Resources Statement to the Draft Strategic Plan 2015 – 2018 (P.27/2015) – including IFG report on Income Forecasts (March 2015).

STATES OF JERSEY

RESOURCES STATEMENT TO THE DRAFT STRATEGIC PLAN 2015 – 2018 (P.27/2015) – INCLUDING IFG REPORT ON INCOME FORECASTS

(MARCH 2015)

Presented to the States on 23rd April 2015 by the Council of Ministers

STATES GREFFE

2015   Price code: F  P.27 Add.

Resources Statement to Draft Strategic Plan (P27/2015)

- Update on States Finances 2015-2019

Chief Minister's Foreword

Strategic Plan

The Council of Ministers believes that the future of Jersey depends on a government that prioritises and delivers effectively and efficiently. The Council of Minister's draft Strategic Plan prioritises the key issues where it believes progress has to be made in the next four years to deliver a better future for all.

The four priority areas are: Health, Education, Economic Growth and St. Helier. In Health we want to continue the transformation of our health and social services system so all Islanders can be cared for and in Education, we need to raise standards.

Boosting Economic Growth to create new jobs and businesses is designed to increase States income to pay for services. St. Helier is a priority, ensuring that our town will become a place where people aspire to live, enjoy working and want to visit.

The Funding Challenge

The first Medium Term Financial Plan (MTFP) increased the funding for Health significantly and provided economic stimulus and new investment for back to work initiatives. These initiatives were funded without increasing taxes. The next MTFP will require further increased spending for Health and to fund the other strategic priorities. If we are determined to maintain low taxes and balanced budgets then extensive reprioritisation of existing spend and increased effort to boost economic growth will be required.

Jersey distinguishes itself from many other jurisdictions by having prepared and provided for the future and therefore avoided meeting funding challenges by debt. This is what we have always done and it is the right thing to do.

The challenge for this Council is to maintain these principles whilst factoring in the challenges and impact of the recent recession. The solution is to reprioritise: to save in some areas to enable us to spend more on health, education, economic growth and our essential infrastructure.

We are now publishing updated income forecasts and initial details on resources for the Strategic Plan before the debate later this month. The forecasts show that if we are continue current spending, fund the priority areas of Health and Education, maintain the funding in the first Medium Term Financial Plan (MTFP) for the economy and jobs, and allocate funding for capital spending, we would need to find at least an extra £125 million by 2019.

The Economics

Financial decisions should be taken on the basis of sound economics. Maintaining public finances on a sound and sustainable footing in the medium-term is critical to maintaining the stability in which economic growth can flourish. This requires that we follow Fiscal Policy Panel (FPP) advice to ensure that we address any structural deficit by 2018/19 but at the same time that the range and timing of any measures minimises the risk to economic recovery. Although there are now clear signs that local economic conditions continue to improve the economic outlook is still uncertain and we must retain flexibility so that we can continue to support the economy and keep recovery on course. We do need to aim to balance revenue and current expenditure over the economic cycle as indicated by the FPP but we also need to continue to invest, particularly in our infrastructure to support productivity improvements and competitiveness.

Sound economic and fiscal policies are best developed within open and transparent frameworks. R102/2014 Updating the Fiscal Framework' presented to the States alongside the 2015 Budget included a number of recommendations to improve the framework in which we make fiscal decisions. Drawing on this report, FPP advice and other recent fiscal developments a new fiscal framework will be finalised and presented in June alongside the MTFP. This will ensure that future fiscal decisions continue to support our economic objectives and lay the foundations for productivity led economic growth.

Whilst Jersey has weathered the economic crisis comparatively well there can be no room for complacency. Other jurisdictions have shown that a focus and prioritised approach to economic growth can boost productivity and tax revenues. The digital revolution will have an impact on all service based economies including Jersey, and the effect of this have to be prepared for. Current forecasts are rightly and prudently based on a continuation of the current economic growth but an updated and even more ambitious economic growth strategy could, if successful, play an important role in funding the challenges in this report.

Public Sector

The reform programme has laid the foundations for this reprioritisation, by setting up systems for e-government, implementing a business improvement (Lean) methodology throughout the States to help streamline processes, progressing Workforce Modernisation to ensure our workforce is flexible in the future, restructuring some departments and planning office rationalisation.

