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MTFP 2016 – 2019 - Ministerial Response - 20 November 2015

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STATES OF JERSEY

MTFP 2016 – 2019 (S.R.6/2015): RESPONSE OF THE MINISTER FOR TREASURY AND RESOURCES

Presented to the States on 20th November 2015 by the Minister for Treasury and Resources

STATES GREFFE

2015   Price code: C  S.R.6 Res.

MTFP 2016 – 2019 (S.R.6/2015):

RESPONSE OF THE MINISTER FOR TREASURY AND RESOURCES


Ministerial Response to: Ministerial Response required by: Review title:

Scrutiny Panel:


S.R.6/2015

18th November 2015 MTFP 2016 – 2019 Corporate Services


MINISTER'S INTRODUCTION

The Minister welcomes the Panel's Report and has commented in detail below on the Findings and Recommendations. The focus of the MTFP 2016 – 2019 is on growing the  States'  income  and  supporting  productivity;  whilst  reducing  departmental expenditure  and  maintaining  other  flexibilities  within  the  Plan,  including  annual budget  measures.  Further  details  will  be  brought  forward  as  part  of  the  MTFP addition, to be lodged by the end of June 2016.

FINDINGS

 

 

Key Findings

Comments

1

Whilst  we  fully  endorse  the  intention  to strengthen the IFG, the Panel is concerned that with all the members of the IFG being civil servants, with one exception, it remains short  of  the  wide  breadth  of  knowledge required to enable it to produce accurate and meaningful  forecasts  that  adequately  take into account particular local conditions.

The IFG already has a broad knowledge and skills set,  but  this  will  be  kept  under  review  by  the Minister. The independent, non-executive member has  already  made  a  positive  contribution  to  the Group's work. The Treasurer is recommending a further external member.

2

There are still significant risks in running the MTFP  2016 – 2019  income  tax  yield estimates  as  currently  presented,  and  the Panel and its advisers remain unconvinced about  the  validity  of  assumptions  used  to predict Income Tax, with predicted increases of 4.5%, 5.3%, 5.6%, and 4.1% respectively for 2016 – 2019.

The IFG have identified that there are risks to the income tax forecast and have set them out in their reports. The analysis supporting the future path in income tax over the period is set out in detail in P.72/2015 Add.  (IFG  update  report  on  draft forecasts of States income from taxation and duty for  the  preparation  of  MTFP  2016 – 2019).  It shows  that  there  is  predicted  to  be  real  future growth in the economy (RPI inflation alone was forecast to be above 3% in 2016 – 2019), including real  growth  in  earnings  and  further  employment growth.  The  combination  of  this  and  the  past relationship between these trends and employment income in particular, suggests that income tax will grow at the rates set out in the report. This is well below the growth rates in the 1997 – 2008 period, but is consistent with the economic outlook.

 

 

Key Findings

Comments

3

In  order  to  fully  deal  with  the  issues highlighted within this report and allow for the  setting  of  a  robust  financial  strategy, there  needs  to  be  a  cultural  acceptance within the States of the underlying factors that  have  had  a  negative  impact  upon the 2015 Budget Setting process and the need to pursue a strategy of recovery and stability.

It is clear that the reduced income forecasts result from the volatile world-wide economic situation.

As with all economies, there is also a significant funding requirement arising from the impacts of the ageing population.

4

There is a high level of uncertainty around the  range  applied to  income  forecasts  and they are not sufficiently prudent.

The income tax forecast accounts for the high level of uncertainty in the income forecast and is wide enough  to  cover  a  range  of  different  economic scenarios, both on the optimistic and pessimistic side.

What  is  clear  is  that  outcomes  will  vary  from forecasts, that the risks are on the downside, and that  the  Council  of  Ministers  proposed  a  plan, agreed by the States, which has the flexibility to deal with downside scenarios.

5

There is insufficient detail provided in the MTFP  2016 – 2019  regarding  the  new income-raising measures by the Council of Ministers for the years 2017, 2018 and 2019.

The Council has been consistent in its stance that it would  be  irresponsible  to  continue  to  invest  in Health Services on an unsustainable basis without the principle of additional funding being agreed by the States.

