higher than expected. Last night I was assured by the Assistant Minister for Treasury and Resources that the Income Tax receipts are well in excess of the tax expected. I deduce from this that the Constable of St. Helier's amendments could have been accepted in total without upsetting the Budget balance. We are told this is a transparent, straightforward government. So why could they not have accepted such a modest amendment? There will obviously be a backlash. What is this going to do to the credibility of this government in the future? There are sins of commission and of omission and this is very much a sin of omission. The Minister for Treasury and Resources will say that it is totally out of character for me to recommend spending. Absolutely right, but, in the context of this particular spending, it is very small beer compared to the capital spending plans which we are rather expected to take on faith. As our adviser said, the lack of transparency on tracking baseline figures does not provide the level of confidence that we would expect. It is not good enough. He said that he would agree with the comments made by the Fiscal Policy Panel in respect of the marginal rate reduction component: "As a fiscal stimulus measure, it does not score well as it is neither timely - it will impact largely in 2015 - nor temporary. To ensure such a decision can be afforded, careful consideration of the structural position of States finances is required, although" - I think they were being kind here: "it is not clear from the Budget 2014 Report that this has been undertaken." As I have said, the degree of transparency is questionable. As has been said, the problem with the Income Tax changes is that they will not come into play until 2015, at the same time as the proposed long-term care charge. A sort of: "Now you see it, now you don't" scenario. I am sorry. I wonder if I could have a glass of

water, Sir, please. S'il vous plaîs?

The Deputy Bailiff :

Coming. [Laughter]

Senator S.C. Ferguson:

Thank you very much. I am not intending to be here for quite that long. The Deputy Bailiff :

A full-service presiding officer. [Laughter]

Senator S.C. Ferguson:

As I say, the other problem with the Income Tax changes is that it will not come into play until 2015 and, once the long-term care full charge of 3 per cent is being levied, the only people gaining are the married couple with 2 children, one at university, the wife working and an income of £40,000 a year, and the married pensioner on an income of £26,000 a year. Everybody else will be a net-payer. As to capital spending, the F.P.P. was very insistent that it must be contra-cyclical. When government spends in a growing economy it is inflationary. We have no monetary levers to pull in that situation and so must fall back on fiscal policy, raising taxes. While the F.P.P. was relaxed about the fiscal stimulus in 2013 and 2014, they were extremely cautious about 2015.

[09:45]

The hospital. Our adviser considered that the optimism bias was too small. He said that, while the Treasury Green Book methodology has been substantially followed, the Supplemental Green Book Guidance points to high-level optimism bias factors for non-standard construction projects such as

specialised hospitals, a bias factor of 51 per cent, and a duration timeline excess of 39 per cent on original forecasts for completion. We need to review the optimism bias. He also said: "We would conclude that, while this is a very desirable project, it is still at a proof-of-concept stage and is more aspirational than fully specified and costed." I do not consider that the case for the single or dual- centre hospital has yet been resolved and the project must have a number of clear break-points in case a plan B is required. This business about a 2-centre hospital; I am surprised because Members will recall the Minister for Treasury and Resources' dislike of a 2-centre police station. It was clear from our hearings that the Minister for Treasury and Resources considered that one or 2 approvals by the States are all that is required to authorise him to withdraw funds from the Strategic Reserve. I do not agree. Funding estimates should be dealt with more frequently, possibly on an annual basis but certainly on a bi-annual basis. We are told that we are only spending the interest, but Members should note that the manner of accounting for the reserve is such that income and gains are capitalised annually. Moreover, in 2011 the fund had an income of £7 million or one per cent. Variations in performance such as this mean that it is essential for regular review of the funding estimates. The housing loan was the one item which could well indicate a structural deficit and more work must be done on this. Our adviser also considered that implicit within this Budget proposal is the assumption that there is no additionality in terms of funding required by the taxpayer for this proposal: "As 67 per cent of existing tenants are currently entitled to an element of the housing component of Income Support, then the required revised rental income base for existing as well as the 434 net additional tenancies will generate a commensurate increase in housing component in Income Support. For the assumption to work, that there will be no additionality, there requires to be the condition that the net migration to the additional tenancies from the private sector will not be replaced by fresh private-sector tenancies and consequential Income Support housing component. In reality, we do not foresee this to be a likely scenario." In other words, if people move from Income Support private sector into the States social sector then they will be replaced by more people in the private sector requiring Income Support. He went on to say: "While we would fully support this proposal, we do have some reservations about the likely capacity of Jersey's construction industry to deliver the £200 million investment within a 10-year period and the fact that the income model will require additional States spend in the form of Income Support housing component." Here we are, getting ourselves into even more financial debt and commitment to financial expenditure when everybody else in the world is running down their debt. Then we go on to the Liquid Waste project. We have no strategy. We do not know what process we are going to be using and, according to a question in 2011 from the previous Deputy of St. Mary, the cost of work needed for Liquid Waste is something over £200 million and, in that, the cost of the sewerage plant alone was £43 million. This is not the same as the £75 million estimate in the Budget, so I would be grateful for the Minister for Transport and Technical Services to explain this. I would remind Members that our adviser from C.I.P.F.A. has considerable experience in this area. Our adviser was particularly concerned at the method of repaying the Currency Fund, because £75 million is coming from the Currency Fund. I am sorry. The Minister for Treasury and Resources is quite right. He is shaking his head. It is less than that from the Currency Fund, but the whole point about the Currency Fund is that it is backing up currency and should be in cash or near cash. Our adviser was particularly concerned about the method of repaying the Currency Fund. One million pounds will be savings in running costs and the additional £700,000 will come from additional internal department efficiencies. Following on a C.S.R. (Comprehensive Spending Review) efficiency saving requirement of £2.1 million for 2013 alone, this additional £700,000 is considered to be a formidable challenge for the department. In fact, our adviser considered this to be expectational. Finally, the supply side. Productivity: an integral part of economic growth. Where is it? There is no mention in the Budget, but this is a budget for jobs and economic growth. There are mentions of forward-looking projects designed to encourage new industries such as Digital Jersey and the Innovation Fund, but we must have

productivity in existing industries. In his response the Minister for Treasury and Resources asks for the panel to define what taxation measures could improve productivity. I would think, for a start, you do not have to apply for a licence to have Santa standing outside your shop giving out sweets and things like that. It is the little things that give you efficiency, but it is not for the panel to dictate policy to Ministers. It is for us as critical friends to indicate where extra work is needed and productivity is one area which must be top of the list. I really do not know whether I am in fact going to vote for this Budget because I see real problems with it, but I will listen to the rest of the debate.