We plan a variety of measures to meet the funding challenge working across the organisation to identify restructuring opportunities, rather than departmentally, ceasing to provide some services and redesigning the way others are provided, merging departments if appropriate, reducing duplication and removing unnecessary regulations.

Our reform programme was established to keep spending under control and to develop a flexible public sector that is ready for the challenges ahead. These measures will take that programme to the next stage, and help ensure the available funds go where they are most needed.

As around half of the public sector's spending is on staff, Ministers recognise that reducing headcount is one way of contributing to the overall savings. The need for compulsory redundancies will be minimised by leaving posts vacant when staff leave or retire, and by offering voluntary redundancy when services are redesigned. This work will be done in partnership with trade unions and through active engagement with staff.

Next steps

Our income forecasts will be revised again in May to ensure we use the most up to date information, and Ministers will continue to develop the balanced spending proposals before final figures and plans are published in the Medium Term Financial Plan at the end of June.

Resources Statement - Update on States Finances 2015-2019

1. Background

The Council of Ministers has committed to provide an update on the financial position ahead of the lodging of the draft MTFP 2016-2019 and to inform the debate of the draft Strategic Plan on 28th April 2015.

The draft Strategic Plan includes reference to provisional income forecasts prepared in November 2014 to inform the new Council of Ministers development of the strategic priorities and available resources. Those forecasts indicated a potential shortfall of £50 million in 2019 if current spending levels continued and included provisions for pay, inflation, up-rating of benefits, a real terms 2% annual increase in the health budget and an allocation of £35 million per year for capital projects to be funded from General Revenues.

The £50 million shortfall was before any savings but also before departments' requests for additional revenue expenditure growth, in particular the further investment needed in H&SS and to meet the funding required in Education.

Ministers have initiated a spending review, with the support of external advisers, to identify savings and efficiencies to contribute to funding the projected shortfall by 2019, consistent with the FPP advice to balance budgets by 2018/2019. Ministers have also asked for the impact of additional savings, efficiencies and user pays measures to be prepared, which would enable a redistribution of resources to be considered for growth and other funding priorities which have been identified.

The Council has been presented with revised income forecasts, including an interim report from the Income Forecasting Group (IFG), as part of a new formal forecasting process. The revised income forecasts use information from the provisional outturn for 2014 and remodelling based on the economic assumptions endorsed by the FPP in it's Pre-MTFP Report (January 2015).

This report provides an interim summary of the financial position arising from the interim income forecasts from IFG and the latest expenditure forecasts, growth requests and funding pressures from the initial outcomes of the spending review, ahead of lodging the draft MTFP 2016-2019. The Income Forecasting Group (IFG) have recommended a further review of the income forecasts, to ensure that the most up to date economic assumptions are used to inform the draft MTFP, and this will be presented to Ministers in May.

The work on the spending review will continue and Ministers will develop the high level expenditure proposals ahead of lodging the draft MTFP at the end of June 2015.

Consideration is also being given to providing greater flexibility in the presentation of the MTFP proposals, reflecting comments and recommendations from the Fiscal Policy Panel, Corporate Services Scrutiny Panel and most recently the Comptroller and Auditor General. Proposals for minor changes to the Public Finances (Jersey) Law 2005 to facilitate this approach have initially been shared with Scrutiny and will be lodged this month for consideration by the States ahead of the draft MTFP lodging.

2. Revised Income Forecasts 2015-2019

The States income forecasts have been revised from the previously published forecasts from the Budget 2015 to inform the development of the proposals for the next MTFP 2016-2019.

The revised forecasts for all States income derived from taxation and duty have for the first time been reviewed and agreed by the newly constituted Income Forecasting Group (IFG).

The format and remit of this group includes the forecasts for all States income derived from taxation and duties. The Treasury and Resources Minister approved the Terms of Reference of this Group.

The IFG has been established to improve and formalise the process by which the Minister for Treasury and Resources and the Council of Ministers are provided with robust forecasts of States income from taxation and duty.

The IFG has produced its first formal report which has been presented to the Council of Ministers. This detailed report is included as Appendix B for information

Forecasts of other States income have also been revised by the Treasury in respect of dividends, returns, island rate and miscellaneous income. These are similarly based on provisional outturn for 2014 and economic assumptions but with input from investment advisers and the business plans of States strategic investments as appropriate.