The Council did not seek the agreement of HOW to fund additional investment in Health Services at this stage, which will be a matter to be agreed by the States.

The  Council  sought  agreement  that  increasing investment  in  health  be  funded  by  increased revenues.  This  is  in  common  with  longstanding practice in the States, firstly to adopt a principle, and  then  for  further  work  and  expense  to  be incurred to develop the proposed methodology for levying  that  additional  income  after  that  in- principle decision.

6

The total amount of expenditure the States Assembly  is  being  asked  to  approve  is approximately £3.1 billion for 2016 – 2019.

The  Council  of  Ministers  have  been  open  and transparent in their approach to the second MTFP process.  The  Corporate  Services  Panel  were consulted  with,  regarding  the  changes  to  the amendment  to  the  Public  Finances  (Jersey)  Law 2005  and  the  Treasury,  in  recognising  their concerns, worked with the Panel to produce a more acceptable approach.

It was made very clear in the covering report to the draft  Regulations  what  the  States  would  be debating in the MTFP 2016 – 2019 and what the States would be asked to approve –

7

There is insufficient detail provided in the MTFP  2016 – 2019  regarding  the  planned expenditure by the Council of Ministers for the years 2017, 2018 and 2019.

 

 

Key Findings

Comments

 

 

  • Total  States'  income  targets  for  each  year 2016 – 2019;
  • Total maximum expenditure allocation for each year 2016 – 2019;
  • Total net capital allocation limits for each year 2016 – 2019; and
  • Department  spending  limits,  central contingencies, savings and other measures for 2016 only;
  • Departmental  revenue  spending  limits  for 2017 – 2019  would  be  brought  back  to  the Assembly  in  2016  no  later  than  30th  June 2016.

It was clear that the draft MTFP would, however, include  the  high-level  intended  income  and expenditure figures for these years which would require States' approval.

The  Minister  for  Treasury  and  Resources highlighted that this would afford the Council and the States time, as well as flexibility, to consider, consult and analyse how the financial challenges faced by the States should be addressed.

The Council were rightly extremely conscious that the original concept of the medium term financial planning process should be retained, and to ensure that financial control and discipline are maintained.

There are fundamental changes needed within the proposals  for  public  sector  reform  and reorganisation over the next 4 years. The purpose of  the  amendments  to  the  Finance  Law  in P.42/2015 was to provide the time for this detail to be worked through.

The  MTFP  addition  is  also  intended  to  provide time  to  consider  the  impact  of  the  changes  on public services and also the distributional effect of the whole package of measures.

The Council of Ministers could have considered provisional budgets for departments for the years 2017 – 2019  ahead  of  the  detail  being  worked through,  and  proposed  these  allocations  in  July 2015.  However,  Ministers  did  not  feel  this  was appropriate because of the scale of change that was likely to be required by Ministerial Transfer once the detail of 2017 – 2019 was known. Instead, the Council  of  Ministers  proposed  the  Amendment (P.42/2015) to enable the detail to be explained to

 

 

Key Findings

Comments

 

 

the Assembly in an open and transparent way in the MTFP addition, with appropriate detail.

At  the  time,  the  Chairman  of  the  Corporate Services Scrutiny Panel, Deputy J.A.N. Le Fondré stated in the debate on P.42/2015: "On that basis, (being that the amendment would only apply to the 2016 – 2019 MTFP and that the MTFP addition would be lodged for a minimum 12 week period by 30th June 2016) I am very happy to be supporting the  Regulations  (P.42/2015)  as  amended  by  our (CSSP) amendment as amended."

To  be  absolutely  clear,  the  only  expenditure currently approved in the MTFP is in respect of 2016. For no other year did the Council propose cash limits for departments or central contingency allocations, and did not therefore seek authority at this  stage  to  spend  any  amounts.  Therefore  no Minister nor Accounting Officer can spend funds for 2017 – 2019, and will not be able to do so until the second part of this MTFP, the MTFP addition, is agreed by the States next year.

