Scrutiny of the Comprehensive Spending Review - Report - 31 August 2010

Corporate Services

Scrutiny Panel

Scrutiny of the Comprehensive Spending Review

Presented to the States on 31st August 2010

S.R. 9/2010

Contents

1. Chairman's Foreword...................................................................................2
2. Executive Summary with Key Findings and Recommendations ..................5
3. Panel Membership.....................................................................................12
4. Independent Expert Advice........................................................................12
5. Terms of Reference.....................................................................................1
6. Methodology ................................................................................................2
7. The Proposal................................................................................................5
8. Departmental Analysis...............................................................................18
9. The Process...............................................................................................41
10. Social Impacts..........................................................................................44
11. Public Consultation..................................................................................48
12. Conclusions .............................................................................................50
13. Appendix A - Report by Professor Oliver .................................................57
14. Appendix B - Report by Dr S Harkness....................................................87
15. Appendix C - Timetable for CSR............................................................111
16. Appendix D - Strategic Plan Priorities....................................................112
17. Appendix E - P99/2010..........................................................................113
18. Appendix F - Public Submissions...........................................................114

1. Chairman's Foreword

The question of increases in States expenditure has long been a concern and has become more so since the arrival of Ministerial Government. It has been clear for several years that the States has been building up a structural deficit. Despite the siren voices, my Panel has long been of the opinion that "doing nothing is not an option."

There has been reluctance by Ministers to treat the public as adults. It took the Panel some time to elicit a definitive answer on the estimated size of the deficit. If the Panel has been confused, how much more is the public with no straightforward communication from the Council of Ministers?

In his paper, Emerging Issues,  States Spending Review 2008' the Comptroller and Auditor General gave some highly pertinent definitions of the various categories of reducing expenditure. It is clear from even a superficial review of the proposed reductions in expenditure that not all proposals can truly be called savings.

There has been some discussion within the Comprehensive Spending Review (CSR) workgroup as to whether proposals are genuine savings. This is an area where the specialised Scrutiny Panels could have added value to the process by conducting an evaluation of the proposals in the context of the Comptroller and Auditor General's definitions.

The CSR process has been graduated with 2% savings in 2011, 3% in 2012 and 5% in 2013. The premise is that 2% should be an easy business as usual' approach as would be normal in the private sector.

Some Ministers have welcomed the CSR and have viewed it as an opportunity to effect changes in their operations; there has been a great deal less public outcry over the proposals. Unfortunately, balanced with this have been the Departments where Ministers have effectively abrogated their responsibilities to the States Assembly or where Ministers have participated in a "salami slicing" approach, in the application of the same percentage cuts throughout the organisation. The latter approach is particularly pernicious as it opens the doors to action by pressure groups to protest any cuts.

At this stage in the CSR process there has been little emphasis on the cross cutting issues. These were identified in the Comptroller and Auditor General's report, Emerging Issues, as the areas where the biggest savings might be made. The Panel will be reviewing the next stages of the process and recommends that these are given a high priority.

In particular, a requirement to review the costs of employment was included in the Business Plan debated in September 2008. Such a review was not started until late in the CSR process. This is unfortunate as this is a crucial part of a cost saving process with employment costs represent nearly 50% of government expenditure. Until such a review has been completed, it is extremely difficult to conduct a reliable analysis of States operations.

The Integrated Business Improvement Programme (IBIP), of which the CSR is just one part, could be used to usher in widespread reform to the public sector. For the CSR to succeed the Council of Ministers and the Assembly must demonstrate strategic thinking and more imagination. So far, there is little  evidence  of  such  lateral  thinking.  It  is  essential  that  we  identify  the activities where government must be involved, the activities best done by the private sector and those best left to the individual.

As part of the review, we asked how this exercise compared with the Fundamental Spending Review in 2004/5. It appears that little genuine progress was made: Departments played games with transferring budgets and lapsed back to business as usual' with a re-emergence of the silo mentality. This led us on to the consideration of what sanctions were available if Ministers did not achieve their targets. There are no sanctions but it is quite clear that the drive to achieve the targets must come from the Ministers, with the support of the Assembly.

One of the next stages in the IBIP is the FSR. Whilst there is discussion about the  details,  there  has  been  no  real  dialogue  as  to  the  balance  between savings and tax increases. International experience is that the ratio, for the process to be effective, should be 80% savings and 20% tax increases.

During this review we have asked what is the vision for the Island and what is the shape of government after all the changes have been effected. We have heard about a leaner, more efficient government and sustainable finances but no coherent and clearly articulated vision for the Island. This lack of vision obscures  the  choices  which  must  be made  in the  immediate future. The Strategic Plan, which has been quoted vociferously by some Ministers, is a wish list, not a vision.

For some years we have been in a low tax, high spend environment. The world has moved on. The choice before us is stark. Should we aim for a low tax, low spend government or a high tax, high spend government? Do we believe in a market economy or a statist economy? Should government rule the people or the people rule the government? One school of thought says that government is the solution. In Jersey in recent years, we have plenty of evidence to show that the government is the problem. A new approach is needed which combines lower taxes and less government. The old way – low taxes and high spend – is no longer an option. We have evidence that the public will support lower expenditure – it is time for the politicians to listen to the public voice.

Senator S. C. Ferguson,

Chairman of the Corporate Services Scrutiny Panel.

2. Executive Summary with Key Findings and Recommendations

1. The review of the CSR has taken the Corporate Services Panel on a journey through the finances of almost every department in the States. The Council of Ministers created the policy to deal with a problem of a £50 million deficit. The Panel established that there was a problem and agrees that doing nothing is not an option. (KF1)
2. Figures issued by the Minister for Treasury and Resources suggested that the problem was an anticipated £50 million structural deficit. However, it was soon apparent that the problem was nearer to £100 million. This caused unnecessary confusion and the Panel considers the Public still do not fully understand the real figures. (KF2)
3. It was no surprise to the Panel that the basic problem for the CSR appeared to be nothing to do with the Policy but once again, with the machinery of government. Nobody is in charge and nobody is responsible for the outcome of the CSR. There is no mechanism to ensure that £50 million savings are achieved. (KF5)
4. Based on the hearings held by the Panel, only a few Ministers are rising to the opportunities for significant changes. (KF7) The Council of Ministers initiated the savings requirement and the Panel recognised that it is the Ministers who are responsible for the outcome of the CSR. (KF8)
5. The CSR is one part of the Integrated Business Improvement Programme. Making cuts and savings is one part of the overall strategy. Whilst the Panel has yet to examine the policy of the Fiscal Strategy Review (FSR), there is a raft of information on the successful formulas used in other countries. The balance between the CSR and FSR is key to the impact of the CSR. (KF9)

6. One area that was noted to be uncharted throughout the work the Panel has done on the saving of the first 2% of the savings, involved crosscutting areas such as Information Technology and Property. Human Resources were discussed and it is recognised that a review into terms and conditions of staff was being undertaken. It was also accepted that Procurement appears to be in the process of being addressed.(KF20)
7. So often, it is said that this or that' may apply in other places, but "This is Jersey." The Panel accepts that this may well be the case, however Jersey needs to decide if economic principles from outside apply to Jersey. (KF21) If the economy is so different here, then that needs to be clearly evidenced.
8. The Panel was keen to understand how the cuts would impact on the people of the Island. As the review to date only deals with the first 2%, it is the impact of those savings that were reviewed. Dr Harkness states clearly in her report that 2% cuts create minimal social impact. (KF23)
9. In consideration of the impact of the CSR as a whole, the Panel questioned Ministers on where the Council of Ministers was taking the Island. Repeatedly, the Panel was referred to the Strategic Plan. There was no guidance in that document as to whether the Island should be Small Government, Small Spend' or Large Government, Large Spend.' As noted by the Panel advisor, Professor Oliver, it is apparent to the Panel that the Island is being nudged towards a high tax, high spend government. (KF25)
10. Wherever the Council of Ministers is intending to take the Island finances, it is very clear from the hearings that Council of Ministers

may not have the resolve to deliver the full CSR package (KF26). Further, that it will not be achieved until the Council of Ministers undergo a change of culture (KF27).

