States Resource Plan 2005 to 2009

STATES OF JERSEY

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STATES RESOURCE PLAN 2005 TO 2009

Lodged au Greffe on 20th July 2004 by the Policy and Resources Committee

STATES GREFFE

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to a p prove the States Resource Plan 2005 to 2009, consistent with the States Fiscal Strategy, and in

particular –

(a ) (i ) t o a pprove the cash limits for each of the non-trading Committees as set out in Table  4.1

totalling £406,791,600 in 2005;

(i i) t o a p prove total States net revenue expenditure limits for 2006 to 2009 of £429 million for

2006, £439 million for 2007,£450 million for 2008 and£461 million for 2009, as set out in Table 3.1;

(b ) (i ) t o approve the total allocation for capital expenditure of £45,000,000 each year for the

years 2005 to 2009, as set out in Tables 6.2 to 6.6; in place, as appropriate, of the allocations approved by the States on 18th September 2003;

( ii ) t o approve the recommended programme of capital projects for 2005 as set out in

Table  6.2, and to approve in principle the proposed programme for 2006 to 2009 as set out in Tables 6.3 to 6.6, respectively;

(c ) to approve the Legislation Programme for 2005 as set out in Appendix  11; and

(d ) to charge all Committees of the States to co-operate with the Policy and Resources and Finance

and Economics Committees in the development of an integrated process for business planning and resource allocation for the period 2006 and beyond.

POLICY AND RESOURCES COMMITTEE

CONTENTS

Section Page 1 Foreword....................................................................................... 4 2 Executive Summary........................................................................ 5 3 Financial Forecast 2004 to 2009....................................................... 9 4 Revenue Expenditure 2005.............................................................. 15 5 Revenue Expenditure Forecasts 2006 to 2009................................... 21 6 Capital Programme 2005 to 2009..................................................... 23 7 Manpower..................................................................................... 37 8 Legislation Programme................................................................... 40 9 Implementation and Way Forward................................................... 41

Index of Tables and Charts

Table/Chart Page

1. Financial Forecast 2004 to 2009....................................................... 10
2. Income Tax Forecasts to 2013......................................................... 11
3. Forecast Surplus/Deficit to 2013...................................................... 13

1. Total States Net Revenue Expenditure 2005..................................... 16
2. Net Position by Committee from 2005 Fundamental Spending Review 18

1. Summary of Variation to proposed Capital Programme 2005 to 2008.. 25
2. Revised Capital Programme 2005.................................................... 26
3. Revised Capital Programme 2006.................................................... 27
4. Revised Capital Programme 2007.................................................... 28
5. Revised Capital Programme 2008.................................................... 29
6. Proposed Capital Programme 2009.................................................. 30
7. Unsuccessful Capital Bids 2009....................................................... 31
8. The Housing Development Fund – Completed Projects..................... 33
9. The Housing Development Fund – Projects in the Course of

Construction in 2004....................................................................... 33

10. The Housing Development Fund – Future Projects........................... 34
11. Revenue Implications of the Proposed Capital Programme 2005 to 2009.............................................................................................. 35
12. Manpower Implications of the Proposed Capital Programme 2005 to 2009.............................................................................................. 36

7.1 Estimated Manpower Levels for the Resource Plan.......................... 38

Index of Appendices

Appendix Page 1 Recommended Projects in the 2005 Capital Programme................... 44 2 Equipment, Maintenance and Minor Capital Allocation – 2005.......... 52 3 Recommended Projects in the 2006 Capital Programme................... 53 4 Recommended Projects in the 2007 Capital Programme................... 66 5 Recommended Projects in the 2008 Capital Programme................... 72 6 Recommended Projects in the 2009 Capital Programme................... 85 7 Legislation (Work Completed 1 July 2003 to 30 June 2004)................. 92 8 Legislation (Work in Progress as at 30 June 2004)........................... 93 9 Legislation (2003 Programme items awaiting delivery of drafting

instruction).................................................................................... 101 10 Legislation (2004 Programme items awaiting delivery of drafting

instruction).................................................................................... 102 11 Legislation (2005 Recommended Legislation Programme)................ 106

This is expected to be the last Resource Plan in its current format, but it covers a period that will see pivotal changes to the States' income and expenditure.