1. Deputy S. Pinel of St. Clement :

Contrary to the last speaker, this Budget is well constructed, balanced and exciting. The one per cent decrease in marginal tax relief will be beneficial to 84 per cent of taxpayers. There is an increase in the tax relief threshold for parents with children at university from £6,000 to £9,000 per annum, a timely introduction as both of mine have just finished university. Moving swiftly on to capital projects, without mentioning the impôts that occupied the entirety of yesterday, the hospital, acknowledged by all, is past its sell-by date. The proposals for the phase 3 building at Overdale and on the present hospital site are well documented. Although an iconic new build on the waterfront would have been on many a wish-list and, in my view, could have included a magnificent penthouse floor for use as a Dignitas clinic, it is acknowledged that the cost would have been prohibitive. The tempered and sensible option of using the interest on the investment of the Strategic Reserve Fund, not the capital, to enable the phased proposal is one to be applauded. The insightful advice of the Treasurer and Treasury Advisory Panel should be recognised and thanked for the phenomenal success of the investment of the Strategic Reserve, which has generated the interest to fund the hospital project. Housing. I know only too well from the plethora of calls I receive from constituents, mainly from Le Squez, about the accommodation in social housing falling very far short of decent home standards. For too long this problem has been neglected, resulting in people living in appalling conditions of cold and damp. This is exacerbating health conditions such as asthma and bronchitis. Some situations involve children having to be accommodated elsewhere with relatives to prevent deterioration of these health conditions. The Minister for Housing is making revolutionary moves to combat this situation and the £250 million loan to tackle this major housing issue is entirely appropriate and sustainable with the loan being repaid by rental income. Liquid Waste Strategy. The third-largest capital spend is long overdue. We cannot permit the pollution of our very precious marine environment. To replace dysfunctional parts of an obsolete plant is literally throwing good money after bad; not what one could consider prudent, good governance or even sensible. We still have a long way to go, but the future is looking brighter and the time to invest in capital projects to improve the quality of life for the people of Jersey is now. The local construction industry, which has suffered enormously from the recession, will benefit. Much-needed employment for our local job-seekers will be generated and, if my optimism is not completely misguided, there may be more or even some interest and, as a consequence, less apathy from the public, our electorate. As I have been made very well aware over the last 2 years' involvement with the drafting of the long-term care proposals before you next week, such complicated legislation and regulation comes as a package. Cherry-picking is not an option. If you remove or tinker with one part you unbalance the remainder. Massive amounts of work, consideration and consultation formulate such complicated packages and there are repercussions when not adopting as a whole. Before I move seamlessly but prematurely into a speech on long-term care, I shall end by saying I fully support this Budget as a package and ask

Members to do the same.

2. Deputy J.A.N. Le Fondré of St. Lawrence :

I want to explain a little bit about how I am voting on this Budget. Assuming we are voting on separate sections, I am going to be abstaining on part E, which is all to do with funding for the Housing Transformation Programme. There is no pecuniary interest. As I have expressed my views and interests in the past on this, I just feel it is right to abstain on it. Perhaps more importantly, I am hovering between what was going to be an abstention on part A to voting against part A based on the comments and the slight banter we had as to whether it was a strongly-opposed or an opposed opinion. I am still very uneasy as to where we are going. Yes, I have supported a number of the potential changes but, to be blunt, largely those were peripheral in terms of the financial impact in the overall scheme of things. As far as I am concerned, the reduction in the marginal rate is not. My reservation is particularly linked with the potential revenue impact of £70 million if the path for independent taxation means reducing the marginal rate down to 20 per cent from 27 per cent over a number of years, which is what has been mooted in the past. In other words, it is that first step. However - and this is my fluctuation bit - the Minister for Treasury and Resources implied either yesterday or the day before that the target was to reduce the marginal rate down to 25 per cent, but even that is going to cost £16 million to £20 million on a permanent recurring basis. While I can agree with having the principles and all this issue about it is right for men and women to be taxed separately, et cetera, the price for me for those principles may be far too high, particularly when one can do it already. In other words, you can presently elect to be taxed separately under the present system, as I have understood matters. Yes, I note Senator Maclean is admiring my new glasses. I am struggling slightly to have to switch between looking that way and seeing them; it is great, everybody is blurred that way but I can read my handwriting for once. If one puts that into the context of the huge capital programme that we are going to be embarking on, which is requiring funding measures the like of which we have never seen because we are looking to fund basically a substantial proportion of our entire property portfolio .. If you add the whole lot up with the hospital at £3 million and the social housing at £250 million and obviously T.T.S. (Transport and Technical Services) with £75 million, it is not small beer, if that is

the right expression after the debate yesterday. [10:00]