All that is currently approved is a total spending envelope for each of the years 2017 – 2019. The States has effectively limited its spending in those years to these maximum limits, but has not given approval at this stage for the money to be spent. Importantly,  the  Assembly  approved  a  financial framework within which the Council must work and maintain an overall discipline and constraint of Medium  Term  Financial  Planning,  rather  than returning to annual incremental budgeting.

8

The States' capital projects programme has the potential of creating a high level of risk of  a  build-up  of  inflationary  pressure  in Jersey's  economy  and  creating  bottlenecks within the local economy.

This  is  a  reiteration  of  the  points  raised  by  the Fiscal  Policy  Panel  (FPP),  and  the  Minister  has already responded on this matter in his response to the FPP Annual Report. The States has developed a Long-Term Capital Plan, which allows considered planning  and  prioritisation  of  long-term  capital funding  requirements  in  the  context  of  the projected  affordable  envelope. To further inform capital  planning,  representatives  of  the  Jersey Construction Council are consulted regularly and given an opportunity to provide feedback on the impact of the current and proposed States capital programme  on  industry  capacity,  and  the  wider economic environment relevant to their industry. This provides an important forum to consider the combined  impact  of  private  and  public  sector workflows,  including  Andium  Homes  and  the States of Jersey Development Company, and what

 

 

Key Findings

Comments

 

 

that means for the balance of supply and demand in the local market.

The  Economic  Policy  Political  Oversight  Group will have an oversight of this work, and will also be  cognisant  of  these  factors  when  considering future policy and emerging trends in the economy. In  line  with  Fiscal  Policy  Panel  advice,  this informed  process  enables  a  greater  provision  of local resource where appropriate, and highlights a need  for  off-Island  provision  when  it  is economically appropriate.

The  capital  projects  included  in  the  MTFP 2016 – 2019 are necessary for the Island, and the Fiscal Policy has clearly said that capital spending should continue.

9

The  Panel  is  concerned  that  no  financial implications for the new hospital are referred to within this MTFP.

The Council of Ministers has been very clear on its approach towards the new Hospital project, and the timing of the MTFP did not allow the inclusion of any financial implications.

The  Council  has  always  fully  intended  to  bring forward the full financial  implications, including the  full  recognition  of  lifecycle  costs,  and  other revenue and capital impacts.

These will now be included in the MTFP addition.

10

A  sum  totalling  £148 million  has  been included as a central allocation/contingency figure in the MTFP 2016 – 2019.

Figure 16  in  the  MTFP  2016 – 2019  is  purely indicative.

The profile of the specific contingency allocations for  redundancy  provision,  committee  of  inquiry and economic and productivity growth provision are  agreed  for  2016,  but  could  change  for 2017 – 2019.

As clarified elsewhere in this response, only total expenditure  levels  for  2017 – 2019  have  been approved.

Detailed  expenditure  levels  for  departments  and contingency expenditure will be proposed in the MTFP addition for 2017 – 2019.

The States will have the opportunity, in the MTFP addition, to agree the level and nature of the central contingency  allocations  for  2017 – 2019,  along with the other detailed allocations to departments for those years

Total  contingency  expenditure  of  £42.9 million, and the nature of those allocations, has so far been approved for 2016 only.

11

No detail has been provided as to how the figure being put forward for contingencies for  2017,  2018  and  2019  has  been calculated.

12

It  is  unclear  whether  the  £19  million identified for "extraordinary items" in 2016 is  discounted  from  the  contingency allocations provided for subsequent years.

 

 

Key Findings

Comments

13

The safeguards around contingency do not do enough to stop the Council of Ministers declaring unspent contingencies as a saving.

The Council of Ministers welcomes the opportunity to clarify the position on Contingency Expenditure.

The  specific  contingency  allocations  referred  to above would, by their very nature, be ring-fenced. They have a limited period of allocation, they are largely funded from the Strategic Reserve, and any underspending would be expected to return to the Strategic Reserve.

It is also important to recognise that contingency allocations are not by their nature recurring, and therefore  should  not  be  used  for  recurring  or sustainable savings.

The Council has made in 2016, and will inevitably make  in  2017 – 2019,  allocations  for  a  pay provision.  If  through  negotiations  there  is  an opportunity  to  deliver  savings  through  pay restraint,  these  would  be  recognised  as  savings, quite appropriately.