The Resource Plan has been the focus of the States' medium-term financial planning for a number of years, but with the development of a new States Strategic Plan and an integrated resource planning process, this document will be replaced in 2005 by the first States Business Plan.

To ensure a managed transition into the new business planning process, this Resource Plan maintains a five-year planning horizon, for the period to 2009, enabling next year's States Business Plan, which will cover the five-year period to 2010, to dovetail with the approved States Strategic Plan.

This Resource Plan incorporates high-level financial and manpower forecasts that take into account the proposals contained in the Fiscal Strategy: the reduction of income from the move to a 0%/10% corporate tax regime, together with measures to mitigate the impact on States' income.

The Resource Plan illustrates clearly that if we wish to remain competitive in an increasingly aggressive worldwide market for financial services, we must formulate, approve and implement detailed changes to our taxation system without delay.

The focus in the five-year plan must be to bring spending growth back into line with forecasts of States' revenues, particularly to ensure that States' finances are in the right shape to tackle the challenges in the medium-term.

It is essential that the States, politicians and officers, embrace the change culture embodied in the approved Five- Year Vision for the Public Sector in order that the savings and value improvements can be achieved without increasing short-term deficits or cutting services.

The States has agreed a five-year change programme that will transform both the way the States of Jersey works and the way services are provided to the Island. This can only succeed if Committees and Members of the States continue to bear down on States' expenditure and work together to deliver better services at a cheaper cost.

May I once again take this opportunity to thank all those members of staff who have worked on the Resource Plan, and on the wider issues of the strategic, fiscal and economic policy that underpin it; for the hard work and skill they have devoted to the plans contained in the document now presented, which I commend to the States.

........................................................................... Senator F.H. Walker

President, Policy and Resources Committee 20th July 2004

2. E X  ECUTIVESUMMARY Introduction

This year's Resource Plan, which is likely to be the last in the current format, contains detailed proposals for the allocation of revenue and capital expenditure, as well as law drafting time, for 2005.

The Plan looks forward a further 4 years to 2009 through financial forecasts that reflect the financial policies within the recently  approved States Strategic Plan  and Fiscal Strategy. An integrated approach to business planning and resource allocation will also be developed over the coming months, to culminate in the production of the first States Business Plan, to be presented in 2005, which will cover the full period of the States Strategic Plan to 2010.

Financial Forecast 2004 to 2009

The projected deficits in Table  3.1 show an increase in the levels projected in the Budget 2004, due principally to further reductions in the growth in Income Tax revenues. The extended forecast of income tax revenues to 2013 gives an early indication of the scale of the problem beyond the change to a 0%/10% corporate tax structure.

The Finance and Economics Committee's policy is to maintain a level of deficit which is sustainable in the short- term but which will allow a return to balanced budgets by 2008. The introduction of the early measures identified in the recently approved Fiscal Strategy should enable a small surplus to accrue by 2008 but this will not be sufficient to address the more significant loss in income tax revenues following the new corporate tax structure from 2010. The Finance and Economics Committee will be conducting further research and consultation on the remaining measures outlined in the Fiscal Strategy, to tackle the remaining deficit before bringing proposals to the States by February 2005.

The achievement of balanced budgets by 2008 will also depend on the States continuing to maintain tight control on expenditure growth, which will require adherence to the current planning totals for revenue and capital and recognise the impact of any unplanned changes to tax allowances.

Revenue Expenditure 2005

The increase in total States' net revenue expenditure in 2005 is 2.6%, which improves upon the target in last year's Resource Plan of constraining growth to 3% for 2005. The improvement reflects the Finance and Economics Committee's intention to reduce expenditure growth to levels affordable from States revenues, and to achieve a manageable deficit ahead of the introduction of the Fiscal Strategy proposals for new tax measures. It is also consistent with the aim of the Strategic Plan to balance the States' income and expenditure.

The aim of the Fundamental Spending Review process this year was to build upon those areas that had been seen to be particularly successful in previous years. This resulted in the majority of the detailed work being dealt with through a scrutiny process involving Chief Officers and Audit Commissioners, thus focussing the time invested by the Presidents to the prioritisation of the key growth and savings proposals.

The target for resource allocation was established as a 2.5% increase in net revenue expenditure that allowed £7 million net growth to be allocated. Given this constraint, the group of Presidents has proposed£6 million of reductions to services, which thereby allowed a total of £13 million of additional funding for priority services.