In other words, can we afford to do both, i.e. to do the capital programme and reduce the marginal rate? I expect I will get a wave of comments coming back from the other side of the Chamber, but I do know I am not entirely alone in those remarks and I want to guide Members through where I am coming from on this. The first point is that I draw Members' attention to page 164, which is basically the very last page in the Budget Statement. The rather crucial figure, if people want to have a look at it, is in the bottom right-hand corner. There is a little figure which says "5,709". That is £5,709,000, which is the projected balance, as I have understood it, of the Consolidated Fund - if you like, our current account - at the end of 2014. Indeed, if one looks 2 lines up it says: "Budget measures; 2014 budget: £294,000." That has obviously changed fractionally because of the amendments that have gone through, but the impact of the Budget in 2014 is diddly-squat. It is not very much at all. The big impact, as has already been pushed through, is what happens in 2015 and the impact, as I have understood it, is a net outgoing of £5.4 million. I will caveat that in a minute. So if you think about it, we are spending £5.4 million but at the moment we have got £5.7 million in our bank account at the end of the year. The problem we have is that we do not have the other projections, as far as I can see, as to where we are going in 2015 and 2016. I may be corrected on that. To an extent that is irrelevant because it just means that we are getting tighter and tighter, in my view, in our cash situation. One of those concerns, therefore, that comes through, and particularly this balance between 2014 and 2015, is I think in 2008 the Minister for Treasury and Resources assured lots of people that there was no increase in G.S.T. (Goods and Services Tax) to come, but in 2010 it was raised by 60 per cent. So my concern at present is that at the start of an election year we are being portrayed as giving away a substantial amount of money to individuals and they are all going to be so much better-off, but we have got no clear vision as to the future funding patterns. In reality, we are not giving very much away at all because, as has been pointed out, in 2014 it is not very much net. In 2015 it is a moderate reduction from 27 per cent to 26 per cent; 84 per cent of households are going to benefit. An awful lot of households are also going to be hit the other way from the long-term care charges that are coming through. I do not have an issue with the long-term care thing, but it is just matching up expectations here. The other issue, which I fully accept as being what is not clear in my mind, is that the marginal rate is based on net tax - it is after exemption limits and things like that - whereas long-term care will be on gross income. What the impact overall on that will be, again I do not know the consequences. I have to stress, as well, I have got no great issue - slightly differently to Senator Ferguson - with the source of the funding, for example, for the hospital, in general - as a principle, this is subject to a lot of detail - or indeed with a number of the expenditure items we have got in the Budget because we are at that point in the lifecycle of those assets where we have got to do something. It is very clear. It is purely about: is it a good move at a time of economic uncertainty still to be seen - and whether in reality we are or not - I do not know – giving away £8 million a year? As I said, are we giving it away? It is going away on one hand, but there is a perception - and certainly there is a perception out there in the real world as well - that we are taking it back with the other hand, possibly over a slightly longer period of time. What I would like to do, is to refer also to recent correspondence that was put through just to reinforce these views. In other words, it is not just me, by myself, standing up and having a pop at the Treasury. I would then also like to take people through the adviser's comments in the Corporate Services Scrutiny Report, which I think are worthwhile. Certainly a letter that was written and I will say who it was by at the end of it. It brought a few things home to me: "Recent events in the States have left me wondering if I am living in Cloud Cuckoo Land." I do hasten to add this was written about a year ago: "On the one hand we have the States pleading poverty, stringent budget cuts, unable to afford any pay increase for States employees, and on the other hand the Minister for Treasury and Resources has miraculously produced the sum of £222 million to be spent in the next 3 years partly, justifiably, for health and property refurbishment and partly for more dubious purposes intended to stimulate the economy. I assume that the basis for the approval of this huge sum rests on the fact that at the end of 2011 the audited States accounts showed reserves of £3.7 billion. That is £3,700 million, a sizeable sum." I will skip a little bit: "but a substantial part of the reserve cannot be regarded as a source of funds for future expenditure, although certain properties might be saleable. The States' liquid resources at the end of 2011 were approximately £950 million, of which £590 million comprises the Strategic Reserve and £90 million the Currency Reserve. I understand the States have already authorised using 60 per cent of the Currency Fund to provide cash, which means that the Island can no longer claim that its currency is 100 per cent backed by U.K. gilts as was the original intention. So the question needs to be put: from where will the States find the cash to meet the projected

expenditure? The States have historically met capital expenditure from revenue surpluses. Recently there have been no revenue surpluses." I will skip a bit more, but then it says: "If this figure were to be achieved, which seems unlikely, it would provide short-term relief but, as in the case of potential property sales, it does not address the long-term problem. The States are going to need capital expenditure for the foreseeable future and at present there is no indication as to how this need is going to be met. Finally, I note that the Minister for Treasury and Resources has adopted the Gordon Brown euphemism of describing all capital expenditure as investment, irrespective of the nature of expenditure and, while capital expenditure may sometimes general income, it frequently brings in its train increased maintenance costs." That was written by Mr. John Clennett who is a former Treasurer of the States of Jersey and some of the older Members will remember him or, more possibly, be aware of him. He is obviously somewhat older these days, but I would argue that his brain is definitely fully functioning. To move on the corporate adviser's report, to give a bit more pause for thought. In fact, it was funny; I was having a conversation this morning with somebody saying: "There has been a lot of focus on duties and things like that, but we have not focused on the more substantial matters in the Budget." From C.I.P.F.A., which, just to remind people, is the Chartered Institute of Public Finance and Accountancy: "It is difficult to accurately track and test the 2014 budget Income Tax position of approximately £475 million based on this Budget presentation, particularly in the context of the Economics Unit mid-range forecast of £460 million." That is £15 million lower: "The lack of transparency on tracking baseline figures does not provide the level of confidence which we would expect in the overall financial modelling. In terms of affordability, given the lack of clarity on the baseline position, we would agree with the comments made by the F.P.P. in the 2013 report in respect of the marginal rate reduction component." So it is back to the marginal reduction sum: "As a fiscal stimulus measure, it does not score well as it is neither timely - it will impact largely in 2015 - nor temporary. To ensure such a decision can be afforded careful consideration of the structural position of States finances is required, although it is not clear from the Budget 2014 Report that this has been undertaken." Members may remember that when we attended the presentation by the F.P.P. they raised queries as to whether or not we did have a structural deficit and their definition was a lot of it hinged on whether the capital expenditure programme we had was for replacement assets or not. If it was replacement assets, their view was basically it implied we had a structural deficit. As I said, I have got no issues with the fact we need a new hospital. We do, but that must be a replacement asset, for example. It carries on: "It is difficult to foresee how budgets are fully funded on accurate levels of activity and also difficult not to conclude that some budgets are more aspirationally or expectationally based," which I think is a polite way of saying they would like to see what the real outcome would be versus the estimations at this point: "It would be our continuing view that the significant level of flexibility within which departments can transfer resources between budget headings can impair transparency and ultimately financial management performance. Indeed, it would be our position that it is this level of flexibility that can negatively impact the degree of motivation required to deliver optimal efficiency savings and utilisation of resources." That is one large mouthful, but the point is that they are nervous as to whether the way things are constructed at the moment will take the emphasis off operating efficiently. We then move on to the other adviser's report for corporate, who is also a very eminent individual. He starts from a macroeconomic perspective: "It has been difficult to understand what is being proposed in the Budget and to calculate the impact of the fiscal changes on the economy. This is also recognised by the F.P.P. who has observed that the draft 2014 budget is a step back from previous budgets in terms of completeness and transparency." It is a minor point and I look forward to being corrected on this, but I have been through a couple of times and I may well have blinked and missed it. In, for example, the 2012 budget we used to have a table like this, which was 4.2 in those days, and that gives forecasts for the years; in our case it would be 2014, 2015 and 2016. I certainly cannot easily see such a projection in the present budget. In other words, we do not know where we are going. What this does is it gives basically the net forecast. It gives your gross income and your States expenditure and it gives a little balance at the end. That, I think, is where this is coming from: "While the F.P.P. does not appear to have been given an update on the income forecasts, the Economics Unit did prepare an Income Tax forecast. Note: the Income Tax Forecasting Group." It then carries on. That identifies that in 2014, compared to the Medium-Term Financial Plan, we are £10 million down. In 2015 we are £20 million down. I am taking this from the adviser. It says that the table I have just referred to does not factor in the reduction in the marginal rate of taxation in those figures. Just a slight aside as well, which goes back to this issue about independent taxation: "During evidence to the panel the Assistant Minister for Treasury and Resources suggested it was not the purpose of government to determine social choices, yet elsewhere in the world this is done and, in fact, the Council of Ministers has agreed to influence social choice in its justification for raising impts in order to curb drinking and smoking. Why is there not a debate about whether the taxation system could be used to reward marriage and civil partnerships? How