14

The £40 million of non-staff savings being proposed includes £10 million to be raised through user pays charges.

The Council of Ministers has clearly presented and been  transparent  in  its  proposal  to increase  user pays charging, notably for liquid and solid waste.

This  has  been  consistently  represented  as  a component  of  non-staff  measures,  which  include £20 million of department savings, £10 million of benefit  changes,  and  £10 million  of  user  pays proposals.

Importantly, none of the proposals for £10 million user  pays  charges  were  included  in  the  2016 allocations. They will be brought forward in the detail of the MTFP addition for 2017 – 2019.

15

If the States approve Summary Table A, they would,  in  effect,  be  approving  the introduction of a health care charge.

The Council has been consistent in its stance that it would  be  irresponsible  to  continue  to  invest  in Health Services on an unsustainable basis without the principle of additional funding being agreed to by the States.

The CoM did not seek the agreement of HOW to fund additional investment in Health Services at this stage, which will be a matter to be agreed by the States.

The  CoM  sought  agreement  that  increasing investment  in  health  be  funded  by  increased revenues.  This  is  in  common  with  longstanding practice in the States, firstly to adopt a principle, and  then  for  further  work  and  expense  to  be incurred to develop the proposed methodology for

16

If the States approve the MTFP 2016 – 2019, they  would,  in  effect,  be  approving  the principle  of  raising  £10 million  from Islanders  through  additional  user  pays mechanisms.

17

Within  the  MTFP  2016 – 2019,  it  is  the clearly-stated  intention  of  the  Council  of Ministers  to  introduce  a  user  pays  liquid waste charge as a significant contributor to the  £10 million  identified  to  be  raised through new user pays charges.

 

 

Key Findings

Comments

18

The  cost  of  the  removal  and  treatment  of liquid  waste  is  currently  paid  for  by Islanders through general taxation.

levying that additional income.

Existing expenditure for liquid waste is included in cash  limits.  However,  significant  capital expenditure and its servicing is proposed over the coming years.

Jersey is in the minority of countries which do not finance liquid and solid waste through charging.

The Panel's own advisers describe Jersey as low tax,  high  spend.  The  CoM  believe  it  is  time  to begin to transfer the costs of waste disposal from the taxpayer to the user.

19

Each household will be asked to contribute in  the  region  of  £1,000  per  year  if  the healthcare and £10 million user pays charges are  contained  in  this  MTFP  are implemented.

This is an analysis which the Council of Ministers does not recognise, and in particular the analysis does not recognise the benefits that households will receive from the extra investment in key services and infrastructure.

The detailed proposals will be brought to the States for  decision,  and  an  impact  assessment  of  each proposal will be presented, together with an overall assessment  of  the  package  of  measures  for  the MTFP addition.

By  the  very  nature  of  the  intended  charges,  the impact  on  individuals,  individual  households  or commercial users will vary significantly.

20

The  Panel  is  concerned  that  no  impact studies  have  been  completed  regarding income, expenditure, tax and user pays.

It is intended that further distributional analysis of the proposals will be undertaken before the lodging of the MTFP addition, and that this will be made available to States members when concluded.

21

No  impact  studies  have  been  undertaken with regard to the effect these changes will have  on  the  economy  and  overall unemployment in the Island.

The advice from the FPP is to continue to support the economy in the short term and to address the structural deficit by 2018/19. By following the FPP advice, the Council of Ministers is ensuring that the conditions  are  created  for  future  economic, productivity and employment growth.

22

Insufficient consultation has been carried out with the Unions specific to the £70 million of proposed people savings.

Negotiations on the 2015 public sector pay review are  continuing.  The  States  Employment  Board meets  regularly  to  discuss  developments,  and continue to do so. Specifically, meetings with the Unions  were  held  in  February,  April,  June  and August.

23

It remains the case that it would be prudent of  the  Council  of  Ministers  to  assess  the affordability of the employer's contribution cap  within  the  context  of  an  employer's contribution  which  is  lower  than  16%  or 16.5%.

