Research - CIPFA Report Government Plan Covid-19 Recovery Planning Response - 7th December 2020

Government Plan

Covid-19 Recovery Planning Response

Corporate Services Scrutiny Panel

December 2020

Contact

Stuart W Fair LLB, FCPFA, CPA, FCCA, FRSA, JP.

Principal Consultant

Stuart.fair@cipfa.org

Contents

Executive Summary ......................................................................................... 3 Introduction .................................................................................................... 9 Government Plan 2021-2024 ........................................................................... 13 Building upon the 2020-2023 Government Plan .................................................. 32 Issues and Recommendations.......................................................................... 34 Appendices ................................................................................................... 38

Executive Summary

1. In August 2020, the States of Jersey commissioned CIPFA Business - Finance Advisory (the commercial arm of the Chartered Institute of Public Finance and Accountancy) to support the work of the Corporate Services Scrutiny Panel (CSSP) in the Review of the Jersey Government's Covid-19 Response and Recovery approach. This report seeks to support the Panel's work by commenting upon the latest draft version of the Government Plan 2021-24 and Financial Annex as well as the associated Proposition in accordance with Article 9(1) of the Public Finance (Jersey) Law 2019.
2. The revised Government Plan 2021-2024 endeavours to incorporate a best estimate' position of the impact of Covid-19 within the island's strategic financial strategy. The focus appears to be less of a recovery plan than anticipated and more of accommodating impacts within an iteration on the original direction of travel set out within the 2020-2023 Government  Plan.  At  the  outset  of  the  Covid-19  lockdown  arrangements  we  were impressed by the agility of the States of Jersey in allocating resources from central reserves through the Consolidated Fund directly to front line services to cover the immediate costs associated with the effects of COVID-19. This level of responsiveness was delivered at a time when it was predicted that "public revenues in 2020 would be £106 million below their autumn 2019 forecasts, and that revenues will remain below the previous forecasts for the whole of the next Government Plan period and are likely give rise to a structural imbalance in public finances".1 The Halt, Defer and Reduce approach taken by Departments to "stop and not start, defer and change "2(highlighted in April 2020) exemplified an emerging financial strategy that provided much needed agility in redirected cash towards front line support. The revised Government Plan 2021-2024 appears to have restored previously scheduled improvement aspirations, moving on from the immediacy of challenges presented by front line supporting demands. This is counter to what we are increasingly seeing in the UK with organisations steadily moving away from improvement related investment towards the financing of core services as a consequence of demand led pressures driving a return towards meeting basic primary legislative service obligations.
3. The  financial  modelling  within  the  Government  Plan  retains  robust  integration  and coverage. Its strengths include the clarity and transparency it provides over the core public services within Jersey as a micro-state and the way expenditure is planned to readily match available source funding. Given the complexity and range of disparate public service activities this is type of framework is not, within our experience, common amongst public service provider organisations. Whilst the Government Plan 2020-2024 still provides a highly integrated strategic financial model that should allow some high level agility, we have concerns around the validity or strength of core assumptions that underpin key areas within the financial modelling. These key areas include:

1Economic Recovery In-Committee Debate - 29th May 2020 – Page 2 2 Covid-19 – Treasury and Exchequer – 24 April 2020 – slide12

Borrowing Strategy and Reserves

Personal Income Tax

Social Security Contributions

Efficiencies and rebalancing

New Projects

Returning to balance

Borrowing Strategy and Reserves

4. A borrowing strategy has been formulated to help finance the costs of Covid – 19 costs which is estimated to exceed £400 million in addition to infrastructure investment including Our Hospital'. Provisional estimates on the latter may exceed £500 million. This strategy includes for borrowing up to £406 million to 2022 by administered through a Revolving Credit Facility which will in itself cost approximately £27.4million to facilitate. It is proposed that this external borrowing be financed through the issuance of a Bond and a component of the strategy is to broadly maintain current level of reserves approximating at some £3 billion. A cumulative external borrowing requirement of some £444 million has beenestablished to 2024. The current resistance to using reserves to fund emergency Covid- 19 spend appears to be founded on the principles that it would be better to externally borrow than liquidate investments based on the core assumptions that borrowing costs have been at historical lows and that the existing investments will make positive returns over the medium term. That said, there has been no opinion evidence offered that substantiates this level of confidence in the performance of market investments. This strategy would appear to be logical within a steady state economic horizon. However, steady state is not currently within contemplation with expected economic cycles and financial markets being significantly distorted the current Covid-19 global pandemic.
5. In order to finance the levels of debt envisaged, in terms of external debt repayments, the Plan proposes to establish a sinking fund' created with the transitional tax debt created within arrangements transitioning tax payers from Prior Year Basis (PYB) to Current Year Basis (CYB) assessment with such transitional arrangement payments becoming a source of external debt repayment over the long term. Given the regressive nature of the value of money over time, it is difficult to ascertain what level of sinking fund would need to be established and how this would how is this would keep pace with the external financing costs some 15/20 years further down the timeline. We would be of the view that this proposition to finance external borrowing costs by way of a sinking fund financed from the PYB transition is speculative at best. Given the significance of this departure from the standard financial strategy deployed by the States of Jersey, the balancing of existing reserves and the augmentation of external debt finance should be highly considered and not be a reaction type response. Financing external debt repayments will be a first call on income generating capability and it is critical that Income Tax estimates are seen to be robust before the affordability of funding requirements is properly assessed.