The 2005 process also saw the principle of targets for efficiency savings being established, both at a corporate and departmental level. The Shadow Corporate Management Board was charged with identifying the corporate efficiency savings. Its work has now been reinforced by the Visioning project, which identified £20 million of efficiencies over the next 5 years through public sector reforms,£6 million of which is included in 2005.

Revenue Expenditure Forecasts 2006 to 2009

The proposals for revenue expenditure targets for 2006 to 2009 are those derived from the approved States Fiscal

Strategy, amounting to less than real terms growth.

The Finance and Economics Committee's planning assumption, for the purposes of forecasting, is to provide for an average of 2.5% growth per annum over the five-year period 2005 to 2009 and this will be subject to ongoing review.

The Strategic Plan summarises the objectives for the development of the Island over the next 5  years. These include a target for the economy to grow by 2% per annum, but, at the same time, it also identifies a strategic aim which emphasises that all aspirations must be balanced by a need to constrain expenditure growth.

The Fiscal Strategy identifies the need to change the tax base of the Island to address the international and competitive pressures, but the extent to which new tax measures are required is heavily influenced by the level of expenditure growth and the scale of projected deficits. Consequently, emphasis must be placed on delivering efficiency savings and prioritising the allocation of available resources to achieve best value for money from public services.

The five-year financial planning process will continue, informed by new detailed three-year business planning by departments, directed towards the delivery of the objectives that cascade from the States Strategic Plan. Over the next 12  months, as a model for the States Business Plan and related Departmental Business Plans is developed, the resources required to deliver firstly the objectives of departments, and ultimately the States strategic aims, will need to be identified.

In parallel to this development, the individual elements of the strategic aims, and possibly the related departmental objectives, will need to be prioritised. This prioritisation could form the basis from which improved and more strategic resource allocation could take place.

Capital Expenditure 2005 to 2009

Last year's Resource Plan achieved a reduction in the capital allocation from £50 million per annum to £48 million per annum for the period 2004 to 2008, as part of a package of measures to address the growing deficits.

Given the latest forecast of tax revenues, the Finance and Economics Committee considers it prudent to reduce annual allocation to capital by a further £3 million to£45 million per annum for each of the years 2005 to 2009. This significant reduction in real terms has required a reworking of the previously approved 2004 to 2008 programme as well as difficult decisions in respect of prioritising projects in the proposed 2009 programme.

A Capital Resource Allocation workshop took place between the Presidents of the bidding Committees who in the first instance, acknowledging the financial constraints, agreed that the funding allocation be reduced to £45 million per annum and proposed a programme for 2005 to 2009 within that target.

Manpower

The Finance and Economics Committee has introduced into the FSR process the full integration of manpower and finance when considering resource allocation, rather than the fragmented system that operated previously.

This has resulted in manpower savings and growth being agreed at the same time as funding is allocated, subject to ratification of the Resource Plan. Once established, these adjustments will automatically result in limits within which Committees will be expected to operate. Integrating the allocation of these resources within a single process will ensure that both are allocated in accordance with strategic objectives.

The FSR and Visioning Project have identified a maximum reduction of 500  jobs over the next 5  years from combination of service reductions and efficiency savings. Ultimately this may be partly offset by any additional staff in the way of growth that is affordable through the resource allocation process each year.

Legislation Programme 2005

The bids for drafting time in 2005 far exceeded the number of days available for new items despite Committees and their departments co-operating by withdrawing requests for drafting of items, which are either no longer required or which may be deferred. A workshop was held for Committee presidents to determine the priorities for drafting in 2005 and the programme now proposed is based on those priorities.

Implementation and way forward

The new Strategic and Business Planning process will result in the current Resource Plan being subsumed into the new States Business Plan. The first States Business Plan will be produced in 2005, covering the period 2006 to 2010.

This new process will integrate successfully Strategic and Business Planning and the previous Fundamental Spending Review (FSR) resource allocation process, within the parameters of Fiscal Strategy expenditure targets.

The five-year period covered by this Resource Plan will see major changes to the way the States raises income to fund services, coupled with a decline in income in real terms. For the first time, the forward financial forecast to 2009 starts to incorporate the impact of changes proposed in the Fiscal Strategy, highlighting clearly the need to take decisive action in the very near future.