11. This leaves the obvious question hanging: What happens to Ministers who fail?'
12. The poor direction of economic aspirations is hardly surprising; there is no up to date economic growth policy in Jersey. This needs to be addressed as a matter of urgency by the Chief Minister (Recommendation 9).
13. This may appear to be of little consequence, however the pressure to deviate from any pre arranged direction will increase on the approach to the election period. With no economic growth policy, there could be a free for all spending spree as has been seen in the past. This would represent a significant threat to the success of the CSR. (KF32).
14. The Panel supports the premise that £50 million must be saved. However, it recognises that there are significant pressures that will come to bear on Ministers, the Council of Ministers and the States Assembly. The pressures are so significant, with no mechanism to "maintain the line," that the Panel anticipates the CSR will fail to produce £50 million of savings. (KF33)

Below is a full list of the recommendations and key findings, which are discussed in full in the text of the report.

RECOMMENDATION 1

The Minister for Treasury and Resources must publish details of the total forecast deficit in clear terms.

RECOMMENDATION 2

If DEL contingencies are required, they should be funded by a further 2% saving from departmental budgets.

RECOMMENDATION 3

The CSR team must devote a high priority to the crosscutting areas of the organisation.

RECOMMENDATION 4

The Chief Minister must justify and provide analysis of why Jersey is always different in each case.

RECOMMENDATION 5

The Chief Minister must make documentation publicly available listing and explaining both the Invest to Save' and Growth' principles.

RECOMMENDATION 6

A clear statement is needed from the Council of Ministers on the direction they intend to take the Island.

RECOMMENDATION 7

The Chief Minister must not allow Ministers to fail to deliver the CSR savings.

RECOMMENDATION 8

Ministers must be prepared to take responsibility for failure to achieve the required CSR savings.

RECOMMENDATION 9

The Chief Minister should ensure the publication of an Economic Growth Policy before the end of 2010.

RECOMMENDATION 10

It is essential that the Council of Ministers achieve at least £50 million of savings.

RECOMMENDATION 11

More work is required on the economies of public service pricing. (User pays).

RECOMMENDATION 12

All Scrutiny Panels should review CSR proposals within the areas of their remit, applying the specialist knowledge they have acquired for those subject areas.

Doing nothing is not an option.

KEY FINDING 2

Figures issued by the Minister for Treasury and Resources and CSR Team have been inconsistent and confusing.

KEY FINDING 3

Department Expenditure Limits should not have contingency funds available. KEY FINDING 4

Department contingency funds should only be funded from within their own budgets.

KEY FINDING 5

There is no mechanism to ensure that £50 million savings are achieved.

KEY FINDING 6

Although the Panel agreed with the principle of the CSR, it considered the delivery is likely to fail.

KEY FINDING 7

Only a few Ministers are rising to the opportunities for significant changes.

KEY FINDING 8

Ministers are responsible for the outcome of the CSR.

KEY FINDING 9

The balance between the CSR and FSR is key to the impact of the CSR.

KEY FINDING 10

Departments are not all responding to the CSR timescales.

KEY FINDING 11

HSSH do not have a routine cost identification system.

KEY FINDING 12

Without a routine cost identification system, robust monitoring and measurement of the success of proposals will be impossible.

KEY FINDING 13

Successful inroads into benefit fraud may reduce, or even avoid altogether, future proposals for necessary cuts in benefit.

KEY FINDING 14

The  States  Assembly  must  not  sidestep  unpopular  and  difficult  decisions relating to benefits.

KEY FINDING 15

The Minister for Home Affairs must stand by his decisions and not expect the responsibility to be picked up by the States as a whole.

There is no saving recognised in the area of the Treasury training budget.

KEY FINDING 17

States Members remuneration and membership numbers is not part of the CSR.

KEY FINDING 18

The PPC must advise the States Members Remuneration Review Body to consider an invitation to join the CSR process.

KEY FINDING 19

The Health, Social Security and Housing Scrutiny Panel should review the changes proposed in the Housing Department.

KEY FINDING 20

Large savings will be found in the cross cutting areas of the States.

KEY FINDING 21

Jersey needs to decide if economic principles from outside apply to Jersey.

KEY FINDING 22

Some invest to save is necessary to ensure the success of the CSR.

KEY FINDING 23

2% cuts create minimal social impact.

KEY FINDING 24

Significant work needs to be done on public perception of the roles undertaken by States staff.

KEY FINDING 25

The Island is being nudged towards a high tax, high spend government.

KEY FINDING 26

The Council of Ministers may not have the resolve to deliver the full CSR package.

KEY FINDING 27

The Council of Ministers must undergo a change of culture to succeed with the full CSR.

KEY FINDING 28

What happens to Ministers who fail?

KEY FINDING 29

2% savings are only the start of the process.

KEY FINDING 30

The CSR timescales, as agreed by the Council of Ministers, were exclusive.

Jersey needs an economic growth policy.

KEY FINDING 32

The election period due in 2011 is a threat to the success of the CSR.

KEY FINDING 33

The Panel anticipates the CSR will fail to produce £50 million of savings.

KEY FINDING 34

Very little has emerged relating to user pays.

3. Panel Membership

3.1  The Corporate Services Scrutiny Panel is constituted as follows;-

Senator S. C. Ferguson, Chairman. Deputy C. H. Egré, Vice Chairman. Connétable D.J. Murphy,

Deputy T. A. Vallois.

Officer support Mr M. Robbins

4. Independent Expert Advice

1. The Panel engaged the following advisor to assist with the economic aspects of the review:

Professor Michael J. Oliver, BA, PhD, Professor of Economics, ESC Rennes School of Business, Lecturer, Highlands College Jersey, Director of Lombard Street Associates.

Professor Oliver  submitted  a  report  with  background  information  to assist the Panel. See appendix A

2. The Panel also engaged the following advisor to assist with analysing the social implications of the proposed savings:

Dr S Harkness, DPhil (London), MA (Sussex), MA (Cantab)

Dr Harkness submitted a report to assist the Panel. See Appendix B

5. Terms of Reference

5.1  The Corporate Services Scrutiny Panel approved the following Terms of Reference:-

1. To examine the CSR policy of the Treasury and Resources Minister requiring 10% savings across the board, staggered over three years.
2. To determine the nature and sustainability of the 2% savings identified by each department to be delivered in 2011.
3. Establish the structural continuity between 2% savings this year and final 10% saving after three years.
4. To consider the social impact of proposed cuts.
5. To examine any further issues relating to the topic that may arise in the course of the Scrutiny review that the Panel considers relevant.

6. Methodology

1. This report must not be seen as a Scrutiny approval of the savings proposed within the Comprehensive Savings Review (CSR).
2. The report is an examination of the process under which the various Ministers have undertaken the application of the first section of the policy agreed by the COM to propose savings of 10% over three years. Examination of the details of the savings themselves remains the remit of the individual Panels. The level of work and expertise required for such a task is beyond the resources of any one Panel. This Panel strongly recommends that every Scrutiny Panel takes responsibility for detailed scrutiny of the proposed savings from Ministers and Departments within their remit.
3. In this unusual case, the Panel was looking at a policy created by the Council of Ministers that involved every Minister, States Department and non-Ministerial Department. This was a huge issue. The aim of raising £50 million through cuts in expenditure involved a cut over all departments of 10%. This was divided over three years, 2% in 2011, a further 3% in 2012 and 5% in 2013.
4. It was apparent to the Panel that the savings proposed by the individual Ministers and departments would need the individual attention of every Panel. The Corporate Services Panel has limited knowledge of the intricate workings of many departments and recognised that the expertise in the individual Panels was required to examine the savings in detail. However, the principle of the policy and the application of the policy by the departments was an area that was of concern. Further, it was considered that the 2% required at the start of the process should be considered in conjunction with the full 10% of savings to ensure that saving in the initial year would not hamstring departments for the greater savings. For example, a department may choose to reduce its training budget to meet the 2% but then find that the changes in policy and procedure required to meet the remaining 8% of savings would need retraining of staff, which would be impossible with the restricted training budget.