The forecasts of States income are presented as a forecast range and it is important that the Council recognises that there is much uncertainty in the economic outlook. This uncertainty has been commented on by the IFG in its current report and also by the FPP in the Pre- MTFP report in January 2015.

The uncertainty in the forecasts reflects general uncertainty in the outlook but certain additional factors which are documented in the IFG report relating to; changing interest rate forecasts, uncertainty of income tax from shareholder income and the potential impacts of the UK banking reforms.

For this reason it is important that the Council include appropriate flexibility in the proposals for the MTFP 2016-2019 and also recognise the comments of the IFG that the risks are on the downside of the central scenario. The IFG is also proposing to present a further update to the Council in May, to ensure the most up to date forecasts are provided to inform the development of the final proposals for the next MTFP.

Movement in forecasts since MTFP 2013-2015

In early 2012, when the original MTFP economic assumptions and forecasts were prepared, while the euro crisis had begun to unfold, the extent and depth of the consequences were not fully apparent. This meant that forecasts at this time did not fully anticipate the fallout from the euro crisis. As a consequence there have been significant reductions to the States income forecast with the biggest impact on the forecasts of income tax revenues.

The previous forecasts of States income in the Budget 2015 identified a reduction compared to MTFP forecasts (March 2012) of £35 million in 2014 and £50 million in 2015.

The 2015 Budget proposed contingent measures to manage the deficits in 2014 and 2015 and the indications were that these reductions in income forecasts were not temporary and would need to be addressed with sustainable measures over the period of the next MTFP 2016-2019. The FPP has advised that any structural deficit should be addressed by 2018/2019 as the economy returns to capacity.

Draft MTFP forecasts 2016-2019

The latest update is based on the unaudited 2014 outturn and economic assumptions from the FPP Pre-MTFP Report in January and show a further reduction in States income forecasts.

The reduction since the forecasts in the 2015 Budget is primarily due to:

• A reduction in the 2014 outturn for income tax relative to the Budget 2015 forecast for 2014;
• Differences in economic forecast variables, namely;

• slightly lower assumptions for average earnings and financial services profits growth from 2016 to 2018;
• an assumption that only the low long-term trend rate of economic growth of 0% in real terms, will occur from 2018;
• Inflation, employment growth, average earnings and interest rate expectations are all now generally lower than expected in the Budget 2015, particularly in the latter years of the forecast period.

• Information from financial services companies suggests lower growth in profits than was forecast for the Budget 2015; and
• For other income the change in interest rate profile and investment returns together with lower fund balances have reduced investment income forecasts.

Overall range of forecasts

The economic assumptions endorsed in the FPP Pre-MTFP report (January 2015) provide a range of assumptions higher, lower and central. These assumptions are used for the modelling of the different types of States income along with some other factors to provide an illustrative range of income forecasts.

The range in the forecasts by 2019 is £135 million between the higher and lower scenarios which represents broadly +/- 9% around the central scenario. The central scenario is broadly the mid-point of the range but, as concluded by the IFG, the risks are on the downside of the central scenario and the proposals for the next MTFP should consider and include appropriate flexibility within this range. Figure 1 shows the forecast range for the draft States income forecasts and indicates the movement since the Budget 2015 forecasts.

Figure 1 – draft MTFP forecast range for States Income for 2013-2019

£'000 General Revenues Income

Higher Growth 900,000 Scenario

850,000 Budget 2015 as

amended 800,000

MTFP 2 forecast

(March 2015) - 750,000 Central Scenario

Lower Growth

Scenario 700,000

650,000

600,000

2014 2015 2016 2017 2018 2019

Figure 2 draft MTFP forecasts for States income 2015-2019

Economic Assumptions 2015-2019

IFG has considered the economic assumptions endorsed by the Fiscal Policy Panel (FFP) in the Pre-MTFP report (January 2015) and these assumptions are the basis for the draft income forecast modelling for the MTFP 2016-2019.

Changes in assumptions since 2015 Budget

The main features of the latest economic assumptions when compared to the Budget 2015 forecast are:

• Real economic growth is expected to be slightly stronger in 2014 and 2015

but slightly weaker in 2016 and 2017. For 2018 and beyond, the FPP advised that the States should plan on the basis of a trend rate of real growth of 0%.