Personal Income Tax

6. Personal Income Tax accounts for some 60.3% of overall general revenue income whilst Corporate Tax some 16.7%. Income Tax forecasts are critical to the robustness of the overall financial modelling and critical decisions on affordability at a macro level are founded upon the ability of Jersey Taxpayers to fund planned public service expenditure. As Personal Income Tax estimates used within the annual accounts and the Government Plan are now largely based on economic forecasts rather than real time assessment or sensitivity analysis around actual tax yield, we believe that there is significant risks around the relative accuracy associated within these forecasts. The External Auditor raised this precise point in relation to the 2019 Annual Accounts as a key audit issue.
7. The Income Forecasting Group (IFG) is a key contributor in the formulation of Income Tax forecasts and is informed by the Economic updates provided by the island's Fiscal Policy Panel (FPP). Whilst the IFG acknowledges the severe economic disruption arising from Covid-19, it does not propose to adopt its own downside' forecast which was calculated as a "£50 million decrease from the base forecast for spring 2020 and £54 million less than the base case for 2024 which reflected "the assumption of more significant structural impacts arising from the Covid-19 pandemic." [3]
8. Using central scenario based assumptions, the revised year on year Income Tax increases look extremely optimistic growing from 2020 to 2024 by some 27.3% or £127m. To move from a pre-covid position of £585m in 2019 to a 2024 position of £671m of £86m or 14.7% is also considered to be highly optimistic in the context of the unprecedented nature of the pandemic and the high level of downside risks associated with the UK position on a no- deal Brexit. Given that the Fiscal Policy Panel has recently predicted a severe recession in 2020, this expected growth profile appears to be aspirational and it may have been more prudent to use the IFG's downside scenario. Using this lower ranged Income Tax forecasts would widen the gap between expenditure and income accordingly within the Government Plan modeling.

Social Security Contributions

9. The revised Government Plan outlines a significant fiscal policy change with the redirection of standard Social Security contributions away from the usual destination of the Social Security Fund and redirected to Covid-19 activities. The Plan does not include any impact study on the central scenario implications on the viability of this policy change or future social security funding for islander beneficiaries in relation to potential changes in demand/demographic management. The Plan highlights that the net impact reduces the funding capability by approximately one year but does not elaborate on sustainability issues relating to Social Security Funds. It would seem more prudent to retain the equivalent £65.3m than weaken the existing Fund, particularly when the plan is to divert some £235m covering 2021, 2022 and 2023.