5. The Panel looked towards the timescale published by the CSR Team and Council of Ministers. (Appendix C). It was noted that the initial proposals were due to be delivered to Scrutiny on 23rd April 2010. There were two problems with this. The first was that the Council of Ministers timeline showed continuation of work on their part, which would have left Scrutiny with a 12 working day window in which to do any review considered necessary. The second problem was that the Council of Ministers failed to meet that deadline. The Panel therefore decided to work to a deadline that would enable its report to be published in time to allow States Members to consider it against the Draft Annual Business Plan, which would contain the proposed savings. That would enable States Members to have time to formulate amendments or considerations prior to the debate on the Annual Business Plan. Professor Michael Oliver was engaged to advise the Panel on the financial impacts of the savings and the Terms of Reference were drafted. The review was scoped and budgeted and the details forwarded to the Chairmen's Committee.
6. The Panel also recognised that in order to understand the proposals from each Department, it would need a private briefing from every Chief Officer, followed by a Public Hearing with every Minister. This was to ensure that the Panel determined the facts behind the proposals, rather than question the Ministers on what may be a mistaken premise. In order to achieve this, the Panel attended a meeting of the Council of Ministers and placed before the Ministers its timeline and Terms of Reference. During that meeting, the Council of Ministers recognised that the timeline for the scrutiny process was tight and undertook to attend Public Hearings at times and dates that were convenient to the Panel.

7. Subsequently, the Panel held private briefings with all Chief Officers followed by Public Hearings with the Ministers.
8. The Panel also recognised that there might be significant social issues connected with the total savings and in some cases with the initial 2% savings. It therefore engaged Dr Susan Harkness to examine the savings and advise on how they might impact on Jersey. (Report Appendix B)
9. The Panel also placed a call for public consultation, which generated numerous responses dealt with in chapter 12.

7. The Proposal

1. The Panel accepts that there is a structural deficit looming. There is a raft of questions to be asked about how we got to where we are, but that did not come within the remit of this report and may be work for another day.[1]The fact that the questions relating to this are not being asked in this review is not to be regarded as Scrutiny accepting the current position. What was intriguing for the Panel was to establish where it is that we are and where we will be in three years time. The proposal to employ a Comprehensive Spending Review (CSR) was unusual in that it was a policy brought forward by the Council of Ministers and involved every department within the States organisation.
2. Once the Council of Ministers agreed the broad principles of the CSR, the detailed rules and framework were developed in preparation for the 2011 Business Plan in July 2010. Part of the development of the detailed rules and framework was stated to include consultation with the Public Accounts Committee and the Corporate Services Scrutiny Panel.
3. The CSR was understood by the Panel to be one element of a strategy forming the Integrated Business Improvement Programme (IBIP). The components of the IBIP were designed to deal with the forecast structural deficit. Other elements of the plan to rectify the problem included the FSR, Financial Management Improvements and Organisational Development.
4. The plan consists of a number of key changes intended to extend the States planning horizon, build incentives in to the budgeting system to encourage improved decision-making, bring greater transparency to financial planning, and provide more complete cost information for decision-making. The intended changes would improve the control and management of all States spending and providing better information for States Members and managers.

5. The  CSR  was  the  element  of  the  plan  intended  to  provide  those changes along with a parallel process of improvements in underlying systems, procedures and control frameworks. The Panel recognised the argument that the choice was to make cuts now or even bigger cuts in the future.
6. Given the traditional fiscal conservatism of the Island and apparent public appetite for reducing expenditure, the Panel considers that doing nothing to address the future structural deficit is not an option.

KEY FINDING 1

Doing nothing is not an option

7. The Panel had accepted the early estimates of the problem the CSR was aiming to tackle when, in April 2009, the Treasury and Resources Department published the graph below: [2]

8. A very similar diagram was used by the Minister for Treasury and Resources in P179/2009, the draft budget statement 2010[3] and again in February 2010 in presentations to Scrutiny[4]. All of those documents suggested a structural deficit of between £40 and £60 million.
9. In a Public Hearing held with the Minister for Treasury and Resources on 15th June 2010, he stated:

"I am signalling that there is a structural gap in income to expenditure of around about £80-100 million a year within 2 or 3 years."[5]

Documentation from the CSR team published on the CSR web site[6] stated:

"If past trends were allowed to continue, the effect on the forecast structural deficit could exceed £100 million.."

10. The Green Paper for the Fiscal Strategy Review (FSR), dated June 2010 states:

"Without tighter control on spending, the central deficit forecast for 2012 could be more than £100 million and rise further in subsequent years."[7]

11. In the States Chamber, on 7th July 2010, the Minister for Treasury and Resources made reference to a £50 million structural deficit and it was only when questions of clarification were put to him that he explained the figures as follows:

"The deficit at the current spending level projecting income is £50 million. We are, however, adding to the deficit the almost hidden costs which have not been accepted as part of States spending in the past. That includes £5 million court and case costs. We spend £5 million court and case costs so that means that truly publishing a deficit means it is £55 million. In addition, we are saying that £10 million is required for a contingency to be held to avoid the need of coming to this Assembly when there is a crisis such as a pandemic flu or volcanic ash. There is a residual amount of money which is accepted that is going to be required for maintenance in terms of patching up, in terms of a lack of funding of infrastructure which is something the Deputy of St. John has argued for many years. There is a real issue for this Assembly to deal with capital spending in terms of underfunding and there is also a reality that while we are asking departments, particularly Health and Social Services, to save on their existing expenditure, there is going to be requirement to put more money in future, potentially, subject to this Assembly's approval for new services. So I am almost predicating a worst- case scenario of a £100 million deficit which needs to be spent, £50 million in terms of a savings reduction and an acceptance that there is going to have to be some new money for items that have not been properly budgeted for in the past. I hope that explains it."

12. The Panel noted with concern that although the message that there would be a structural deficit was constant and very public, the figures attached to the problem appeared to be growing exponentially and were in excess of100% greater in June 2010 than they were in 2009. It suggests to the Panel that the lack of clarity in this respect may engender distrust from the Public and a perception that the process has not been transparent. Where the CSR deals with cuts, there is likely to be some resistance from the Public. It is considered unfortunate that the numerous figures which have now been issued will inflame that discontent.
13. To alleviate this confusion, the department supplied the following table to explain the multitude of figures. The table below shows that the deficit is expected to be £62 million in 2013. A contingency element placed into the computation brings the deficit up to £94 million in 2013.

Tax and Spending Envelope Original Workings (Jan/Feb 2010)

2010 2011    2012  2013 £m   £m   £m   £m

Deficit from 2010 Budget   (64)  (72)  (53)   (48) (as amended)

Add Back: Indicative savings  (3)   (8)   (9) Court & Case Costs & COCF  (5) (5)   (5)

(64)  (80)   (66)   (62)

Central Contingency

- Provision for Unforeseen "One Off's"   (5)   (5)   (5)

- Provision for DEL Margin   (2)   (4)   (6)

- Provision for AME Margin    (2)   (4)   (6)

(9)   (13)   (17)

Invest to Save   (8)   (10)   (15) Revised Forecast Deficit  (64)  (97)    (89)   (94)

CSR Savings Targets

- 2% saving from 2011 (1% = £5m)   10   10  10

- 5% saving from 2012 (1% = £5m)   15  15 -10% saving from 2013 (1% = £5m)   24 10   25   49

Provision for Essential Growth   (3)   (8)   (16) Revised Forecast Deficit  (64)   (90)   (72) (61)[8]

Figures issued by the Minister for Treasury and Resources and CSR Team have been inconsistent and confusing.