• Inflation (as measured by RPI and RPIY, for example) is expected to be lower until 2017, recognising the recent sharp falls in oil prices and lower market expectations for interest rate increases.
• Financial  services  profits  are  expected  to  grow  more  slowly  following information  gained  through  a  series  of  interviews  with  financial  services companies in November and December 2014. This is a key assumption for the company income tax forecast.
• Relative to the Budget 2015 forecasts, employment is expected to grow more quickly in 2014 and 2015, and then more slowly in 2016 and 2017.
• Average earnings growth is expected to be weaker in 2015 and 2016.
• Interest rates are now expected to increase later and more slowly, according

to financial markets expectations.

The economic assumptions factor in the latest local and international developments. Figure 3- Economic Assumptions for 2014-2019: Central Scenario (March 2015)

Planning for a further update

The target date for lodging the draft MTFP 2016-2019 is the end of June and the current economic assumptions were produced in January 2015.

IFG has concluded that it would be helpful, particularly in relation to the latest UK interest rate profiles and to be able to include any further information on future profitability in the finance and banking sector, that a further revision be considered in April. The forecasts will therefore be remodelled and presented to Council in May, ahead of the draft MTFP lodging in June.

The current forecasts should therefore be considered as subject to potential revision in May 2015. However, the potential for further variations are not considered to be relatively significant, although on the downside, and the draft forecasts are appropriate for the development of the draft MTFP 2016-2019 at this stage.

3. Draft Expenditure forecasts for the MTFP 2016-2019

The Council of Ministers have had to make difficult choices in presenting the draft Strategic Plan and has focussed on key areas where progress must be made in the next four years.

The four priority areas are to improve Health and Wellbeing, Economic Growth, Education and St. Helier. These strategic priorities will need to be provided with appropriate funding within the resources available to maintain balanced budgets and to address any structural deficit with sustainable measures by 2019.

The current financial position is likely to mean that this funding will be a combination of re-prioritising existing base budgets and identifying additional savings, efficiencies or fees and charges, beyond that required to address the shortfall in income, which can be re-invested in these priority areas.

The Council of Ministers initiated a spending review early in 2015, supported by external advisers, which would identify savings and efficiencies both across the States and within individual department programmes.

At the same time departments have been required to review the funding proposals for 2016-2019, which were prepared as part of the "Long Term Revenue Planning Review" (R136/2014), in light of the further reductions in States income forecasts.

A review is also being carried out of the proposals from the Long Term Capital Plan for the projects proposed for the Capital Programme 2016-2019.

Base Expenditure forecasts

The planned base revenue expenditure assumptions for 2016-2019 include provision for pay and inflation increases and the uprating of social security benefits and the States grant to the Social Security Fund.

There are also a number of commitments from MTFP1 and a requirement to replace the £6 million per annum funding for primary health care, which was previously funded by a contribution from the Health Insurance Fund. A provision is also included for the move to the new PECRS scheme over the course of the next MTFP.

Capital Expenditure Forecasts

The initial review of the capital programme from the LTCP in 2014 identified over £200  million  of  capital  projects  for  the  period  2016-2019.  This  compared  to an average of nearer £35 million per year over the 25 years of the LTCP.

The current review of the capital programme is targeting an initial total allocation of £140 million to be provided from General Revenues Income for the 4 year period of the MTFP, broadly based on the long-term average capital requirement of £35 million per year at current prices. This target is a significant increase on the capital funding provided from General Revenues for routine capital projects in recent years, where significant alternative funding has been applied from receipts, special dividends or redemption of strategic investments, or the use of surplus balances on Special Funds.

The FPP has advised that funding of important investment, particularly if it supports productivity improvements and competitiveness, should be looked at separately. This principle would support the funding of major projects such as the New Hospital, Liquid Waste Strategy, Les Quennevais School, the Office Rationalisation Strategy and Fort Regent from specific and alternative sources of funding, in addition to the routine capital funding from General Revenues.

The draft MTFP will also give consideration to the appropriate provision for depreciation, instead of an annual capital allocation, as part of the assessment of the structural position of States finances recommended by the FPP. The provisional forecast of annual depreciation is £45 million per annum for the period of the MTFP 2016-2019.

Investing in the Strategic Priorities Funding the increasing cost of healthcare

The Health and Social Services Department (HSSD) has worked hard to review and refine requirements in all its areas since the initial submissions to the LTRPR.