Efficiencies and rebalancing

10. The Plan advises that central to rebalancing budgets over the period to 2024 is the delivery of the package of efficiencies totaling some £20m targets for 2021, in addition to a £100m target or annual recurring savings per annum by 2023. The change towards a rebalancing narrative suggests a tacit acceptance that the required quantum of efficiency savings are no longer achievable. Additionally, the extent to which efficiencies are to be delivered from deferred growth does not provide confidence that efficiencies were actual management interventions specifically capable of being efficiency savings in nature. We are advised that the efficiency targets have already been taken off Department Budgets in a way that suggests a salami sliced' approach. It is likely that Managers will be primarily controlling the pace of spend rather than addressing the fundamentals on direct management intervention through service redesign. Direct management intervention of stopping or slowing activity is not related to the delivery of more efficient services. Within the updated plan the allocation of efficiency savings totaling some £20.13m is scheduled for delivery in 2021.
11. In the absence of defined programmes, we do not recognise a salami sliced' approach as meeting good practice and failure to meet a revised expenditure/income target on such efficiency savings may have negative implications on the ability of Departments to meet standard operational service delivery if bottom line budgets are to be contained. There is little evidence that collectively the schedule of efficiencies has been based on a strict value for money (VfM) approach, rather such changes, including planned changes, have been driven by the acute demand for the realisation of cashable savings to bridge the budget setting gap - containing a base budget requirement for significant savings irrespective of the impact on service. The larger components of the scheduled 2021 savings appear to be highly aspirational. For example, the £5m to be released from a zero based budget review at HCS, the release of funds from GHE in respect of the hospital maintenance programme of £4million, managing inflationary pressures around Government generating savings of £3.7million and £0.9 million associated with OneGov Modernisation Programme. In context, these broad estimates do not appear to be realistic and we have yet to see evidence that demonstrates that a high level of assurance can be obtained that shows that recurring cashable' savings can be sustained from these initiatives:
12. Within the Government Plan there is a recognition that both core activities and efficiencies need to be adjusted to reduce expenditure and maximize income to rebalance the financial model. In this endeavor the role of efficiencies becomes less prominent. Whilst this rebalancing approach may appear to be nebulous, without any clear change efficiency savings and Modernising Government investments, it does signal that the Government of Jersey is open to reworking underperforming or undeliverable efficiency savings. This is going to be more important where the focus is moved from more non-critical improvement investments and efficiency improvements back to protecting critical core service delivery although a stated policy on external borrowing may dilute the rigour applied to the pursuance of efficiency savings should the affordability of non-delivery becomes accepted.

Modernising Government

13. Embedded within the Plan includes projects within a Modernising Government category accounting for a spend in excess of £127 million to be delivered by 2024: Within this grouping are a number of disparate projects. It is not clear how the current Pandemic will affect the pace of implementation or the more significant structural and process change.
14. Securing improvements in Domestic Tax Compliance delivered with an investment of £6.077 million appears to be a spend to raise' investment. Within the £20.013million efficiencies schedule there is additional increases tax revenues through the continued enhancement of domestic tax compliance valued at £1.250 million. This value, in itself appears to be inconsistent with expected beneficial improvements in tax yield as a result of acquiring improved compliance. We also think there should be improved clarity on the expected payback for this £6.077 million investment and how this is aligned to the additional £6.141 million allocated for the Revenue Jersey Team in respect of how both investments totalling some £12.218 million are designed to drive higher tax yields.
15. The common theme across the projects categorized as Modernising Government is an acute lack of detail on the related business cases, from proof of concept through to the engagement, implementation and management of such changes. We suspect that the quantifiable payback across most of these projects are speculative at this stage.

Returning to Balance

16. Notwithstanding a forecasted deficit of some £282 million in 2020 (this year), deficits are forecasted through 2021 and 2022 as £178.1 million and £49.6 million respectively with a surplus position returning in 2023. These bottom line positions are contingent upon all of the core assumptions within the financial modeling being delivered. Such is the element of volatility around forecasted income and elements of expenditure arising from the impact of the Pandemic on planned activities that possibly material deviations from the core assumptions outlined within the revised plan may require additional changes (and agility) around tax and spend decisions.
17. During our review we have expressed some concerns about the strength of the assumptions underpinning key tax and spend assumptions. Due to the high level of integration within the financial modelling, the sensitivity to marginal changes to income and expenditure may produce significant shifts in bottom line deficits through the 'gearing effect'. During the course of the plan, key assumptions around a number of critical income and expenditure components may need to be revisited and this may materially change the overall bottom line position on future deficits. Given the current unprecedented level of uncertainty we would recommend that the Government Plan 2021-2024 is updated every six months and recalibrated for pressures and opportunities as they emerge.

Concluding Comments

18. We concluded that for the 2020-2023 Government Plan, foundational budgets and investment allocations appear to be more aspirational than being formulated on detailed stress tested business case change plans. Whilst we fully appreciate that the changing focus on Covid-19 has brought different priorities, previously identified issues continue to

be prevalent and may even be amplified within the 2021-2024 Plan. This includes a continuing level of optimism bias across personal tax income, lack of detail behind the ability to deliver efficiency savings and around service change investment. It may well be that these issues have been exacerbated by the management challenges posed by the pandemic. If so, the reliability of the Government Plan 2021-2024 may be impaired and it is important that the States of Jersey address issues on weaknesses within the Government Plan primarily relating to transparency, detail and reliability.