RECOMMENDATION 1

The Minister for Treasury and Resources must publish details of the total forecast deficit in clear terms.

14. The CSR proposes a contingency fund for Department Expenditure Limits (DELs) set for three years, covering the finances that departments can control. Another contingency fund was proposed for annually managed expenditure (AME). This is for volatile expenditure outside of a department's control and areas of expenditure that are so large that departments cannot absorb the effects of that volatility[9].
15. The Panel recognized that AME relates to items that cannot be changed without changes in entitlements - pay, pensions, income support, and so on. Therefore, a contingency fund was sensible. However, it questioned why a contingency need be available for DELs, where the spend was completely within the control of the Department, particularly as there was a separate contingency fund for Unforeseen One-Off's.' The provision of a Contingency fund for DELs was recognized to be an invitation to intentional overspending.

KEY FINDING 3

Department Expenditure Limits should not have contingency funds available.

16. Where such funds are created, they should be funded from within by appropriate management and not from a central source.

Department contingency funds should only be funded from within their own budgets.

RECOMMENDATION 2

If DEL contingencies are required, they should be funded by a further 2% saving from departmental budgets.

17. The Panel considered the scope of the CSR. What did the Ministers visualize? What is the perception of the Public and how would changes be implemented?
18. The Panel asked the Minister for Treasury and Resources:

"What sort of society is the Council of Ministers aiming to establish?

He replied:

"I think the first thing to say on this is that we have had the debates about the kind of society and Island that we are creating or we want to put in place within the context of the strategic plan and business plan. One important aspect of the strategic plan that was set out is that the States should be matching its income with its expenditure."[10]

19. Whilst the Minister's reply was extensive, he offered no inspiration to the Panel about a vision of the future that the Council of Ministers was aspiring towards, with the main drive being that the books should balance. There was a lack of direction as to the route to be taken to achieve the goals within the Strategic Plan. A similar question was

asked of many other Ministers during the hearings and there was a notable lack of vision. The Minister for Health and Social Services, for example was asked:

"How would an ideal Health and Social Services Department differ from the current department?"

Her reply was :

"You know how far it ranges from, but I think my priority would be ... overarching for all Health and Social Services would be some sort of prevention, preventing people getting ill or preventing people getting into hospital. Keeping them out of hospital will, hopefully, but then saying that hand in hand, too, there has been a lot of investment in hospitals in the U.K. (United Kingdom) needing more space around beds, bit more infection control, as people are ... obesity is a problem. We need the beds to become bigger."[11]

20. There was little evidence found by the Panel that created inspiration or inspired confidence that Ministers were working towards an coherent future. Moreover, the lack of vision' was noted both at the Council of Ministers, corporate level and at the Ministers' individual level. The hearings held by the Panel revealed very little excitement or drive from Ministers. Most seem to view the CSR as a negative process.
21. Without strong vision, the Panel is unable to evidence how the Ministers intend to take the public with them. The 16 priorities laid out within the Strategic Plan 2009 - 2014 (Appendix D) provide huge scope for excitement and vision. It was apparent that vision and drive were requisite to meeting the challenges set for the future. The Panel wonders whether this may be a result of the warm and fluffy' nature of

the Strategic Plan. The Strategic Plan has been used to underpin the steps that are being taken but its format could be said to be a nice to have' list rather than a blueprint for the future. This is not part of the remit for this report and the Panel intends to consider this in a future report.

22. It seemed to the Panel that the overriding vision was that of a reduction of spending by improving efficiency. There seemed to be little strategic thinking about the model of government that would be the result of the changes. The changes will be significant. There is no direction or overall strategy being suggested and the decision making process in the States guided by up to 53 separate mandates could take the process anywhere. The Panel was surprised that the underlying philosophy had not been considered.
23. The Panel considered that, at an early stage, the process of the CSR needed to be reviewed to establish if it were the correct tool for the job. In examining the proposal to undertake the CSR, the Panel set the first Term of Reference for the review:

1.  To examine the CSR policy of the Treasury and Resources Minister requiring 10% savings across the board, staggered over three years.

24. The Panel accepts that the CSR was designed to meet the third and forth priorities of the Strategic Plan:

"3. Reform the public service to improve efficiency.

4. Ensure sustainable public finances."

The CSR also appeared to work towards the promises made in the "What we will do" section of the plan.

25. However, there is another side to this. The CSR requires savings of £50 million to be found over three years. The task for the Ministers is to reduce their spending to achieve the required savings, although there seems to be little compunction to achieve the aims other than persuasion from the Minister for Treasury and Resources and lip service from the Council of Ministers. When asked how the CSR would be enforced, the Minister for Treasury and Resources said:

"By charm and persuasion, Chairman."

26. So there is no mechanism to force this saving of £50 million to happen. Ministers are being led through the process with the hope that they conform. Had the budget available to the Ministers been reduced by £50 million, with no hope of a top up, the Ministers would have been forced to shoehorn their departmental budgets into the lower figures. This has to do, not with the CSR process but with the shape of the Government in Jersey. There is no single authority, no-one to crack the whip and no sanction for failure. The Ministers will blame the States Assembly and the States Assembly will blame the Ministers, making accountability diffuse. Collective responsibility is ideal for the furtherance of democracy but not so good at achieving when the going gets tough.

KEY FINDING 5

There is no mechanism to ensure that £50 million savings are achieved.

KEY FINDING 6

Although the Panel agreed with the principle of the CSR, it considered the delivery is likely to fail.

27. Based on the evidence obtained at the numerous public hearings, the Panel questions the commitment of the Ministers to achieve the aims. Bearing in mind that the CSR is only asking for the first 2% at this time, the Panel is concerned that, at this early stage, an element of lip service to the process exists. The invasion of such attitude will dilute achievement and adversely influence public perception.

28. There was however, an element of balance from the Ministers for Planning and Environment, for Housing and for Transport and Technical Services who were quite upbeat about the changes that the CSR was going to allow them to explore. The Minister for Planning and Environment stated:

"In fact the C.S.R. is an opportunity I have been waiting for."[12]

The Minister for Housing, who was newly in post, reflected a raft of changes through which he wished to take the Housing Department. The Chief Officer for Housing reflected the Ministers' enthusiasm for the changes.

29. Overall, the Panel has observed that the Ministers are frequently sheltering behind reviews commissioned to examine savings or provision of service. The option to take bold moves towards a vision of how things could or should be is being missed. There is concern that many of the reviews will result in an inertia for things to stay the same.
30. Perversely, these reviews could open the door to justify increased expenditure.
31. The individual departments are dealt with in more detail later in this report.

KEY FINDING 7

Only a few Ministers are rising to the opportunities for significant changes.

32. As evidenced later in this report, the public of Jersey are demanding a leaner Government structure. The CSR appears to be the correct tool to inspire movement in that direction. It now needs bold decisions by Ministers to achieve the changes demanded. The Panel questions the resolve of many Ministers to be sufficiently bold.
33. The submissions, dealt with in Chapter 12, show an interesting spread of views. Many being based on the premise that Public Employees are doing very little for a large salary, and that includes the Politicians. Clearly there is a serious problem with public perception that needs to be addressed.  
34. The Chief Officers from all departments have been very generous with their time to brief the Panel on the Departments response to the CSR process. The Panel appreciated the open and professional manner that all the Officers displayed. It forwards its gratitude for their involvement in the Scrutiny process. The responsibility for achieving the best from the CSR process is recognised by the Panel to rest firmly on the Ministers. Whilst it is required that the Chief Officers respond to the political requirements of the CSR process in its practical implementation, it must be the Ministers who create the drive, inspire the direction taken, decide on the services supplied and make the difficult decisions of what must, or could be cut.