The significant funding from the first MTFP 2013-2015 is also being maintained including the £11 million recurring funding for the first phase of White Paper Growth.

HSSD revenue expenditure funding requests for 2016-2019 are made up of three main components, in addition to the annual provisions for pay and prices:

• the continued policy of provide 2% annual increase in Health budget
• the agreed pay parity provision for nurses
• the continuation of the investment in P82/2012 – A New Way Forward

These requests total £47 million p.a. of additional expenditure by 2019.

A request for an additional £5 million p.a. expenditure for Health property maintenance has also been made, reflecting the cost of maintaining existing assets while the new hospital project is ongoing. This will need to be funded from within the £35 million p.a. capital allocation. This is in addition to growth of £2 million p.a. sought to address backlog maintenance across the Health estate.

All areas of proposed investment in Health and Social Care are inter-dependent. It is essential that the 2% investment in service standards and healthcare inflation is maintained in order to provide a stable base from which to drive forward transformational change. Cost drivers such as changes to drug treatments and other therapies will continue.

The provision of modern, safe and appropriate health and social care services is predicated on the delivery of the whole programme – as is the size of the new Hospital. Key aspects of this programme of change have already been implemented in accordance with the States decision to support P82/2012. It is important that this change continues and accelerates if health and social care services are going to be adequate to meet the needs of the ageing demographic into the future.

In addition, HSSD has re-assessed and re-prioritised the requirements for additional funding in Children's Services, which has arisen in the last year following the Scrutiny review of CAMHS and the resulting service review.

The Council of Ministers has initiated work to allow it to consider options to provide a sustainable funding mechanism for the increasing cost of Healthcare, as agreed in P82/2012, and are developing options to enable the consideration of an in-principle commitment to additional funding in the draft MTFP. The ongoing additional revenue expenditure proposed for health can only be afforded if a funding mechanism for healthcare is agreed.

It is self-evident that to meet the costs arising from the ageing population and to address the investment in health services, additional funding must be provided. This is in  accordance  with  a  States  decision in  2012,  to  develop  a  sustainable  and affordable mechanism for healthcare.

Funding strategic priorities in Education

Education is another one of the four main strategic priorities of the Council of Ministers. Additional funding is being prioritised to address raising standards, support and improve the ICT investment in schools and to address the demographic pressures from early years through to post 16 education.

The crucial work on improving standards will include additional funding in three main areas:

• Targeted funding to address the risk of low performance across all groups of pupils vulnerable to lower attainment. If young people in Jersey are to meet and exceed outcomes of their peers in neighbouring jurisdictions a local equivalent to the UK's Pupil Premium' is required. Growth funding aims to bring the level of entitlement for those disadvantaged pupils in our schools in line with those with disadvantage in the UK, resulting in higher standards achieved.
• Raising standards is not possible without robust data systems. An enhanced data insight team would provide the essential analytical tools to match those available to all education services in the UK. The addition of two data analyst is required.
• The expansion of the School Achievement and Standards Team to include two additional Professional Partners. This is the most effective and economical means of expediting the changes necessary to raise standards.

The additional funding currently proposed for education amounts to £9 million p.a. by 2019.

Funding for other priorities and pressures in other departments

The MTFP 2013-2015 provided significant funding to support the strategic priorities of economic growth and getting people into work. This important injection of funding was allocated across a range of projects in different departments and amounted to £14 million per annum by 2015. As part of the spending review this investment is being maintained from 2016 where it continues to provide effective investment in the ongoing priorities, or it will be reprioritised towards other measures to grow the economy..

The requests from departments, which were originally submitted as part of the Long Term  Revenue  Planning  Review  (R136/2014), have  also  been  reviewed and assessed against current priorities.

A number of requests arise from pressures and commitments from the period of the first MTFP, for example the expectation of income from handling and disposal of Guernsey waste has not materialised, and there is an ongoing resource required to facilitate the Freedom of Information legislation.

A schedule of all the current revenue expenditure requests, including those from Health and Social Services and Education, is included at Appendix A.

The level  of requests  currently  stands at £47 million p.a  for  Health  and  Social Services, £9 million for Education and £10 million p.a for other departments by 2019.

Work will continue on the prioritisation, phasing and costing of measures currently proposed ahead of lodging the draft MTFP.