can the tax system be made more just? In what ways can it improve, for example, incentives to work?" That is a bit of a side issue but it does raise one reservation I have about independent taxation. What is the impact on the institution of marriage and obviously one has to include civil partnerships in there, which is a legally-binding agreement. He then continues: "Turning to the proposed reduction in taxation, there is no discussion in the Budget whether the public finances allow for a reduction in the marginal rate of tax." So it is not just me: "As discussed, there are currently considerable downside risks to the economy. As the F.P.P. have noted, there is a possibility of a structural deficit in the public finances indicated by the extent to which capital expenditure has been funded by borrowing, both internal and external, and running down funds established for other purposes." That is the Currency Fund: "The F.P.P. have always cautioned that structural change in the taxation system needs to be carefully considered, which it is not in the 2014 budget. All of this cautions against the assertion that the public finances are on a strong and sustainable footing." Nearly there: "On balance, from an economic perspective, there seem to be significant dangers associated with reducing the marginal rate of Income Tax which has recurring costs, largely because of the state of the public finances. If the reduction in the marginal rate of tax was part of a fiscal stimulus there could be some merit in what is being proposed. However, the delay in impact of the changes to the bulk of taxpayers until 2015 when the long-term healthcare charge begins suggests that what is being proposed is a very weak fiscal weapon. As the F.P.P. have noted, the tax cut is neither timely nor temporary. This criticism could be extended to the Budget generally. Where is the mapping of any stimulus against the 3 Ts - temporary, timed and targeted - or an explicit discussion of how it would create jobs?"

[10:15]

In the very last concluding comment of that adviser it says: "Given the weakened fiscal position, it is unclear why the marginal rate of tax is being cut now. It will not provide an immediate fiscal stimulus and the introduction of the long-term care health charge will partially reduce the impact of the tax cut in 2015. In addition, there is no evidence that, with recurring costs of £8 million each year, the structural changes to the tax system have been considered from an economic perspective." The point is I suspect somebody from the Treasury and Resources Department will leap up and say: "The forecasts at the moment for Income Tax are a lot better than are in here," but the point is we are meant to be doing the debate on the basis of the documentation and the evidence in front of us, not in relation to something that is whizzed out in the next 5 minutes. The point is that it is not just my views, therefore, that I am expressing. They are the views of a former Treasurer of the States, the Chartered Institute of Public Finance and Accountancy and someone who is cited as being one of the world's leading experts in liquidity. That is cash. I am going disagree slightly with my good friend and colleague who sits to my right, Deputy Pinel, because I do not think it is an exciting budget and I am not entirely sure on the expenditure side, but I think we also need to identify that there is a difference between capital returns and income returns when one is using returns of the Strategic Reserve. I do not particularly have an issue with that and, as I said, I am purely concentrating on part A, but that bit does need to be understood. We have got one of the world's leading experts in liquidity raising concerns. To summarise, can we afford, in the medium-term, to give back this much to taxpayers permanently and potentially more in the future at the time that we are borrowing so much money or is it the case, as some people have expressed to me, that at some point in the future there will be a little note left in the vaults of the Treasury saying: "There is no more money"? I know that will not go down well in the Treasury, but those are the expressions that I have read out. They are not made up. I think I have backed-up the comments and, on that basis, I am not going to be voting for part A.

3. Deputy K.C. Lewis of Saviour:

T.T.S. has been managing Jersey's waste for years. Indeed, the current S.T.W. (Sewerage Treatment Works) at Bellozanne has been there for over 50 years and some of the sewerage system dates back to Victorian times. Over the years there have been many upgrades of the sewerage treatment works. Adding the ultraviolet treatment plan in the 1990s was seen as a huge step forward and received much public acclaim. However, in recent years the plant has not been performing well. It has required a lot of maintenance and it is not efficient and it is not effective either as it has been failing the required nitrogen standards. It is not long fit for purpose and it is no longer viable for upgrade. Over the last 5 years the department has amassed a lot of information to help it find the best solutions for the Island. Studies have been done to survey the condition of our sewers to review the different treatment and site options and to learn more about the impact we have in discharging our treated water to sea. All this information has been used to determine the future path for waste water. The management of waste water is a very complex and technical subject and this document provides an overview and simple terms. I cannot stress enough how vital this service is to the Island. Although it is mostly unseen, it is used by every person in Jersey several times every day. Providing proper sanitation is a basic requirement for any community to safeguard health. We are justifiably proud of our coastal waters. Any decrease in water quality would not only harm our economy but also our quality of life. Unlike solid waste, which can be stored if there is a breakdown, storage of routine daily quantities of waste water is not possible. We cannot afford a plant failure. The population has almost doubled since the sewerage treatment works was first installed. Although we intend to reduce the volume of water coming to the plant for treatment by separating more of the surface run-off water from foul sewers and through the Planning and Environment Department's initiatives for grey water, there is no way to reduce the actual sewerage that needs treatment. We are always striving to achieve best practice, although the recent condition of the sewerage treatment works and some of the sewer network has not made this easy and in some cases impossible. In determining our way forward we have liaised closely with the regulator and other interested parties to ensure they are supportive of our aims and understand our approach. Maintenance, upgrading and replacement, as far as budgets will allow, have been ongoing but the effectiveness of these works have been reducing. However, we have now been able to put together a framework of what is needed for the next 20 years, taking account of population trends on how we propose to address that need. T.T.S. has a strategy that we will present to the States in early 2014 which will cover all aspects of Liquid Waste. My oversight group recently held many briefings, which, sadly, Senator Ferguson did not attend, and are the precursor to the launch in 2014. The repayments will be covered predominantly by savings as the new sewerage treatment works will optimise the process. To clarify, we currently have 2 megawatts of installed power for aeration. With the new plant this can be done with half a megawatt. I would also like to go on record of thanking the Minister for Treasury and Resources and also the Assistant Minister of Treasury and Resources and the Treasurer for putting this

fantastic deal together, which will be for the great benefit of the people of Jersey. Senator S.C. Ferguson:

May I ask for a point of clarification? In the question of 2011 the Minister said that the entire Liquid Waste programme was going to cost £201 million or thereabouts. Would he like to confirm that the £75 million is purely phase one and that the real cost is going to be over £200 million?