KEY FINDING 8

Ministers are responsible for the outcome of the CSR.

35. The significant movement in the expected structural deficit from the original £40 to £100 million estimates, following the inclusion of a Contingency Fund, has focussed attention upon the forthcoming Fiscal Strategy Review (FSR). That is not within the Terms of Reference of this review and will be examined later by the Panel. The Panel has questioned how the ratio will be achieved between the spending cuts created by the CSR and the increased revenue from the FSR. This is discussed in more detail in Professor Oliver's Report in Appendix A.

36. The lack of vision displayed by the Ministers at a corporate level has left the Panel wondering what section or sections of society the Ministers believe should be paying for the structural deficit ahead. The proposals for the first 2% were within the Draft Annual Business Plan 2011. Information on the overall plan, the IBIP, will be essential to enable States Members to evaluate the savings proposed.
37. Sweden and Canada have very different economies, however both countries have found that 80% cuts and 20% increase in taxes was a formula that offered the correct balance for success.

KEY FINDING 9

The balance between the CSR and FSR is key to the impact of the CSR.

8. Departmental Analysis

1. In order to establish the details of the application of the policy, the Panel agreed that it would establish if the two percent savings proposed by Ministers were designed to dovetail into the full 10% savings required by the overall process. There was concern whether or not the proposals were sustainable, in other words, were savings to be made in a training budget, for example, that money could be required further down the line to train staff in changes to policy or process made to accommodate the further three or five percent savings. The second Term of Reference examined that concern:
   2. To determine the nature and sustainability of the 2% savings identified by each department to be delivered in 2011.

2. It is worth considering what savings are. The Comptroller and Auditor General stated in his report £35 Million Cost Reductions 2008'[13]:

1. Saving: a reduction in Net Revenue Expenditure requiring action to be taken to achieve the reduction. In other words, a reduction in expenditure that did not result from action taken by the States would not be regarded as a saving.' The effect of this is that a reduction in school spending which occurs simply because of a fall in the number of available pupils would not be regarded as a saving.
2. Growth: an increase in Net Revenue Expenditure which is required to fund an increase in the level or quality of service provision and which does not result from mere cost inflation.
3. Saving through service reduction: a reduction in Net Revenue Expenditure requiring action to be taken to achieve the reduction and resulting in a change or re-definition of the level or quality of service provided.

4. Efficiency saving: a reduction in Net Revenue Expenditure requiring action to be taken to achieve the reduction and which has no effect on the level and quality of service provided.
5. Exogenous reduction in budget: a reduction in a budget or Net Revenue Expenditure which occurs other than as a result of action taken. Reductions in budgets may occur for many different reasons, for example as a result of the completion of a time bound programme of work or a change in wider economic conditions. The key distinction between savings' and reductions in budget' is that the latter occur independently of any cost cutting exercises undertaken to generate savings.

3. To examine the overarching issues, each of the Ministers and the Chairman of the Privileges and Procedure Committee was invited to Public Hearings. The Panel noted significant differences in the approaches taken. The Panel's remit, as laid out in 135 and 136 of Standing Orders, was not with every Minister and it would point out that the review related to the application of the CSR policy. The specialised knowledge required to examine each proposal from every Minister in detail, is clearly beyond the resources of any one Panel. Such detailed examination must rest with the Scrutiny Panels within whose remit the Ministers fall. The Panel therefore made an examination of the CSR policy, presented on behalf of the Council of Ministers. That process involved hearings with every Minister.
4. However, it had been a requirement to look at the Departments in turn to establish how the Policy had been engaged with. The Panel noted that many of the reviews being undertaken by departments were confidential at the time they were explained to the Panel. The Panel recognises the trust Ministers have placed in sharing some of that information and respects the line of confidentiality. To that end, the Panel will not discuss any review being undertaken within the CSR period in order to avoid breaching confidentiality by inclusion or exclusion of information.

5. The Minister for Treasury and Resources was addressed from two view points. The first was as the driver of the CSR policy. The Panel had specific interests in the thought processes behind the requirement for the savings. This area is dealt with at the end of the chapter. The second area was the Treasury and Resources Department which is dealt with at the same level as all other departments for the purposes of this review. A more detailed piece of work relating to the department specifically will be considered by the Panel.
6. Chief Ministers Department including Resources

The two percent savings proposed for 2011 represent efficiency savings. There was recognition that a change in how the service was delivered was required to reach the full 10% of savings required. International Affairs was being treated as exempt from savings within the department as it was considered to be so vital to the Island's well being. All the savings would come from other areas.

1. Invest to save: An investment in the Resources Department of just under £3 million will be required in the procurement team to establish restructuring of procurement across the States with a return of £5 million per annum. It was expected that this would take some time to establish but if funded, would make the expected savings.
2. The Chief Minister made no connection between the saving of 2% from his budget and the full savings of 10% required by the conclusion of the CSR. The Chief Minister was asked about his growth and savings at the end of the Public Hearing and the Minister explained that:

"Part of the difficulty over the years has been that the central departments, Chief Minister's Department and Treasury, have taken an undue share of the cuts to the extent where we are now not able to provide the basic level of service. We have seen that certainly with Treasury and I have seen that to some extent with the Chief Minister's Department as well."

The Chief Minister was unable to explain further as he was interrupted by a telephone call and he left. The Panel notes that the growth for the Chief Minister's Department is greater than the savings achieved.

3. The Panel is a little concerned by this comment as the Chief Minister was in charge of the Treasury during the period that some of the cuts to which he refers were effected

7. Economic Development Department (EDD)

Having mostly a discretionary budget, EDD had probably more flexibility than any other department. Despite facing some funding pressures, the 2% had not posed significant difficulties. The Minister for Economic Development stated:

"Having delivered our 2%, we have taken the cumulative amount of our 2% cut plus unfunded pressures and we have reworked our budget to accommodate it."[14]

1. The Panel has stated that it will not be reviewing the individual savings proposed by the Ministers, however, under P66/2008, School Milk: Continued Funding', the provision of the milk was due to cease at the commencement of trading at the new dairy. The Panel does not accept that a proposed saving of £183,000 for the cessation of School milk can be considered a saving under the CSR because this function was due to cease anyway. That suggests that the 2% savings will not be met by the proposal from EDD.
2. The  Minister for  EDD  recognised that  the 3%  and 5%  would  take significantly more thought:

"I think you have to look at every activity in its own right, assess its merit and decide whether or not it is appropriate to either reduce it in terms of the cost of the delivery or cease doing it."[15]

3. The Panel understands that in most cases, the Minister had been able to create 2% savings without having to refer to the fuller savings required later, although he clearly had the final outcome in mind.

8. Education, Sport and Culture (ESC)

In 2009, ESC commenced twelve reviews to maintain parity with the Strategic Plan. The Minister explained:

"First of all, I think we need to go back to the time when the States agreed and approved the Strategic Plan and in the Strategic Plan there are a number of priorities; 2 in particular I would like to draw your attention to. Priority 3 is to reform the public service to improve efficiency and priority 4 is to ensure sustainable public finances. Once this was agreed and I had started to get a better understanding of the department since being elected as Minister, I, working very closely with the department, decided that we needed to review and carry out major reviews on many areas that the department provides."

1. The Minister established the reviews following advice contained within the report from the Comptroller and Auditor General entitled "Emerging Issues, States Spending Review 2008". Evidence from these reviews is expected to establish sustainable long term savings. The Director of Education, Sport and Culture explained:

"These reviews were initiated before the C.S.R. process and they were initiated with a view to having a long-term strategy for education on the basis that any major reform of education was going to take a significant length of time to deliver"

2. The 2011 savings proposals put forward by ESC, which include some plans for restructuring and efficiency gains will amount to approximately 1%. When pressed on the resolve to meet the percentage savings required within the CSR, the Minister stated:

"I cannot tell you because I am not prepared, and I cannot second-guess the outcome of the reviews. It would be absolutely wrong. I have every intention, and I have signed up with the Council of Ministers to deliver the savings identified."