Figure 4 – Projected Funding Shortfall before Savings or Funding Measures

925 900 875 850 825 800 775 750

Proposed Other Dept Growth

Proposed Education Investment

Proposed Health Investment

Depreciation (over and above capital allocation)

Proposed £35m p.a. Capital Allocation

725 700 675 650 625 600

Potential funding shortfall in base revenue expenditure

MTFP 2 Draft Expenditure proposals (before savings)

MTFP 2 Draft Income Forecasts

- Central Scenario (March 2015)

2013 2014 2015 2016 2017 2018 2019

Summary of expenditure proposals

The proposals for additional funding for departments from 2016 will continue to be reviewed, examined and prioritised and will be considered with the savings and funding measures that will be required to afford them. The level of shortfall in funding for 2016-2019 will depend on the Council of Ministers' final proposals for revenue and capital expenditure.

With the current central scenario for income forecasts and the current level of the base provisions, proposed capital allocations, increased funding for health, education and other priorities the shortfall in funding would be in the region of £115 million in 2019.

After allowing for the £10 million p.a. difference between the proposed capital allocation of £35 million p.a. and the provisional forecast for depreciation of £45 million p.a., the projected funding shortfall would be £125 million by 2019.

This shortfall is before any savings or funding measures for the period 2015 to 2019.

4. Addressing the Shortfall in Funding 2015-2019

The Council of Ministers is working towards the recommendation of the FPP that the States should aim to balance its tax revenues and current expenditure, including an appropriate allowance for depreciation over the economic cycle, and that the economy is expected to be close to full capacity by 2018/2019.

The Council of Ministers is adopting a three-part approach:

• Firstly, to secure the economic recovery forecast by the FPP and lay the foundations for raising productivity and the underlying rate of economic growth over future economic cycles, thereby increasing States revenues;
• Secondly, to focus on;

• a programme of savings, efficiencies and expenditure constraint; and
• consideration of the level of provision of benefits and changes in fees and charges for services where appropriate;

• Only when these measures are agreed will consideration be given to taxes and contribution changes.

The investment in health services envisaged could only be approved with the agreement to additional funding being introduced, in accordance with previous decisions to ensure sustainable funding of Healthcare.

Ministers have a set an initial target to deliver £130 million of savings and other measures by 2019. This target recognises the advice from the IFG that:

• a further income forecast is appropriate;
• the forecasts are the central scenario within a range; and
• the risks are on the downside of the central scenario for planning purposes.

This target also allows for the inclusion of depreciation in determining total expenditure levels, as proposed by the FPP.

The target of £130 million includes the £12 million of savings already taken from cash limits in 2015.

Ministers will also develop contingency plans for inclusion in the MTFP, which will define the further options available in the event that the income is in the lower range of forecasts.

Economic Growth

The latest economic assumptions endorsed by the FPP show that the economy is expected to return to real growth in 2014 and that growth will continue in the 2015-17 period. However, significant risks remain, not least relating to the outlook for the international economy. The Council of Ministers will therefore continue to focus on delivering fiscal support to the economy in the early years as advised by the FPP to ensure that growth returns on a sustained basis.

In addition, the draft Strategic Plan sets out how existing policies on growth and productivity will be reviewed, refreshed and enhanced to help achieve the growth forecast in coming years but also quite critically achieve sustained productivity-led economic growth over future economic cycles. In particular:

• an increased focus on new, high potential growth sectors;
• increased innovation, enterprise and inward investment across all sectors;
• promoting competition within a new competition framework;
• an updated skills strategy;
• identifying barriers to work for key groups to improve participation; and
• ensuring Jersey has sustainable public finances and low inflation.

Recognising the importance of investing in our economy and jobs, funding allocated through the current MTFP of £14 million by 2015, for getting people into work, back to work and employment initiatives, is being maintained, although as with all areas of expenditure may be subject to savings targets.

Spending review

The spending review is developing various savings programmes and themes across departments in order to deliver service redesign, savings and efficiencies between 2016 and 2019. The current target is for £60 million of staff related savings and £35 million of savings on non-staff expenditure, changes to benefits and user pays charges.

Staff savings

Payroll spending accounts for around half of the budget and continued pay restraint will be required to minimise pay bill growth. A reduction in staffing costs will be managed through taking advantage of natural attrition supported through strict vacancy management; stronger performance management and the redesign of services that look across the organisation as well as within departments.