Deputy K.C. Lewis :

No, it is my information that the £75 million will cover the entire works.

4. Deputy G.C.L. Baudains of St. Clement :

I think it was yesterday I made the comment that moving from the Budget debate where both expenditure and revenue were previously addressed together was a better format because I think by having a Medium-Term Financial Plan followed a budget many months later, we tend to lose focus on the reality of the overall effect of our actions. I believe that was evidenced by the debates we have had over the last couple days. As with Senator Ferguson, I have a number of fairly major concerns and I will address 3 of them. They are expenditure issues but, of course, directly related to the need to raise funding for them. I am concerned about the hospital expenditure because I know a number of senior doctors who advised me that we are going down the wrong path. I honestly wonder whether sufficient work has been done by the department to determine that this is the ideal direction to be going in. If you ask any civil servant whether they would like new offices and new equipment the answer is going to be yes. Is it what we need? We are custodians of the public purse and I do not believe we are sufficiently informed at the present time to make that decision. £300 million on something which may be not the correct answer would be a huge mistake by anybody's standards, especially given it is almost 50 per cent of our annual expenditure. I am also slightly concerned about housing, which I have been closely involved in and, indeed, I used to be on the Housing Committee many years ago as did Senator Ozouf when he was Deputy . It is clear to anybody that the so-called savings which occurred under the Fundamental Spending Review were responsible for having caused the stock to fall into disrepair and clearly that has to be rectified. Shortly after, we were told the Housing Department were going to sell some of their stock, apparently for 2 reasons: to raise funding and in some part to cover the cost of those repairs but also in some part because it was not felt that all that stock was not now needed. That has suddenly changed, so I would like to know what is going on. Is this a covert admission that Jersey is getting poorer and we are going to need more social housing or is it that there is a will somewhere to increase immigration? Another concern I have about this is that the Minister for Housing has frequently said he wants all housing in the public sector to reach a higher standard. That is all very well and, to some extent, I would agree with that. But is it right that those who rely on subsidised housing should, in many cases, be enjoying a better standard of accommodation than those in the private sector, which is what is likely to happen? I would ask, when the Minister for Housing speaks later on, if he could advise me what he is going to do about those tenants who absolutely refuse to pay their rent, those who damage and destroy property, and those who are a nuisance to their neighbours and have to be frequently moved. In days of old they were put in what we used to call sink estates. I remember it used to be Clarence Court and I think it is currently Le Squez. You do not put them in the finest, most insulated, most well-cared for housing for them to destroy it. So I wonder what the Minister for Housing has in mind for those people. Lastly, the fiscal stimulus, which seems to be the buzz-word these days. I question, as have some others, whether it works. I recall that Churchill used to say that trying to spend your way out of debt is like a man standing in a bucket trying to pull himself up by the handle. I do feel that we might be in danger of doing that. Where is the evidence that it achieves what it is intended, especially in our situation where we have Zero/Ten taxation? Is it not the case that a lot of this money is sailing straight out of the Island to English companies? Are we benefiting from the tax generated by this work? I do have some concerns here and I will be listening carefully to the rest of the debate to

decide which way I am going to go.

5. Deputy A.K.F. Green of St. Helier :

I am delighted to stand here today and give my wholehearted support to the Minister for Treasury and Resources' proposals, in particularly in relation to social housing which I will come back to in a minute. I would like to join the Minister for Transport and Technical Services in thanking the Minister for Treasury and Resources, the Assistant Minister for Treasury and Resources, the Treasurer and the team for putting what I think is a good budget for Jersey. It is more than a good budget. I think it is an inspirational budget. It is the best I have seen for some time. I want to pick up on a couple of points and then I will come back to the main thing on housing. First of all I would like to pick up on the 2-centre hospital that Senator Ferguson seems to be concerned about. I am, apart from the Minister for Health and Social Services, probably in the best position to make comment on that having been responsible for the last 5 years of my working life for the hygiene and cleaning and the environment of the hospital, among other duties. If we want to improve the health service and if we want to reduce hospital-acquired infections then a 2-centre hospital is absolutely perfect to do that.

[10:30]

Why? Because that means that the people from the community who may be carrying all sorts of pathogenic bacteria about them and with them - we all carry that - will not be coming into the hospital where the most vulnerable people are, the sick people that have had surgery. They will be up at Overdale receiving their treatment, while the very ill people will be receiving, in a purpose- designed hospital, the appropriate treatment for them. It is absolutely right and it is not new. We used to do it that way 30 years ago. I support the concept of a 2-centre hospital. There is a lot of work to be done and I particularly support the concept of single rooms. The Dutch have single rooms and they have the lowest hospital-acquired infections in the world and that is absolutely the way to go, aside from dignity and privacy and all the rest of it. I have no intention of making this a long-term care debate, but I would like to pick up on the long-term care that we will be talking about next week. This is a good thing. Speak to the people out there. I spoke to one young man at the weekend. I will not name him but some of you might guess who he was. He asked me what we were doing about protecting the home. Middle Jersey people that worked hard, had gone without holidays, saved, brought their own home, managed to do it, only, in some cases, to see it disappear as they pay for long-term care which they did not foresee; while others who had perhaps the same opportunity did not invest, did not build their own homes, did not look after them and received it free of charge. That cannot be right and the people that I have spoken to have said to me they are quite happy to pay that percentage in order that they only lose £50,000 of their home and they have got a home to leave to their family. That is why people want this. That is why it is right. This is about protecting people who have invested, looked after themselves and giving them something back; not penalising them like we do now. I would like to, before I get into housing properly, start by correcting what I thought was one of the worst editorials I have ever seen in the Evening Post. Of course, the Post is there to challenge us and hold us to account. The J.E.P. (Jersey Evening Post) said that we were borrowing for Jersey's social housing needs and that is correct, but not, as it