3. F I N ANCIALFORECAST2004TO 2009

1. O  verview

The financial forecast at Table  3.1 shows the financial position following the latest available income tax forecasts prepared by the new tax forecasting group in July 2004. The forecasts also reflect the outcomes from the 2005 FSR and in subsequent years expenditure totals are in accordance with the policy of growth at less than real terms as adopted within the States Strategic Plan and the Fiscal Strategy. To be consistent with the Strategic Plan assumption that inflation is likely to continue at the current or at a slightly lower level, this has been interpreted in the Resource Plan as an average of 2.5% increase in total States net revenue expenditure over the period to 2009. In the event that inflation does fluctuate further than currently anticipated then this planning assumption would need to be reviewed.

After taking these factors into consideration, the deficits show an increase in the levels projected in the Budget 2004, due principally to further reductions in the growth in Income Tax revenues. This level of deficit can only be maintained in the short-term in the knowledge that a clear strategy is in place to facilitate a recovery in tax revenues in the medium-term, as proposed in the Fiscal Strategy P.106/2004.

The Finance and Economics Committee's policy is to maintain a level of deficit which is sustainable in the short- term but which will allow a return to balanced budgets by 2008, through measures identified in the States Fiscal Strategy.

The achievement of balanced budgets by 2008 will also depend on the States continuing to maintain tight control on expenditure growth, which will require adherence to the current planning totals for revenue and capital, and recognise the impact of any unplanned changes to tax allowances.

In addition to the measures identified within the Fiscal Strategy, the Finance and Economics Committee will consider appropriate increases in existing tax measures within the annual budget process.

Table 3.1

Financial Forecast 2004 to 2009

2004 2005 2006 2007 2008 2009 £'m £'m £'m £'m £'m £'m

Income

Income Tax 360 370 380 390 400 410 Impôts 53 53 52 51 50 49 Stamp Duty 14 14 14 14 14 14 Other Income 14 13 13 13 13 13 Total Income

Expenditure and Transfers to Reserves

Total States Net Revenue Expenditure

Capital Allocation

Transfer to Strategic Reserve

Total States net revenue and Capital expenditure

Forecast Deficits (15) (14) (15) (16) (18) (20)

Notes to the Financial Forecast

Income Tax – The forecasts assume existing policies are maintained which includes the freezing of allowances and exemptions and

are based primarily on the levels of actual 2003 income. An explanation of the effect from 2010 of the 0%/10% structure and fiscal strategy proposals is described in Section 3.3.

Impôts – The forecasts assume that duty levels remain at the 2004 Budget level and that current consumption trends continue.

Stamp Duty – The forecasts assume that duty levels remain at the 2004 Budget level.

Other Income – This heading represents the return from certain States investments and associated bodies including Jersey Telecom and the Jersey Financial Services Commission.

Total States net revenue expenditure – in 2005 this figure represents the total of the individual Committee cash limits proposed by

the Finance and Economics Committee plus the General Reserve. From 2006 this figure reflects a planning assumption of 2.5% growth per annum.

Capital Allocation – the allocation of funding to the Capital fund for the proposed programme of capital expenditure.

Deficits – the net figure, representing in each year spending in excess of the level of States revenues. The Finance Law prevents the

deficit  in  any  year  exceeding  the  forecast  balance  in  the  Capital  Fund  and  as  a  result  the  level  of  forecast  deficits  is unsustainable much beyond 2005 based on current estimates.

2. I n comeTaxForecasts

The income tax forecasts have for the first time looked over a ten-year period, in order that the full impact of the move to a new 0%/10% corporate tax structure could be illustrated.

The forecasts have had to assume a number of market factors, including moves in the global economy, company profits, investment returns and property prices – all of which may vary significantly, particularly over a ten-year forecast period.

In  addition,  over  the  last  few  years  several  of  the  larger  companies  have  repositioned  their  businesses  in anticipation of changes in tax structure. There is still an opportunity for further take-up in the International Business Company (IBC) sector until the end of 2005 and to that extent this will also have an effect on the profile of the tax forecasts.

Table 3.2

Income Tax Forecasts to 2013

450

400

350

300

250

200 £' million

150 100 50 0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -------------- ACTUAL -------------------------ESTIMATE ---------------------PROVISIONAL -----

Year

Table  3.2 shows the extended forecast and gives an early indication of the significant reduction in tax revenues from 2010 onwards. The most significant change is in 2010 when the majority of companies' income tax will be collected under the new 0%/10% structure. From 2010 to 2013 those residual IBCs, whose agreements will be expiring, will transfer to the new structure, which is expected to result in a further slight decrease in corporate tax revenues.