3. It is apparent that the timescale for the reviews being undertaken in ESC were established prior to the conception of the CSR. The results of the reviews will be integrated within the school year when possible. This cannot be achieved within the one, two or in some cases three years of the CSR. The CSR is insufficiently flexible to accommodate timescales other than its own.

KEY FINDING 10

Departments are not all responding to the CSR timescales.

9. Health and Social Services. (HSSH)

The over-arching vision for H&SS was outlined by the Minister as a method of preventing people having to go to hospital in the first place. Although the Minister went on to talk about the amount of space around hospital beds, there appeared to be no real vision that was being aspired towards.

1. The Panel noted that the staff within the Department had been widely consulted about the required savings. The staff undertaking the tasks required to produce the services of the department are well placed to recognise better and or cheaper ways of doing things. The Panel questions how the department can measure the savings when there is no standard cost identification process within the department. It is understood that bespoke costing can be worked up for individual requirements and that the department is working towards resolution of the problem of cost identification with information technology improvements in the future. When the Minister was asked how the savings would be measured, the question was answered by The Assistant Minister who said:

"They are going to be measured from a Treasury point of view in cash limits and less cash limits."

It appears, therefore, that the savings would not be confirmed until the end of the financial year in which they are introduced, by which time it would be too late to effect any changes needed to meet the savings required within the timescales, reinforcing the previous key finding.

2. When, during the Public Hearing, the Minister was asked if there were any reviews being undertaken, the Deputy Chief Executive explained: "We are now about to enter a stage over the summer of developing a project to get into a lot of that work that we have been talking about, sort of a diagnostic phase of identifying the financial and non-financial information so that we can look at those broader schemes. I think one of the issues about some of the schemes that do come forward to the Ministerial team but have not been taken up in 2011 is identifying those schemes that need much more feasibility work around them, around how they might work. This summer it is about developing better information so that we can cost out activities and really have a look at some of these more complex service redesigns."
3. The Panel asked how the 2% savings were connected with the 3% and 5% to follow. The Deputy Chief Executive stated:

"one area we were looking at was with our S.L.A.s (service level agreements) with third sector providers because there is a real danger of being penny wise and pound foolish because a lot of our third sector providers provide activities which stop people coming into the much more expensive secondary care. So we have worked very closely with those third sector providers to make sure that if they have engaged with us in the C.S.R. process that they can do it, and some of them can, they can drive some efficiencies into their business without having a perverse impact upon the secondary care sector. So we have had to be very ... you are quite right, we have had to consider that very carefully at this first stage."

4. Notwithstanding that, further savings in 2012 and 2013 required substantial structural changes that were un-identified in July 2010. These needed project management skills, perceived to be unavailable in the departments management portfolio and therefore further managers were to be engaged to undertake that work. This was expected to involve both training from within and managers brought in from outside.
5. Although the Accounting Officer is the Chief Executive, the Director of Finance and Information considered the responsibility for delivering the savings at the end of the day belonged to him.

"It is my job to make sure that the schemes that we have identified effectively deliver those recurrent budget reductions that enable the cost base of H. and S.S. to fall to the same level as the new recurrent cash limit that H. and S.S. will have."

6. The Panel recognised that the responsibility for the delivery of the savings resulting from the proposals once accepted by the States, was with the Chief Executive of each department.

KEY FINDING 11

HSSH do not have a routine cost identification system.

KEY FINDING 12

Without a routine cost identification system, robust monitoring and measurement of the success of proposals will be impossible.

10. Social Security

Social Security is a complex department that is not within the normal remit of the Panel. Some time was spent recognising the various income streams and the elements of the budget, which related to money from tax payers. Although the total budget for the department is £171 million, the removal of areas relating to contribution-funded areas of income leaves a budget of £99.7 million, 2% of which is £1.99 million.

8.10.1.Unlike  some departments,  Social  Security  deal  with  a  mainly  non-

discretionary budget. Income Support, for example is expected to cost £93.8 million in 2010. The Panel resisted the temptation to ask if the Income Support Scheme meets its original policy directives, as it recognised this was outside the terms of reference for this review and very much within the remit of the Health, Social Security and Housing Scrutiny Panel.

8.10.2.Any changes in benefits must be approved by the States. The net cost

(£4,572,199) of distributing the States funded benefits, amounting to £154,978,891, is approximately 2.95%. This leaves very little room for savings to be made. Even structural changes in the distribution methods would clearly not raise the full 2% cuts needed to meet the demands of the CSR

8.10.3.The Minister explained that he had examined the services provided by

the department and recognised that:

"it is important to come forward with savings that can be delivered."

8.10.4.There was no escaping the fact that benefits would need to be

reviewed. The Minister explained his thinking in the choice of savings as follows:

"what I have tried to endeavour to do, is to look to minimise the effects upon the most vulnerable, so I have looked at those benefits or those services that were providing ... which first of all are not means-tested, or are just above, in effect, eligibility for income support, and I believe that means that I have protected the most vulnerable, but there is an element that anything, or any cut that I am expected to take in my department, is by its very nature going to perhaps affect the more vulnerable members of society rather than the most vulnerable."

8.10.5.The Panel accepts that the Minister is attempting, under difficult

circumstances to protect the most vulnerable in society. The success of this approach is outside the remit of this Panel and is for the Health, Social Services and Housing Scrutiny Panel to determine.

8.10.6.The Minister went on to explain:

"I see it very much as my job to come forward with proposals, which have been appropriately thought through, try to eliminate as much as possible hardship to the most vulnerable members of our community, and I am absolutely committed to bringing forward those proposals."

8.10.7.Evidence was obtained from the Minister during previous hearings that

fraud was not considered to be organised crime in Jersey as suffered by other jurisdictions. There were areas of fraud taking place, people receiving benefits for which they were not entitled and the Department was looking to increase the officers dealing with this from two to five. There are six further officers dealing with Compliance' and that relates to the receipt of contributions.

8.10.8.The Minister is working on fraud, but there appears to be no robust

information on the size of the problem. Anecdotally, the problem appeared to the Panel to be larger than the Department would acknowledge. This was a matter for the HSSH Panel to examine, as it was outside the remit of this Panel. The Panel recognised that there might be significant savings from the investment in officers dealing with fraud and wonders if savings may be sufficient to reduce, or even avoid altogether, future proposals for necessary cuts in benefit.

KEY FINDING 13

Successful inroads into benefit fraud may reduce, or even avoid altogether, future proposals for necessary cuts in benefit.

8.10.9.The Panel considered the connection between the 2% and future 3%

and 5% savings. The Minister for Social Security was very clear; the 2% savings were uncomfortable. He stated:

"Well I think I need to be absolutely clear with you that if I am going to come forward with proposals for 3% and 5% it is going to take some very difficult political decision-making by the States."

8.10.10.  The Panel is satisfied that the Minister for Social Security has the resolve to propose the full range of cuts needed to meet the requirement of the CSR over the forthcoming years. Due to the difficult and unpopular political decision-making required to implement the savings, the Panel is dubious that the States Assembly will have the same determination.

KEY FINDING 14

The States Assembly must not sidestep unpopular and difficult decisions relating to benefits.

11. Home Affairs

The Minister for Home Affairs stated that staff costs represent a large proportion of the budget and substantial spending pressures revolved around the increment increases due in salaries over the next few years. This has manifested itself in the growth section as filling essential staff vacancies. The Panel recognises that these costs are inevitable results of employing staff under the current terms and conditions and is concerned that these extra costs have not been catered for.