suggested, a rescue plan. Housing has already done a lot of work and is well underway with a well- publicised programme of improvements. This is part of the Housing Transformation Programme. Much of what we have done so far has been paid for from general revenues. The programme has been overseen significantly and also improvements have been made to a large number of social housing stock already, and I will pick up on Deputy Baudains' comments later. We must bring our stock up to modern standards. Fuel costs are rocketing. People find it difficult to heat their homes. If they fulfil their contract by paying the rent, and I will come back to that again in a minute, we must fulfil our contract by giving them homes that meet the Decent Home standards and are well insulated that cost a lot less to heat. I am always quoting this one but it was about this time last year or maybe in January last year one of the flats that we had finished at Pomme D'or Farm under the renovations, the lady said to me there in that very cold spell when we had the snow, she said: "I used to spend £50 a week on supplementary heating", heating additional to the heating system that was included in the rent at the time "and in this very cold period I have not had to spend anything." That has to be right. That takes people out of fuel poverty. The houses that we have been working on at Le Squez, at Le Marais, Pomme d'Or Farm that I have mentioned, Grasset Park, Clos Gosset, La Collette, it was very good and it was completely unsolicited from my point of view when I heard it on the radio, and excellent similar comments being made by an interview from a lady at La Collette who said she loved living there. She did not like the home that she had before. She has moved upstairs into the renovated properties and she thinks she is in heaven. That is right. That is

what our population deserve. Additional investment though is required so that we can bring all the States-owned sites up to Decent Home Standard. I had one lady on the phone only this week say to me: "You are doing an excellent job in getting these homes but please do not forget where you have only half a dozen homes and we still have little windows." I say to her: "We have not forgotten you. It is part of the programme and we will get round to every home." Senator Ferguson made some comment about taking the capital spend on faith. I do not think it is faith at all. Have a look at the nearly 120 pages of the business plan that we put forward in the P.33 debate. That is not faith. That is well-thought out. That is well-planned, well-reasoned, well-researched and well- scrutinised both by the panel and by other people. We have a robust business case and if people want to go back and read it, it is R.6 of this year. It is a thorough piece of work running to nearly 120 pages and it sets out the case to borrow for a co-ordinated programme of building and increasing the supply of housing. Outlined in that plan, which I have with me if anyone wants to have a look at it, is the process by which the borrowing will be repaid over a 20 year period. As I said before that business case was reviewed internally by the Treasury and Resources Department, by the Corporate Services Scrutiny Panel and by the Social Services Scrutiny Panel, and they judged it then to be robust. I wonder what has changed. Members will recall, as I said, in May we debated it nearly 3 days on the reform of social housing and agreed this was the way to go ahead. Part of that proposition, P.33, requested the Minister for Treasury and Resources to come up with a funding mechanism which he has done. These proposals that we are laying out here for housing are not new. They have been well-debated. We debated it on 16th May and the Minister for Treasury and Resources was asked to find the way of funding it which he has done. I will say one thing about that. I attended about 4 weeks ago a meeting of Ministers for Housing of the British-Irish Council and we all obviously shared experiences, and there was one thing that really struck home with me. Southern Ireland as you know probably have had it far harder than we have had it over here, in fact probably harder than many of the European countries and yet the Minister for Housing up there was fairly upbeat about the way ahead. Her words to me, and I will never forget these, I have quoted them before: "Yes, we have had a financial crisis." Jersey has got off fairly lightly compared to many although those that are unemployed, and that is something we must do something about, will not see that we have got off lightly but we have compared to the rest of Europe. She said to me: "Never waste a crisis." The world finances have been in crisis and because of that we can borrow the money at terms that we could never dream of normally. This is the time. If we are going to borrow money this is the time to do it. Take advantage of a crisis. Why is the funding required? What are we going to use it for? How is it going to be repaid? I have explained why it is required but I would like to bring it home to you. When you go and visit people who are in the private sector sometimes but very often living with family, the hidden homeless, when you see a young, hardworking Jersey couple with their baby, and all the beds in one room and they have about 4 square feet of carpet space to move around in, this is why we need it. I have explained why we need to renovate but that is why we need more homes. Hardworking Jersey people who perhaps do not have the capacity to earn large sums of money but making a contribution to the economy still deserve to be housed not adequately but well. We have a need to provide more social housing and these are not my imagined figures, not me making it up, not me being dramatic. Ask 1,000 families that are on the waiting list, 700 of whom are urgent, the others require to move or transfer from one type of housing to another but 700 of those families are urgently requiring accommodation. That is on, Deputy Tadier mentioned it the other day, a very tight criteria. In other words we do not house anybody under-25, we do not house couples under-50 unless they have children or unless they have severe medical needs. I could change that at a stroke but it would be utterly dishonest of me to change that because until we increase the supply we cannot help those people. They will never get to the top of the list, the families or the disabled would always come first. Be in no doubt these are real people, they exist. Funding is going to be used to bring another 1,200 homes up to decent standard and Senator Ferguson asked me the other

day how much was being spent on bringing homes up to decent standards. It is £50 million that is being spent on bringing our current stock up to decent standard. I remind Members of other projects that we have going on. I have mentioned La Collette. We have Osborne Court, De Quetteville high rise, Convent Court, Caesarea Court, Hampshire Gardens are starting, Nicolle Close, Hue Court high rise, all of these are in the programme to be worked upon. Many of these are basically good, firm homes that just need modernising and appropriate thermal protection put in there. The remaining funding, about £200 million, will be used to develop 900 new homes for people waiting on the Affordable Gateway. I will make the comment there about the rent component. There seems to be some concern that suddenly people are going to become eligible for rent component when they are not already eligible. That is spurious. We know that there will be an increase in the rent component as people move from the heavily subsidised rent to the 90 per cent of market rate and that has been allowed for in the Budget and the Medium-Term Financial Plan. Just because we build more homes does not mean that the people in the community suddenly become entitled to rent component. They are either entitled whether they are in the private sector or in the public sector or they are not but we do know that there will be increase which has been accounted for. Some Members were concerned that we were not building enough homes and I think they may well be right later on but the only limiting factor for me now, once we have the money in place and the right rent level, is the site availability. The draft Island Plan is going to deal with some of that. Recently we delivered 9 new units, which have all been allocated now, in Journeaux Court. We are going to take 80 units that are shared with the Parish of St. Saviour, 80 units at Langtry Gardens, which will be available next year, Belle Vue 35 units available in 2015, Le Squez another 24 units in 2014, Le Coin 23 units in 2015, Le Squez 3, 21 units in 2015, Belle Vue phase 2, 44 units in 2016 and that is one that we have put on boosters, if you like, so we can get the work done in 2015 as much as possible. We hope to be on site there midyear. It would not normally have been done quite as quick as that but I want to get the people housed and also I want to get the money into the community, into the construction industry when they really need it. La Collette low-rise, I have had meetings with the Planning and Environment Department. We hope to come forward there with an inspirational plan for 161 units in 2017 and 2019, and by them we will have hopefully the Summerland site which will develop another 152-sites. That is why we need the money but this is for real people. I have set out why we need it and I am now going to talk about how we are going to repay it, and as I said before we have put forward a robust full business case part of P.33. It lays out very clearly the financial arrangements of the new housing company over 30 years including a full impact of the proposed rent policy, the sales of assets for realignment or to provide sometimes, and not only money for us to perhaps change the density in some other areas, an exit strategy for people if they have moved into social housing when they were really in need of it and they are in their 50s, children have flown, they have better jobs, they continue to live in