The employer contribution cap was accepted by the States  Assembly  when  the  Public  Employees (Retirement) (Amendment and Validation) (Jersey) Law 2014  was  adopted  by  the  States  on  23rd January 2014, and subsequently came into force on 8th May 2014.  The  employer  contribution  cap  is

 

 

Key Findings

Comments

 

 

included on the face of this Law. The final offer made  to  unions,  which  the  majority  of  staff representative  bodies  have  accepted,  includes  an employer contribution of 16% of earnings, with an employer contribution cap of 16.5% of earnings.

The changes to the scheme are being implemented in a manner which makes them affordable within the  MTFP  2016 – 2019.  The  employer  will  pay higher  employer  contributions  for  new  entrants only in the period 2016 – 2018. Existing employees will move to the new arrangements in 2019, with employer contributions in respect of these members increasing  over  the  3 years  2019 – 2021.  This means  that  changes  to  the  pension  scheme  are affordable within the MTFP period. It also means that the States is able to address the underfunding in the current final salary arrangements and move public servants to having their pensions based on lower career average earnings.

Based on the historical trend of the number of new employees,  the  cost  in  2016  of  introducing sustainable  pension  arrangements  that  address increasing longevity is expected to be £185,000. If the number of new employees is lower than trend, the costs will be lower.

The changes to the public service pension scheme mean public sector employees will pay more for their  pensions,  work  for  longer  and  have  their pensions based on lower career average earnings.

Under  the  current  final-salary  arrangements,  the States  could  be  asked  to  pay  more  towards pensions  which  are  becoming  increasingly expensive  to  provide.  The  introduction  of  an employer  contribution  cost  cap  will for the first time provide certainty as to the maximum that the States  could  be  asked  to  pay  for  public  service pensions.

24

The top-slicing approach to savings adopted by the Council of Ministers will result in no real transformational change, and offers little drive  to  change  the  culture  of  spending within the States.

The very reason the Council of Ministers proposed a two-part MTFP process has been to allow the time to properly consider the fundamental changes which are needed within the proposals for public sector  reform  and  reorganisation  over  the  next 4 years.  The  MTFP  addition  is  also  intended  to provide time to consider the impact of the changes on public services, and also the distributional effect of the whole package of measures.

 

 

Key Findings

Comments

25

The pattern of year-end spending within the States of Jersey is indicative of undisciplined spending,  with  budget-holders  spending  to avoid loss of budget, rather than focusing on managing their costs.

The  carry-forward  process  was  introduced  to ensure  that  resources  are  used  effectively  to achieve value for money and to enable departments to plan further ahead than a single year. The current carry-forward  process  allows  departments  the flexibility to manage budgets across financial years for continuing projects, or to meet new priorities. This  flexibility  is  a  crucial  part  of  allowing departments  to  meet  changing  spending  needs, deliver longer-term savings and improve services in  line  with  strategic  priorities.  This  flexibility creates an incentive for departments to control and minimise  expenditure  so  that  plans  for  future initiatives can be realised and public sector services can be delivered within States approved limits.

Higher expenditure in the final quarter can also be the  product  of  effective  management  of controllable  non-recurring  expenditure.  It  is  a sensible practice to withhold expenditure on these items  until  other  expenditure  pressures  have materialised  and  the  availability  of  funding  is apparent.

26

The Panel and its advisers have significant concerns as to whether the total identified savings contained within the MTFP 2016 – 2019 will be achieved within the envisaged timeframe.

The  Council  of  Ministers  proposed  the  total expenditure limits for 2016 –2019 and these have now been approved by the States. The Council of Ministers proposed these total expenditure limits based on an assessment of the level of savings that can be achieved by 2019. The Council of Ministers and the States is now constrained and required to work within these limits.

The  Council  of  Ministers  will  continue  to  work with  Chief  Officers  and  departments  and  keep Scrutiny and other States members informed of the progress towards the detail that will be required for the MTFP addition for 2017 – 2019.

27

It is important that any measures taken by the  Council  of  Ministers  to  ensure  that  a positive  balance  is  maintained  on  the Consolidated  Fund  do  not  impact  on  the delivery  of  the  £145 million  of  measures needed to balance the books.