8.11.1.The department was undertaking six reviews, all of which were

intended to provide efficiencies where possible. The results of those reviews would become available during the CSR time period.

8.11.2.The Chief Officer informed the Panel that there was no excess

spending available to cut away and therefore the cuts would not represent equal misery over all departments. The Minister confirmed this explaining that cuts would mean fewer Police officers, Prison Officers, Firemen or Customs Officers. In most cases, the natural turnover of staff would mean less recruiting and therefore would create the necessary changes in numbers. However, the Minister reminded the Panel that he had declared that he wished to make the department more efficient when he stood for the Ministerial post and he confirmed his intention to make that happen. This would involve a combination of doing things more efficiently and ceasing some services altogether, for example, the closure of the Police canteen. Further savings will be found in a civilianisation programme.

8.11.3.There are some difficult decisions within the proposals. During the debate on the Annual Business Plan 2010 (P117/2009), amendment

16 required the introduction of Discrimination Legislation. The Assembly agreed that this legislation should be brought forward and £100,000 was set aside for the purpose. The Panel notes that the Minister has proposed the withdrawal of the money for this item as a saving within the CSR. He is clearly hoping that the States will agree to withdraw a previous decision in allowing this proposal. In his explanation to the Panel he stated:

"The difficulty is 2012 and 2013, because it does not make any sense whatsoever to, in act of this legislation, set up the tribunal that goes with it and then the year after say: "Oh, sorry, we have not got the money now." It just makes no sense whatsoever. So, my view was that it would not survive the entire process."

8.11.4.However the Panel noted the options according to the Minister:

"But there is one other thing I need to say, I think, which is this: that my view the time has come for my colleagues in the States to bite the bullet. Because in the past it has been too easy for backbenchers, as part of the business plan, to add things in and, you know, everybody wants to add things in, it is nice, we are providing extra service to the public, et cetera, et cetera. Well, now the fact is I have to bite the bullet. I have had to bite the bullet this year. I have had to make the tough decisions, they are interim decisions, obviously you are free to disagree with them if you so wish and the States are free too. But the fact is, when I have been doing the process I have been saying: "Now why are you going to cut £100,000 on this?" Or: "Am I going to lose yet 2 more policemen"

8.11.5.This will lead to a 2% saving for the first round, should the States

Assembly agree with the proposals. It was explained to the Panel that the Minister and officers had started by trying to find 5% savings. The various services within Home Affairs were set the task of identifying at least 5% savings; the object being that would give the Minister some options. This would allow some cohesion between the initial 2% and the full 10% at the conclusion of the CSR process.

8.11.6.It was made very clear that the further 3% and 5% would be much more difficult to find. The Panel questions the thought processes behind the Minister's thinking. So far, there is no suggestion of

significant changes in the way things are being done. For example, there were comments made during the hearing on closing a wing of the prison and the problems this would entail. What would happen and what would the costs be, were the prison to be closed with prisoners being sent to the United Kingdom to serve their sentence? There would have to be changes in legislation and there would be costs, but the staffing levels would drop very significantly. Therefore, there may be other methods of making savings and different ways of considering non-discretionary spending.

8.11.7.Difficult decisions, in the view of the Minister for Home Affairs, were for

the States to make. The Panel notes that it is the Minister who has the information to make the decisions. Other States Members do not. It is therefore the Minister who should stand by his decisions and be prepared to justify them to the States and the public of the Island.

KEY FINDING 15

The Minister for Home Affairs must stand by his decisions and not expect the responsibility to be picked up by the States as a whole.

12. Treasury

The Minister for Treasury and Resources reminded the Panel that there were significant changes and restructuring being undertaken to the Treasury Department. The 2% proposals related to the reduction of lower priority services with some reduction but no loss of service. The further 8% was being examined with a view to investment in technology to provide efficiency. The Minister stated:

"There is a massive agenda, but we will deliver our 8 per cent."

8.12.1.The Panel noted that the department is undertaking a large amount of growth in order to transform the function it undertakes. When asked to

explain how such growth can be justified at a time of cuts, the Minister stated:

"Well, financial management has been criticised by the C. & A.G. (Comptroller and Auditor General), P.A.C., Corporate Affairs in various reports and in audit reports over the last 2 years. The situation has been formally reviewed and an action plan, which you referred to, has been set to address the deficiencies. The aim is to create a more effective structure reviewing all financial processes and building capacity to build proper financial control. The net impact to all of these changes is to increase manpower resources in the Treasury by 6 posts. So this is doing exactly what people have asked us to do."

8.12.2.The actions were accepted by the Panel as the Comptroller and

Auditor Generals' report, Emerging Issues 2008, paragraph 23(3), recommends improvement to the financial management of States affairs and suggests methods of achieving that. The Panel were disappointed with the time it had taken to implement the changes. The IBIP works towards making the suggested changes, along with the FSR and the CSR projects. The Panel will be undertaking further work in those areas.

8.12.3.The department submitted a proposal to make a saving by reducing

the training budget by £8,000. On the growth side, £25,000 has been requested for training. The Panel questioned if this was a saving. The Minister explained:

"Part of that growth, that £25,000 growth, is going to be used for specific training for departmental staff so that they can do their new roles. So that is one side. On the other side overall training budgets can be reduced because they are simplifying processes and the way they are going to be doing the work so they will not need as much ongoing training to do their roles."

8.12.4.Pressing the Minister further on that point, he said:

"It sounds to me the argument has been put to me quite candidly that this is training for old things that we should not be doing, but there is going to be requirement for training for things that we should be doing and that is why there is a growth bid, but the old spending is no longer required and can be cut."

8.12.5.The Panel does not accept the Minister's explanation that there is any

saving within this proposal and believes that not only is the training changing direction to cover new needs of the department, but that it will cost the taxpayer £17,000 to do it.

KEY FINDING 16

There is no saving recognised in the area of the Treasury training budget.

13. Privileges and Procedures Committee (PPC)

The Panel considered that if savings were to be transparent within the departments, the committee governing the operation of the States Chambers should be part of the review.

8.13.1.The States Assembly budget is fixed in a slightly different way from

every other budget in the States. Article 10 of the Public Finances Law states that the budget for the States Assembly was put under the political control of P.P.C. There is no direct Ministerial control over the budget although some safeguards exist to prevent misuse. To date, the P.P.C. has effectively always followed the precise budgetary policy of the other States-funded bodies. In the case of the CSR, the P.P.C. decided to participate on a voluntary basis to the requirements of the CSR.

8.13.2.Approximately half of the States Assembly budget is remuneration paid to States Members, leaving a remainder of somewhere in the region of

£2,700,000. There are two variables relating to remuneration, which the committee has no direct control over. One is the number of Members, which is a matter for Members to debate. The second is the level which is fixed and recommended by the independent States Members Remuneration Review Body.

8.13.3.The P.P.C. was of the opinion that the remuneration was strictly

political and was ultimately for Members to debate. As the States approved an independent body, the States Members Remuneration Review Body (SMRRB), to examine and make recommendations relating to remuneration of Members, the P.P.C consider the advice of the SMRRB to be independent. The Committee therefore exerts no authority on the decisions made by the Board. For that reason, States Members remuneration was taken out of the CSR discussions. The Panel notes that this may prove to be an unpopular decision as all other States employees are having pay and terms and conditions examined. The results of an examination are perhaps less important than the fact that an examination takes place. Transparency dictates that the examination should take place.

8.13.4.Whilst the PPC may have chosen to leave the decision making to the

Review Body, the Panel believes that the PPC should advise the Board to consider accepting an invitation to become part of the CSR.

8.13.5.Whilst it might be appropriate for the Panel to hold an opinion as to

whether remuneration of States Members, or numbers of States Members, should be open to discussion in line with all other publicly paid employees, it was considered inappropriate to attempt to influence the independence of the States Members Remuneration Review Body. Therefore, the Panel will not comment on these aspects of the PPC decision.