social housing because they cannot go out into the public sector and buy at that time. [10:45]

We are going to provide many schemes. We have the deferred payment scheme, we are going to continue with that and I have asked the Strategic Housing Unit to look at other schemes to help people later in life and other schemes to help people earlier in life such as Rent To Buy where the rent is part of the deposit. There is a whole lot going on. The full business case was reviewed and scrutinised by the department's own independent financial advisers, by the Health and Social Services Scrutiny Panel and by the Corporate Services Scrutiny Panel whose advisers from C.I.P.F.A. reviewed the financial modelling for the housing transformation programme and stated, and I quote, I have written this down very carefully to make sure I quote them absolutely correctly: "This is a well-developed financial model which is industry standard in construction and we would consider this model to be robust and are of the view that this model should provide a solid basis for a company moving forward."

Senator S.C. Ferguson:

A clarification, there is a bit more to the quote that the Minister is not quoting. Deputy A.K.F. Green:

Which is?

Senator S.C. Ferguson:

What I have already quoted. [Laughter]

Deputy A.K.F. Green:

Some Members may be concerned about borrowing money but, as I said before, take heart from Ireland and the work that they are doing. Their situation is vastly improving. This is the best opportunity we have ever had to borrow at rates we will never see again, the best opportunity to get our construction industry back to work, the best opportunity to give the unemployed heart that something is coming their way. We will never get such competitive rates again and the credit rating that we have been given is the best that you could hope to get for a small jurisdiction. I again thank the Treasurer and the Minister for Treasury and Resources for their work on that. I would like to bring it back to basics though. Most of us or many of us are fortunate to own our own home and many of us had to take out a mortgage to buy that home. This is no different. We are sitting on £1 billion worth of housing assets now, £1 billion if you sold them empty, half a billion if you sold them occupied but we are sitting on £1 billion worth of assets and we are not making it work for us at all. This is not funding for consumption. I heard Deputy Le Fondré talking about that we should have given staff bigger pay awards, and that year-on-year would continue. I am sure I heard him say something like that.

Deputy J.A.N. Le Fondré:

I can categorically say I did not say that. Deputy A.K.F. Green:

I will withdraw it for the time being but I will check Hansard because I am sure Deputy Le Fondré said something like we were pleading poverty and could not give the staff pay awards and yet we found £20 million somewhere to do other work. I am sure that is what he said. This is not funding for consumption. This is funding for investment. I think the Treasurer uses the term "a virtuous circle," investing in our assets to generate income to pay off the investment. It is what we did at home when we bought our own house. We struggled, true, but we invested in a house and used our income to pay it off. I was, as I said, saddened by the title of the editorial in J.E.P.: "Will debt be Ozouf 's legacy?" I think Senator Ozouf 's legacy and I hope my legacy will be decent homes for all. [Approbation] I have heard it countless times in this Assembly that we need to think long- term. That is exactly what we are doing here today, no quick fix, no flavour of the month, long- term planning, 30-year plan. The reform of social housing was not a quick fix aimed at dealing only with short-term issues. It is a permanent, long-term solution and likewise the Budget deals with the funding for a long-term, permanent solution. I would just like to pick up on the comment or the question that Deputy Baudains asked me about rent. Am I going to make sure that people pay their rent? He is obviously not up-to-date with the position of the department. We have the lowest debtors that we have ever had. It compares against the whole of the United Kingdom as we are the highest performing with the lowest amount of outstanding rent. It represents now just less than 1 per cent of our rental income but we will continue that drive because it does not help people if you do not keep on top of it. Now if people miss their rent they are contacted: "Can we help you? Is there a problem?" They do not give advice on Social Security rent component but: "You may be entitled to that. What is the problem? Can we help?" That supportive challenge at the

same time being very firm with those who can pay but choose not to pay has resulted in us having the lowest outstanding rent ever and certainly the lowest in the United Kingdom. This is about providing decent homes for our community but giving hope to those who want work, giving hope to those who want affordable homes. This is a good Budget for the community, good for the States, good for Jersey and I ask Members to support it. [Approbation]