The ten-year forecasts must be accepted as a first estimate, and used only as a broad indication of the profile of tax revenues over this period.

3. F i scal Strategy

The Fiscal Strategy P106/2004, approved by the States on 7th July 2004, lays out the proposals through which the forecast deficits can be addressed over a period of years, and requires that these proposed measures be in place by 1st January 2008.

The proposals contain a series of measures to address both the short-term spending deficits and the significant loss in tax revenues from the point where the new 0%/10% tax structure comes into place.

The financial forecast at Table  3.1 reflects the first measure, which is to achieve savings in public expenditure of £20  million by constraining growth to 2.5% per annum, being 1% less than the forecast underlying rate of inflation.

The other measures to be introduced by 2008, to address both the short and medium term deficits and not included in the forecasts, are –

In c o me Tax Instalment Scheme (I.T.I.S.) estimated to raise up to £5 million;

the phasing out of tax allowances for taxpayers on higher incomes, estimated to raise up to

£10  million;

the introduction of policies to achieve a target for economic growth of 2% per annum over the period

2005 to 2009, estimated to generate £20 million per annum; and

further tax measures required to address the remaining deficit and mitigate the loss of tax revenues as

a result of the change to a 0%/10% tax structure, which following further research and consultation will be brought forward to the States with recommendations for approval by February 2005.

Table 3.3 shows the effect of incorporating these extended income tax revenue forecasts into a projection of the next 10 years' financial forecast, to indicate the resulting surplus or deficit, which illustrates the need for significant new tax measures in advance of 2010.

Table 3.3 – Forecast of Surplus/Deficit to 2013

40 20

0 -20 -40

£'million -60 -80 -100 -120

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Deficit before any new tax measures Year

Surplus/Deficit after 2005 income tax changes and economic growth, but before remaining tax measures

The red line on the graph reflects an extension of the forecast deficits in Table  3.1, incorporating the provisional income  tax  revenue  forecasts  through  to  2013.  It  assumes  existing  impôts  duty  and  stamp  duty  rates  are maintained and is before the introduction of any of the new tax measures outlined in the Fiscal Strategy.

The black line on the graph illustrates the estimated effect of introducing –

an Income Tax Instalment Scheme (I.T.I.S.) estimated to raise up to £5  million per annum;

the  phasing-out  of  tax  allowances  for  taxpayers  on  higher  incomes,  estimated  to  raise  up  to

£10  million per annum; and

policies to achieve a target for economic growth of 2% per annum over the period 2005 to 2009,

estimated to generate £20  million per annum by 2009.

The graph shows that these measures enable income and expenditure to be brought back into balance, ahead of the move to the 0%/10% corporate tax structure, and also allows the creation of a small temporary surplus. However, this surplus is not sufficient to address the projected loss of corporate tax revenues from 2010.

The graph does not take account of the remaining tax measures outlined in the Fiscal Strategy, which will be further researched and consulted upon before being proposed to the States by February 2005.

4. R e venueandCapitalExpenditureForecasts

The Strategic Plan and Fiscal Strategy proposals set a clear framework for expenditure over the next 5  years.

In the Strategic Plan the strategic aims summarise the objectives for the development of the Island, which include a target for the economy to grow by 2% per annum. At the same time, the Plan identifies a strategic aim which emphasises that all aspirations must be balanced by the need to constrain expenditure growth.

The  Fiscal  Strategy  identifies  the  need  to  change  the  tax  base  of  the  Island  to  address  international  and competitive pressures, but the extent to which these new tax measures are required is heavily influenced by the level of expenditure growth and the scale of resultant projected deficits. Emphasis must be placed on delivering efficiency savings and prioritising the allocation of available resources to achieve best value for money from public services.

The clear framework within which the revenue and capital expenditure forecasts have been prepared includes annual increases in States net expenditure limited to 1% less than the underlying increase in the Retail Price s Index for each of the years 2005 to 2009. This has been interpreted in the Resource Plan in terms of –

Financial planning targets for total States net revenue expenditure of 2.5% per annum as shown in Table 3.1; and

A l lo cations for Capital expenditure of no more than £45 million per annum for that period.