We will continue our partnership working with trade unions and active engagement with staff to ensure the delivery of service redesign initiatives and work force modernisation, together creating a smaller more agile organisation with a more modern, flexible and affordable workforce, better able to deliver the right services to the citizens of Jersey.

Natural turnover and voluntary redundancy will be used to minimise the number of compulsory redundancies.

Other Savings

The level of savings required could have a significant impact on services if changes were made solely in individual departments so senior managers are working across the organisation and operating collaboratively with the support of our external advisers.

This work could be viewed as an organisation wide reprioritisation exercise. Prioritising investment in health and education and supporting economic growth and finding savings from a variety of sources including base budgets.

Our reform programme was established to keep spending under control and develop an agile, flexible public sector that is fit for the challenges ahead. The measures will not reduce total spending – they will limit increases in spending required to deliver a public sector that can care for an ageing population and maintain investment in our essential infrastructure.

Changes to Benefits

The great majority of Social Security's budgets are used to provide benefits to individuals. Changes in benefit expenditure are being considered using the following major themes:

• Promote financial independence – use changes in benefit to promote activities that will support the financial independence of claimants, and protect benefits which are supporting the financial independence of claimants;
• Improve targeting of benefits – change benefits in areas where public money is not specifically targeted to vulnerable groups; and
• Minimise individual impact – spread changes over larger groups of claimants, rather than a few individuals.

User Pays

Proposals are also being considered in relation to a small number of fees and charges for certain services where the current recovery could appropriately be increased. Separately, measures are also being developed to establish an appropriate source of funding for liquid and solid waste disposal.

Sustainable funding for Healthcare

Work is being carried out to consider various options to provide a sustainable funding mechanism for the increasing cost of Healthcare, as agreed in P82/2012, and these proposals will be further developed ahead of the draft MTFP. The ongoing additional revenue expenditure proposed for health will only be affordable if a funding mechanism for healthcare is agreed.

Contingency Plans

The Council of Ministers will also be developing contingency plans as part of the draft MTFP in the event that income forecasts are in the lower range over the period of the MTFP and to ensure there is flexibility within the overall proposals.

Figure 5 – Proposals for a Balanced Budget by 2019

Proposed Health Charge £'m

150

140 Other Proposed Savings/Benefit

130 changes/User Pays

120 Proposed Staff Savings

110

100 Proposed Other Dept

Funding

90

80 Proposed Education

70 Investment

60 Proposed Health Investment 50

40 Depreciation (over and above 30 capital allocation)

20 Proposed Capital Allocation 10

-

2019 Potential Funding 2019 Proposed Measures Estimated Base Budget Shortfall Shortfall (pay, prices and

commitments)

Short-term funding measures

The outcomes of the spending review will deliver a projected profile of recurring savings and other funding measures from 2016 to 2019. However, many of these will take some time to agree and implement as will proposals for funding healthcare and there will remain a considerable shortfall in the early years of the MTFP. These shortfalls will need to be addressed by short-term measures.

The Council will consider a number of short to medium-term options and these will need to include the deferral of some of the additional funding and possible re- phasing of capital projects in the early years.

These measures alone are unlikely to be sufficient to meet the funding gap and Ministers will need to consider other options including drawing on reserves or other balances in the short-term, which would be consistent with the advice from the FPP to minimise the risk of any impact on the economic recovery.

Any  measures  proposed  either  as  short-term  or  sustainable  solutions  for  the Consolidated Fund, will need to be considered alongside proposals being developed by  Social  Security  to  address  the  ageing population  and  in  particular  providing sustainable funding for the provision for State pensions.

5. Presentation of the MTFP 2016-2019

The Council of Ministers are proposing changes to the presentation of the MTFP and the annual Budgets for the period 2016-2019. The Treasury Minister will be presenting proposals to debate the associated changes to the Public Finances (Jersey) Law 2005 in advance of the scheduled lodging date of the draft MTFP.

Lessons learned from MTFP 1

The principle of longer term planning to provide greater control over spending remains important. The main lesson learned has been to ensure that there is sufficient flexibility in the medium term planning process to enable additional funding to be allocated when appropriate but equally to retain flexibility to address a reduction in available funding when income forecasts reduce.