6. Deputy G.P. Southern of St. Helier :

I presume since we are having speakers from anywhere in the Budget we can roam where we like on the Budget. [Laughter] Can I start by repeating my warning from yesterday? Please do not misquote the stats. I have heard it once again today. I saw it in the paper last night, 84 per cent of taxpayers will benefit from this Budget. It is not 84 per cent of taxpayers. It is 84 per cent of Income Taxpayers which means approximately around 60 per cent will benefit, and 40 per cent, especially those at the lowest end, will not benefit. But let us start with the giveaway Budget and the nature of it. As others have already suggested it is timed to kick in in 2015 when another tax, I will call it a tax even if the Minister for Social Security does not or the Minister for Treasury and Resources does not, the long-term care tax starts to kick in. With one hand we are giving money away and with the other hand we are taking a bit more. It seems to me that that is an entirely appropriate thing to do if you want to face an election in the coming election and you are the Minister for Treasury and Resources, then that is a perfect solution. It is coming up, it is an election year. Let us note that. I think this giveaway Budget is a temporary thing. I said yesterday I think the model has broken. The economic model which the Jersey economy has been based on for some years is now broken in that we can no longer remain a low-tax and low-spend jurisdiction. Either we are going to see increased taxation or we are going to see reduced services in the future. That is the reality, and to illustrate what I mean by that I will refer to a debate we had quite recently about taking some money from the Health Insurance Fund. We were told quite sternly by the Minister for Treasury and Resources, by the Minister for Social Security, by the Council of Ministers that we could not possibly do that to improve our dental system, our dental health, because it was very dodgy. The H.I.F. (Health Insurance Fund) is, we are told, in one week in balance and maybe just about to reach tipping-point whereby it starts to go down, it did so. Our pension fund, our basic Social Security fund, over the next 30 years we will come to a tipping-point where we are going to have to increase Social Security contributions in order to fund our basic pensions and benefit system or, and it may be a mixture of both, start cutting down the benefits. I think we have already seen one of those. It happened this year when we removed Survivor's Benefit from many people and I think that was a basic breach of contract. There we are with people who have been paying into this fund, contributing for 20, 30, 40 years expecting a set of benefits at the end of it, the main one is the state pension, but others included Survivor's Benefit: "I am looking after my partner." It no longer happens. That was pulled away. The contributions are still there, the benefit is not. That is a breach of contract as far as I am concerned. That is what we did. That is the first way in which we are pulling back from what will become a major change to our economy in the future. Part of that low-spend is to ignore our infrastructure for decades on end and we saw that most markedly with the incinerator. Here we go, we have known that the incinerator has a life and it is about 30 years before it is on its last legs, stagger on, stagger on and find one year that we had £100 million spare. I know what we can spend that on. Instead of accounting for depreciation, we just do a spend. We chose then not to borrow but to spend what we had, full stop. There is the incinerator. I think we are seeing exactly the same with the Liquid Waste system now. We have ignored it for decades and now we have a big spend, whack, and this time we can do it. What will the next one be or the one after that? Will it be sea defences that 20 years down the line, 10 years down the line all of a sudden we have to find X? I think that this in fact will be the last giveaway Budget we are likely to see in our time or beyond our time for some of us. As we go forward, we are going to see the need to increase taxation in order to fund the

services that people expect. That is the reality. Having said that, within this particular Budget I have to support because I have been supporting it for years and congratulate the Minister for Treasury and Resources on finally dipping into the Rainy Day Fund, entirely appropriate with £700 million in a pot and with the need for a new hospital that you should spend upwards of £300 million on a new hospital, absolutely the right thing to do. But Cassandra-like possibly, I warn people, if you open Pandora's Box it is very difficult to shut it again so beware. We will see, because I think we have used all the pots. The Minister for Treasury and Resources has a long tradition of having little pots of money here, there and everywhere, even when he was the Minister for Economic Development. He always had something. He could move money this way and that way, very clever not to say foxy but I think we have run out of pots. We have to use the Rainy Day Fund. Mark my words, 5 years, 10 years down the line, we probably will not be here but we will be dipping in there again. We will find another need or another excuse to do that. Praise for doing it, and it is, I believe, entirely appropriate but beware Members that we do not start doing it again and again and again.

[11:00]

The pot may well be eventually empty. Second move, and again I have to support the Minister for Treasury and Resources wholeheartedly in doing it, if you have income from your assets one of the ways you can improve things is to borrow on the basis of your asset. You issue a bond; it is the best way to do it but if you have income coming from rental which will pay off the bond so you are not committing generation after generation to debt. You can pay it back and that is exactly the way to fund the housing improvement that we so desperately need, so full marks for that. However despite what the Minister for Housing has just told us about how this has been costed and examined and tested and is as perfect as he can make it, I believe that when we debated this in May not everybody in the room, I will be generous, understood the nature of some of the figures that were thrown at us. To start with, for example, some of them were inflated and looked enormous and some of them were not. It tended to be that the benefits were inflated: "Look, what a big number," and the costs were not inflated: "That does not cost much." Many people I think, some people, sufficient people were taken in to vote for it. I do not think that is the case. One of the consequences of the business plan was that instead of aiming for 80 per cent or 75 per cent of private sector rents, we had to go for 90 per cent of private sector rents. I do not think 90 per cent of private sector rents in the States rental sector is sustainable. I will illustrate what I mean by that because without including the ambition of the Minister for Social Security to increase the sum that we are going to give to private sector landlords, without including that, it is already a commitment that is going on so that is an increase, let us look at the figures. We are given a figure in the Housing Development Plan P.33 back in May that suggested rental income goes up in the first 5 years from £240 million to £812 million, a total rental income over the period of the plan £3 billion. But who pays that rental income? Approximately half of that comes straight out of the Income Support fund, out of taxation and we are talking in 2012, and I have just looked the figure up, some £27 million coming out of Income Support. That is the cost. That is per year. Of that £240 million rental income, around £150 million is coming straight out of a different taxation pocket into the system and over the length of the plan the rent goes up to £812 million per 5 years. What does that equate to? Why? About half of that is coming out of Income Support so the annual bill is no longer £27 million at the end of the plan, it is £80 million. Of that £800 million rent, rental stream coming in, taxpayers are funding £400 million of it, approximately half of it. I do not believe that is viable and that is going to increase. Then when we look at the figures of that £3 billion rental income stream, look down, net profit before finance costs £1,435 million, £1.4 billion. After finance costs, finance is not a problem, £1.3 billion, and then look, here is the line, here is the rub, return to the States of Jersey, £1.4 billion. Of that £3 billion the States is paying a substantial chunk of that, half, and we are returning half to the Treasury. It is no wonder we had to go up to 90 per cent of private sector rental market in order to make this viable because we are giving it to the Treasurer in order to fund the system which is propping up the system. We were told what was wrong in the past, why we do not have decent houses, and why we have to have that long list of improvements, refurbishments, redevelopments and new build is because we did not have enough money in the pot. There was too much money going back to the Treasury. What have we done? We have set a model in which half the rental income stream goes back to the Treasury. What is that going to do? That is going to create exactly what we have seen, 30 years of neglect of the housing stock is likely to be repeated because we are doing exactly what we did in the past. That is the reality. I am afraid that while in principle going for a bond is right, 90 per cent and increasing the subsidy to private sector landlords and paying half of our rental stream out of Income Support is completely unviable. I have heard this described as exciting and inspirational as a Budget. I think the word overall I would use, and quite literally, I would call it "dreadful" because I have a dread that somewhere down the line this wonderful inspirational Budget is going to hit the buffers. It is an accident waiting to happen is the reality. Overall I would say that this Budget is short-term in its central premise, ding dong. [Interruption] [Laughter]