The Fundamental Spending Review has been the mechanism through which the delivery of expenditure savings and the prioritisation of available resources have been achieved for the 3  years 2003 to 2005. Detailed allocations are not proposed beyond 2005 as it is intended that a resource allocation process will be integrated within the new business planning framework to be developed from the Strategic Plan.

A similar process has operated to achieve the prioritisation of capital projects and a programme is proposed for the next five years within the planning targets.

4. R  E VENUEEXPENDITURE 2005

1. 2 0 05RevenueCashLimits

The proposed increase in total States' net revenue expenditure in 2005 is 2.6%, which improves upon the target in last year's Resource Plan of constraining growth to 3% for 2005.

The improvement reflects the Finance and Economics Committee's intent to reduce expenditure growth to levels affordable from States revenues, and to achieve a manageable deficit ahead of the Fiscal Strategy proposals for new tax measures. It is also consistent with the Strategic Plan.

The Finance and Economics Committee intends to take a medium term approach with a return to balanced budgets by 2008 and currently estimates this can be achieved by constraining expenditure growth to a target of 1% less than the underlying increase in RPI (estimated at 2.5% per annum) over this period, providing the Fiscal Strategy proposals are approved.

Individual Committees' cash limits for 2005 are shown at Table 4.1 below and reflect the outcomes of the resource allocation process and the pro-rata allocation of efficiency savings from the FSR. Further work is required to confirm the final allocations between Committees for corporate and departmental efficiency savings and this will be progressed in advance of the 2005 Budget.

Table  4.1 also identifies indicative final cash limits, once the current pay negotiations are eventually settled and allocated, and these totals represent the clearest picture of how funding will be finally allocated.

Table 4.1

Total States Net Revenue Expenditure 2005

Notes:

The various Committee transfers and adjustments are identified in the table below.

The FSR outcomes are the proposals from the final Presidents' conference on 5th April 2004.

The non-staff inflation at 2.5% also includes provision for the up-rating of benefits in Employment and Social Security Committee.

Adjustments to cash limits for 2 specific pay reviews are required, Consultants Medical Defence liability and the Legal Appointments review, which date back to June 2002/3.

The allocation of efficiency savings will be adjusted once the extent of corporate efficiencies is known.

The 2005 cash limits do not include the June 2004 and June 2005 pay awards which are not yet agreed. An indicative allocation of these figures is included in the penultimate column to provide an indicative 2005 Budget figure for each Committee.

Committee Transfers and Adjustments

2. F u ndamentalSpendingReview 2005 Process Theaimoftheprocess

The aim of this year's process was to build upon those areas that had been seen to be particularly successful in previous years.

This resulted in the majority of the detailed work being dealt with through a scrutiny process involving Chief Officers and Audit Commissioners, thus focussing the time invested by the Presidents to the prioritisation of the key growth and savings proposals.

The process also included –

input from other interested States Members, at various stages of the decision making process, with their views being carefully considered by the Presidents in making their proposals;

the outcomes of the decision conferences being made available to all States Members and the media throughout the process; and

a f i nal decision conference, after the initial outcomes were published, to enable Presidents to consider, with their Committees, the overall impact of the proposals.

The structure of the process allowed for the base cost of services to be automatically up-rated by agreed indices, allowing the focus of the decision making to be on the relative priority of services and policies.

The framework for the resource allocation was established as a 2.5% increase in net revenue expenditure which, with  a £2  million  allocation  to  the  General  Reserve  and £6  million  target  for  efficiency  savings,  allowed £7  million net growth to be allocated.

In  addition,  Table  4.2  shows  that  the  Presidents  have  proposed £6  million  of  reductions  to  services  which therefore allowed £13  million of additional funding for priority services within the growth available.

Table 4.2

Net position by Committee from 2005 Fundamental Spending Review

Notes:

T h e i ncreases in Privileges and Procedures Committee represent the introduction of Scrutiny and the Public Accounts Committee and further growth is required in 2006.

In 2004 Public Services planned to introduce a sewerage charge. This was deferred but the funding for the annual cost of essential

sewer maintenance has been proposed as growth in 2005. Public Services are also allocated additional funding to the amount of the full cost of the Connex Bus contract.