There  appears  to  be  a  misunderstanding  of  the make-up  of  the  £145 million.  By  2016,  the  2% savings by departments in 2015 are required to be identified  on  a  recurring  basis,  and  are  a fundamental part of the £90 million savings target contributing to the £145 million package of total measures.

The MTFP 2016 –2019, and now the draft Budget 2016, have provided an update on the position on the Consolidated Fund for 2015 and confirm that the majority of the measures referred to have been delivered or replaced with equivalent proposals.

RECOMMENDATIONS

 

 

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

1

The Panel strongly recommends that membership of the IFG should consist of a broader base, which should include an equal split between private and public sector representation.

T&R

Accept in part

The  IFG  already  has  a  broad knowledge  and  skills  set,  but  this will  be  kept  under  review  by  the Minister.  The  independent,  non- executive member has already made a  positive  contribution  to  the Group's  work.  The  Treasurer  is recommending  a  further  external member.

Ongoing

2

Based on expert adviser opinion, the Panel strongly recommends that the Island's current tax regime is challenged and reviewed in advance of the lodging of the next MTFP.

T&R

Reject

The  Island's  tax  system  has undergone  a  period  of  wholescale change in the last decade, including the  introduction  of  GST,  the introduction  of  the  corporate income tax regime, and the planned role out of the 20-means-20 policy. The  Island's  tax  system  would therefore benefit from a period of stability  and  certainty.  To commence a wholescale review of the  tax  system  at  this  time, including  reviewing  tax-raising measures  not  currently  utilised  in Jersey (e.g. capital gains tax), will cause  significant  uncertainty  and will damage the Island's reputation for stability in its tax policy.

The current tax system is guided by the long-term tax policy principles agreed by the States in the Strategic Plan,  and  is  articulated  in  the Minister's Long-Term Tax Policy.

N/A

3

The Panel recommends adopting an income forecast outlining a point between the lower and central scenarios outlined by the Income Forecasting Group.

T&R

Reject

The  Council  of  Ministers  will continue  to  apply  the  range  of economic  assumptions  from  the FPP, based on the wealth of insight and expertise that the Panel brings, supported by the information drawn from  other  UK,  European  and global economic forecasts.

The  Council  of  Ministers  also recognises  the  advice  of  the  FPP

N/A

 

 

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

 

 

 

 

and  IFG  that  the  risks  are  to  the downside  and  proposed  a  plan, agreed by the States, which has the flexibility  to  deal  with  downside scenarios.

 

4

The Panel recommends that the revised income line should be used to inform expenditure levels in the June 2016 addition for the years 2017, 2018 and 2019.

T&R

Rejected by the States

See  Recommendation 3 –  The Council  of  Ministers  did  not advocate  further  levels  of  savings beyond those currently proposed or the  raising  of  taxes  to  reflect  the scenario  proposed  by  the  Panel's adviser, as it is not clear that such measures are necessary at this point.

Instead, the Council will maintain its current strategy and pursue the proposals to drive economic growth with the aim of increasing income lines  and  maintaining  other flexibilities  within  the  Plan, including annual budget measures.

The expenditure limits agreed in the MTFP  are  maximum  levels.  The Council and the States maintain the ability to agree detailed expenditure allocations  for  2017 – 2019  below those maximum levels, should this be necessary.

Full Revision of Income Forecasts ahead of MTFP addition June 2016

5

The Panel recommends that, in the absence of adequate detail with which to inform its decision, the States Assembly should not approve income forecasts for the years 2017 – 2019 at this time, but should await the details to be provided in the Addition to the MTFP for the years 2017, 2018 and 2019, which is to be lodged by 30th June 2016.

T&R

Rejected by the States

A more detailed analysis has been carried out on the income forecasts than  ever  before.  The  economic assumptions  are  endorsed  by  the FPP, and the role and structure of the  IFG  has  been  extended  and formalised.  There  is  no  lack  of detail in these income forecasts.

In relation to the proposed funding mechanisms  and  as  previously stated  above  (Finding 5),  the Council  of  Ministers  sought endorsement  of  the  principle  that income  be  raised  to  fund  the investment in health required.