8.13.6.Likewise, the numbers of States Members is an area of public concern

and needs to be examined within the CSR.[16]

KEY FINDING 17

States Members remuneration and membership numbers is not part of the CSR.

KEY FINDING 18

The PPC must advise the States Members Remuneration Review Body to consider an invitation to join the CSR process.

14. Housing

As with every other department, the Panel held a private briefing with the Chief Officer of Housing, followed by a public hearing with the Minister. Between the interviews, a new Minister for Housing was elected. The new Minister came to the Panel full of energy and vision. The CSR appeared to be of minor consequence in view of the visionary changes he wished to bring about. The 2% saving had been found and the 10% was a challenge to be met. He said:

"I  put  myself  in  clearly  having  achieved the  2  per  cent  and regarding the rest as a challenge but not impossible."

8.14.1.The Minister stated that the vision he harboured was based on

observations through the last three years:

"When I was on Scrutiny in 2007 and we scrutinised P.6, the sell-off of the property plan, we said then that the elephant in the room was funding. Well, even though the department has sold 120-odd units of stock to its tenants the elephant remains in the room which is funding. It is in my opinion unsustainable to keep selling stock to maintain assets, so we have to find funding another way. We have got to find another funding model and I think one of the ways to do that is through incorporation and the ability to be able to trade."

2. A point that had been raised by other Ministers came up again when the Minister said:

"The timescale that the Minister for Treasury has given for this in my view is difficult"

3. The Panel was interested to note that this Minister held a clear vision of where he wanted to take the department. The rights and wrongs of making the department into a commercial trading company were for another review and another Scrutiny Panel to investigate. This could be because the Minister was so new to post, but it was refreshing to find direct political drive at the helm and this inspired the Panel to the opinion that the full 10% savings are likely to be met by this department.

KEY FINDING 19.

The Health, Social Security and Housing Scrutiny Panel should review the changes proposed in the Housing Department.

15. Transport and Technical Services (T&TS)

The Minister for Transport and Technical Services was optimistic that the CSR would offer benefits to his department.

"the savings are packaged with other flexibilities to improve financial management, including year end flexibility and the 3- year cash limits which would give us the ability to commit funds for longer periods and therefore achieve benefits from that point of view."

8.15.1.This was a refreshing view point and for the first time, highlighted some

of the benefits contained within the CSR. He went on to say:

"We see the C.S.R. as an opportunity to continue to become more businesslike and provide an effective service which is fit for purpose."

8.15.2.In order to achieve that, the department was undertaking numerous reviews to establish areas suitable for moving to the private sector and

other savings such possible savings. Notwithstanding the political

enthusiasm to follow the CSR rules, there were recognised obstacles: "I think one is, as I alluded to earlier on, the black book; secondly, is the lack of commercial realisation of expertise; and probably, thirdly, maintaining the political strength to deliver

difficult decisions coming up to election time."

8.15.3.The Minister for T&TS and his management team are very aware that

matters influencing the workforce need full consultation. They are also aware that failure to achieve savings in other States departments could place any T&TS initiatives at risk.

8.15.4.The lack of commercial realisation of expertise related to the amount of

people qualified to do particular jobs that are specific to T&TS. There are not many people qualified in the running of Energy from Waste Plants in the Island outside of the department.

8.15.5.At a point half way through the tenure of most current States Members,

it was interesting to note that the T&TS Minister is considering such aspects as forthcoming elections as an obstacle to finding the savings. This report has already mentioned the political strength required to deliver difficult decisions, that the savings may be influenced adversely by the 2011 election is indeed a worrying concept.

8.15.6. In relation to the 2% savings, T&TS achieved the proposals for that without significant problem. The further savings were described by the Minister as:

"It is in line with the future savings and therefore makes the remainder 8 per cent, so that is my next tranche, if you like, which we are working on at present."

8.15.7.The Minister also brought up a further point that had been raised in the

public consultation undertaken by the Panel:

"I think there is a public perception that the organisation has grown like Topsy."

8.15.8.Overall, the Panel found this department to be enthusiastic about the

opportunities offered within the CSR on the proviso that the rest of the Sates achieve the same level of cuts.

16. Planning and Environment

The 2% had been relatively easy for Planning and Environment and had a strong connection with the overall 10% requirement of the CSR. In the hearing with the Minister, the Chief Officer described the process as:

"certainly for the 2 per cent, we have not had major involvement with our frontline (staff) on the 2 per cent. We certainly had some feedback around the filing issue for instance because that is one of the areas where there is a lot of gripes and groans as to how we currently do filing. So that is a good example of where we have had some feedback. Some of the others, certainly, they are quite small savings and we think they do not have an impact on the frontline."

8.16.1.Where the further 3% and 5% were discussed, the Chief Officer made

it clear that there would need to be significantly more involvement throughout the staff:

"We need to have major staff engagement though with the 2012 and 2013 and I think it is management's job certainly to put forward some ideas."

8.16.2.As with many other departments, a review was being undertaken to

assist with the difficult decisions to be taken in the future. The fundamental issues that could save money were considered to be relocation of the Planning Department, reorganisation of the management structure and improvements to I.T. making on line applications for planning the norm. This was going to need substantial investment to make the savings.

8.16.3.Despite these concerns, the Minister was very upbeat about the CSR

process, saying:

"In fact the C.S.R. is an opportunity I have been waiting for."

8.16.4.A concern noted by the Panel that is beyond its remit, although

recognised as being of possible interest to the Public Accounts Committee, was that the Minister for Planning and Environment went on to state:

"When I got the job I started trying to go through the budget to find areas myself where I thought there were savings, and it was made pretty clear to me at the time that that was not the job of the Minister and it came to a halt."

8.16.5.,The Panel recognised that the policy has and will continue to encourage Ministers to examine and perhaps achieve savings, as

indeed it has so notably with the Minister for Planning and Environment.

17. Areas conspicuously missing from the considerations presented to the Panel were the areas that crosscut the departments. In particular, Information Technology and Property. Human Resources were touched on when a review into terms and conditions of staff was explained and it was accepted that Procurement appears to be in the process of being addressed.
18. As discussed in the report by the Comptroller and Auditor General, Emerging Issues 2008', there are large savings to be made in these areas.

KEY FINDING 20

Large savings will be found in the cross cutting areas of the States.

RECOMMENDATION 3

The CSR team must devote a high priority to the crosscutting areas of the organisation.

9. The Process

1. The Panel's third Term of reference was:

Establish the structural continuity between 2% savings this year and final 10% saving after three years.

The Public Hearings with Ministers, as described above revealed a remarkable difference in approach. Some Ministers had worked from the 10% down. One had started at 5% and worked back to the 2% with the intention of fulfilling the remaining 5% in future work. Many had taken the 2% as business as usual,' included that saving in their budget for 2010 and started work towards the more serious and structural savings needed in the full 10%.

2. The proposals put forward within the CSR were understood by the Panel to be just that, proposals. The differentiation on the values of each proposition and its suitability, were understood to be an area for overall consideration, eventually by the States Assembly. The propositions have been included within the Draft Annual Business Plan 2011(Appendix E). The mechanism for differentiation on a bid by bid basis is by the submission of amendments to the proposition.
3. In the report Professor Oliver, he made it clear (4.13) that a salami slicing' approach, i.e. an across the board cut of equal depth to all departments, was unadvisable:  

"successful spending cuts are highly differentiated and focused. Across-the- board cuts and freezes that affect programmes and services in an undifferentiated way can have perverse effects and may not help promote fiscal sustainability. A salami slicing' approach to reducing the deficit across programmes is therefore particularly unwise, even if there are spurious arguments made that this should be done on grounds of fairness. Undifferentiated cuts erode the quality of public services and affect morale across the public service. It is hoped that the planned in-depth reviews of