The significant increase in FTE for Education, Sport and Culture Committee is to maintain the current pupil teacher ratios alongside the demographic increase forecast in pupil numbers – this may reduce in future years as the demographic profile changes.

3. E f ficiencysavings

Part of the financial forecast includes a provision for efficiency savings to be made across the States. These savings are not intended to cause a reduction in service but are savings which should be achieved by "delivering at least the same service but for less cost", adopting the vision better, simpler, cheaper.

The principle is that these efficiency savings comprise targets for both corporate and departmental efficiencies. The Shadow Corporate Management Board was charged with identifying the corporate efficiency savings. Its work has now been reinforced by the Visioning project, which identified £20 million of efficiencies over the next 5 years through public sector reforms.

The target for 2005 is £6 million and it was intended that over half of this would be delivered from corporate efficiencies. However, in many cases the corporate efficiencies have a lead time before the savings identified are realised and, consequently, the contribution from departmental efficiencies is likely to need to be greater than expected in 2005 to achieve the overall target.

The full £6 million has been removed on a pro-rata basis from Committees' cash limits across the States as a first step and as the corporate efficiencies are identified by the groups managing each target area, these will be adjusted against Committee budgets.

In 2005 the target areas for corporate efficiencies are –

p ro v ision of Information Technology;

F in a nce function;

procurement services;

Human Resources function; and

property management.

The resources required to deliver these services are held within individual Committees' cash limits. The savings targets for both corporate and departmental efficiencies have therefore been allocated across Committees.

The detailed allocation of these corporate efficiencies will emerge through "proof of concept" studies leading to the restructuring of functions and resources to achieve the most efficient and effective delivery of these support services.

The first targets for corporate efficiencies are support services (Human Resources, IT, Property and Purchasing). However, the budgets for these functions are included within Committee cash limits and the total target for efficiencies has been allocated across all cash limits. The allocation will be adjusted to reflect the actual realisation of efficiency savings in support services. The scale of the Support Services budgets within each Committee will be detailed in the 2005 Budget in the form of new "Statements of Support Service" costs.

In subsequent years, savings will continue to be achieved in these areas but they will be delivered by changes in working practices, use of technology and by corporate working as services work together to remove duplication and support each other.

4. G  eneralReserve Unforeseen Contingency

The allocation to the General Reserve has been substantially reduced in recent years from almost 5% of States expenditure to less than 1%. This has been achieved through considerable financial constraint by the Finance and Economics Committee and also through the support of all States Committees.

In the 2004 Budget, no allocation was made to the General Reserve on the basis of an unspent balance from previous years. It is anticipated that by 2005 this will be largely committed, but the Finance and Economics Committee has accepted an allocation of only £2  million or 0.5% for 2005.

This is the minimum that the Finance and Economics Committee could possibly propose, and if this level of General Reserve provision is to continue then it will no longer be able to provide a contingency for anything other than genuine emergency items. All other risks would have to be absorbed at Committee level.

Pay and Pension provision

The most significant risk is the fluctuations of pay awards and pay reviews, particularly as negotiations for the June 2004 pay deal have been underway for sometime. The employer's offer of 2.5% for the two-year period to June 2005 has been presented to all the negotiating groups. The employer's offer reflects the required constraint on overall net revenue expenditure of which the wage bill represents more than 50%. However, initial indications are that this may be rejected.

Consequently, there are no detailed allocations to Committees for these pay awards in the Resource Plan, and negotiations would have to come to fruition quickly if they are to be completed in time for inclusion in the 2005 Budget.

To enable a minimum provision (circa £2  million) in the General Reserve in future then Committees may well be required to provide for any variations of pay awards and pay reviews within cash limits. This would simplify the cash limit allocations and enable individual allocations to Committees for both staff and non-staff inflation in the future.

5. R  E VENUEEXPENDITUREFORECASTS 2006 TO2009

1. E x pendituretargets for 2006to 2009

The proposals for revenue expenditure targets for 2006 to 2009 are those derived from the Strategic Plan and Fiscal Strategy proposals amounting to less than real terms growth.

The Finance and Economics Committee's planning assumption, for the purposes of forecasting, is to provide for an average of 2.5% growth per annum over the five-year period 2005 to 2009 and this will be subject to ongoing review.

The Committee's forecasting model for 2006 to 2009 also currently assumes –