The detail of HOW that income is raised will come back to the States for a decision, but for now, to back

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the commitment to invest in Health, the  Council  believed  that  it  was imperative that the States agree the principle  of  matching  with increased funding.

 

6

The Panel recommends that, in the absence of adequate detail with which to inform its decision, the States Assembly should only approve expenditure for 2016 at this time.

T&R

Rejected by the States

The Council of Ministers maintains the two-part MTFP 2016 – 2019 as the  most  open  and  transparent approach.

As  part  of  the  presentations  and debate around the amendment to the Public Finances (Jersey) Law 2005 (P.42/2015),  and  in  the  covering report  to  the  draft  Regulations,  it was made very clear what the States would be debating in each part of the  MTFP  2016 – 2019,  and  what the  States  would  be  asked  to approve and when.

The Treasury also worked very hard to  take  on  board  the  concerns  of CSSP  at  the  time  and  reached agreement on the Amendment. The Council  remains  extremely conscious that the original concept of  the  medium  term  financial planning process should be retained and to ensure that financial control and discipline are maintained.

The  two-part  MTFP  process  for 2016 – 2019  provides  time  to consider –

  • the  fundamental  changes needed within the proposals for public  sector  reform  and reorganisation  over  the  next 4 years; and also
  • the  impact  of  the  changes  on public  services  and  the distributional  effect  of  the whole package of measures.

The only expenditure approved so far in this  MTFP is in  respect  of 2016.  For  no  other  year  did  the Council  propose  cash  limits  for

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7

The Panel recommends that the States Assembly should await the details to be provided in the

Addition to the MTFP for the years 2017, 2018 and 2019, which is to be lodged by 30th June 2016, before taking any decision to approve expenditure for those years.

T&R

Rejected by the States

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departments, and therefore did not seek authority at that stage to spend any amounts. Therefore no Minister nor Accounting Officer can spend funds for 2017 – 2019, and will not be able to do so until the second part  of  this  MTFP,  the  MTFP addition,  is  agreed  by  the  States next year.

All that is currently being proposed is  a  total  spending  envelope  for each of the years 2017 – 2019. The States  has  effectively  limited  its spending  in  those  years  to  these maximums,  but  has  not  given approval at this stage for the money to  be  spent.  Importantly,  it approved  a  financial  framework within  which  the  Council  must work, and an overall discipline of Medium  Term  Financial  planning, rather  than  returning  to  annual budgeting.

 

8

States' capital projects should be managed in a timely manner, taking into consideration the consequences of the local economy and the prevailing economic conditions.

T&R

Accept

Per  the  comment  to  Finding 8 above,  the  States  will  continue  to engage  with  the  industry  to understand and manage the impact of  capital  spend  on  the  local economy.  The  Corporate Management  Board  Capital  Sub- Group will continue to oversee and proactively scrutinise spend against existing capital projects, to identify and manage any factors impacting on the timeliness of expenditure.

Unspent  balances  on  existing capital allocations will be reviewed alongside  revenue  expenditure  as part of the carry-forward process in 2015/16.

The capital projects included in the MTFP  2016 – 2019  are  necessary for the Island, and Fiscal Policy has clearly  said  they  should  continue. The  Fiscal  Stimulus  programme was  important  in  maintaining  the

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Island's capacity at a time of lower demand. The focus now should be on  managing  the  programme without over-inflating the economy, and  ensuring  there  is  sufficient capacity, not on cancelling projects.

 

9

When plans are brought forward for the new hospital or any other significant capital projects, there should be full recognition of the effect of life-cycle costs and any other revenue or capital impacts made within the relevant MTFP.

T&R

Accept

Business case templates issued by the Treasury for use by departments when  submitting  capital  project funding  requests  will  continue  to require life-cycle cost analysis, with any associated revenue costs to be provided for within spending limits approved in the MTFP.

MTFP addition June 2016

10

Beyond the extraordinary items' identified for contingency allocation in 2016, stronger safeguards should be implemented to ensure all other spending from the central contingency allocation receives advance approval by the Assembly.

T&R

Reject

The  Council  of  Ministers  remains of the view that the nature of central contingency allocations is a matter for the States in the MTFP.

However,  once  the  States  has approved the purpose of the central contingency  allocations,  as  they have done for 2016, the appropriate central  contingency  allocation  and monitoring procedures will apply.

The  Minister  fully  intends  to exercise  strong  controls  over contingency  expenditure.  Advance approval  being  required  by  the States  for  all  expenditure  from contingency  would  defeat  the objective  of  having  contingency available for urgent and unforeseen items,  which  often  require  quick and  clear approval, such as  storm damage or emergency situations.

The  States  will  have  the opportunity, in the MTFP addition, to agree the level and nature of the central contingency allocations for 2017 – 2019,  along  with  the  other detailed allocations to departments for those years.

The  Council  of  Ministers  is prepared  to  consider  the  annual

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11

Controls should be in place to require States Assembly approval to release contingency expenditure, no more than one year before the period to which it relates.

T&R

Prepared to consider

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approval of contingency allocations in total, similar to growth, as part of the  annual  Budget  process.  This would  require  a  change  to  the Public Finances (Jersey) Law 2005.

 

12

The Council of Ministers should not, within any MTFP, present figures which conflate savings with user pays charges.

T&R

Accept

The  Council  of  Ministers  has clearly and transparently presented its  proposal  to  increase  user  pays charging,  notably  for  liquid  and solid waste.

This  has  been  consistently represented as a component of non- staff  measures,  which  include £20 million of department savings, £10 million of benefit changes, and £10 million of user pays proposals.

MTFP addition June 2016

13

The Panel strongly recommends that appropriate impact studies are carried out and presented to the States Assembly in advance of the lodging of the MTFP

2016 – 2019 addition (income, expenditure, tax and user pays).

T&R

Accept

Further distributional analysis of the proposals will be undertaken before the lodging of the MTFP addition, and that this will be made available to States Members when concluded.

MTFP addition June 2016

14

The Panel strongly recommends that appropriate impact studies are carried out and presented to the States Assembly in time for the lodging of the MTFP

2016 – 2019 addition (savings).

T&R

Accept

Further distributional analysis of the proposals will be undertaken before the lodging of the MTFP addition, and that this will be made available to States members when concluded.

MTFP addition June 2016

15

Treasury and Resources must assess the reasons behind the pattern of year-end spending and put measures in place to ensure that the culture of spending to avoid loss of budget, instead of budget- holders managing their costs in a disciplined manner, is brought to an end.

T&R

Accept

Per  the  comment  to  Finding 25 above,  the  carry-forward  process provides  an  opportunity  for departments  to  manage  their resources  over  multiple  years  and therefore  discourages  year-end spending to maintain budgets.

As  part  of  the  ongoing  Public Sector Reform project, departments are considering all opportunities to reduce costs and operate in the most

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efficient way. Supporting this, the Treasury  will  continue  to  monitor and  report  on  expenditure throughout  the  year  to  enable effective and transparent scrutiny of spend,  and  will  undertake  an exercise to understand reasons for expenditure in the fourth quarter.

 

16

The Minister for Treasury and Resources must ensure that growth expenditure is only released when the prescribed savings targets contained within the MTFP 2016 – 2019 have been achieved, regardless of any additional income raised. Additional income is not a substitute for achieving the approved savings.

T&R

Accept

The Council of Ministers welcomes the opportunity to confirm what has previously  been  said,  that  future decisions  on  growth  expenditure remain  with  the  States  for  the period  2017 – 2019.  No  detailed expenditure  allocations  for  these years will be agreed until the States debate  the  MTFP  addition  next year.

Furthermore,  the  Council  of Ministers has been explicitly clear that any proposals for the allocation of  growth  will  only  be  made  if delivery of savings targets can be demonstrated. This is a fundamental component of the Plan and part of the  flexibility  within  the  total expenditure limits.

The Council of Ministers has also been very clear that its principle is to demonstrate delivery of savings targets before proposals for income- raising measures and user pays are phased in during the later years of the MTFP.

June 2016

MINISTER'S CONCLUSION

The Panel's recommendations will assist the Council of Ministers in moving forward in line with their policies and the approved MTFP 2016 – 2019, and in developing the MTFP addition by June 2016.