19. The initial response to the pandemic, in strategic financial management terms was deemed to have been extremely positive and to be highly commended. The Halt, Defer and Reduce approach was initially successful however the 2021-2024 Government Plan appears to have reinstated the focus on improvement rather than dealing with a significant structural economic shock which may require a more basic approach in the achievement of an equilibrium balance between income and expenditure. Whilst the model projects significant deficits across 2020 to 2022 the high level of integration within the financial modelling requires the core assumptions over key elements of income and expenditure to be fully delivered. Our overall concern would be that given that we believe that some of the key assumptions within the Plan to be over optimistic, in reality the bottom line deficits may be higher and potentially extend across the years covered by the Plan. Another key concern is the creation of a borrowing policy that establishes an acceptance of gap fund borrowing (including a cumulative external borrowing of some £444 million to 2024) and is designed to extend repayment into the longer term. Behaviorally this has the potential to erode or weaken the rigour and challenge that would normally exist around difficult and politically challenging overall tax and spend decisions. Some commentators would say that such an approach displaces the burden to future generations of tax payers although the establishment of a sinking fund is designed to stop that from happening. What makes the planned level of borrowing more problematic is that we do not think that total external borrowing will be able to be linked to the creation of equivalent level of assets and that some of the expenditure effectively covers non-recurring revenue related consumption based expenditure.
20. In summary, the 2021-2024 Government Plan sets out a financial strategy which seeks to restore stability in the face of an unprecedented global economic event (outwith the conflict of war) as well as accommodating pre-covid plans for transformational change through Modernising Government in addition to providing the finance to deliver the most significant infrastructure project in the history of the public service in Jersey–Our Hospital. As currently constituted, the plan is adaptable and covers the key areas of financial stability. However, if the plan is to properly inform tax and spend decisions then it needs to reflect core assumptions that are robust and founded upon stress tested workings rather than been generated by politically driven outcomes. In this regard the Government of Jersey has much more to do.
21. Finally we would wish to take this opportunity to record our sincere gratitude to Members of the States Assembly and Civil Service at the Government of Jersey for the provision of extremely valuable support in the course of our work.

Introduction

Context

1. In August 2020, the States of Jersey commissioned CIPFA Business - Finance Advisory (the commercial arm of the Chartered Institute of Public Finance and Accountancy) to support the work of the Corporate Services Scrutiny Panel (CSSP) in the Review of the Jersey Government's Covid-19 Response and Recovery approach. This report seeks to support the Panel's work by commenting upon the latest draft version of the Government Plan 2021-24 and Financial Annex as well as the associated Proposition in accordance with Article 9(1) of the Public Finance (Jersey) Law 2019.

Evidence

2. Given pandemic related constraints our approach was focus mainly through a desk top review of available evidence. Sources of evidence are outlined in more detail in Appendix but include:-

Document Review – Government Plan submission and supporting documents

Attendance at Scrutiny Panel Meeting

Reports received from Treasury & Exchequer

Meeting with Richard Bell – Director General and Treasurer to the States of Jersey

CIPFAStats data

The Government Plan 2021-2024

3. The Government Plan 2021-2024 (being an iteration on the 2020-2023 plan architecture) sets out a high level operational and fiscal strategy and the proposition in receiving this plan requires the approval of the appropriations from the Consolidated Fund, the movement between other funds and reserves, the appropriate income raising (income tax and impots) and the appropriate parameters around income and expenditure estimates.

Financial modelling

4. The overall modelling on financial forecasts is back at page 110 within the Plan with the following:

"Ministers have articulated a plan to return to balanced budgets by 2024, whilst maintaining investment and spend, thereby assisting the economy. This plan also preserves the Strategic Reserve to maintain resilience against potential future shocks to the economy and instead proposes borrowing to meet the impacts of Covid-19 on our finances and laying out a plan for the repayment of that debt."

Beyond the obvious 2020 deficit position the table below shows a surplus position being reinstated by 2023 - all subject to all of the core assumptions within the plan being delivered:[4]

5. The revised bottom line deficits and surpluses are contingent upon the following income forecasts will be delivered[5]:

6. The latest update reveals that:

That an overall deficit of some £282m is likely for 2020 (this year) - £178m in 2021

Income is now £96m lower (previously £107m) with incomes set to be some £395m lower than approved within the 2020-23 Government Plan

Covid related expenditure is likely to be approximately in excess of £400m – previously reported approximately £255m with approximately £250m additional in this year alone 2020

7. Inherent within the financial modelling is the position of the Consolidated Fund – which is effectively the current account' for all Government operations. The opening balance has been used to finance short term Covid-19 costs and the integrated nature of the revised financial strategy channels all of the assumptions on each component of the Proposition through it with a zero balance being delivered at the end of year[6]:

[7]Government Plan 2021-2024

1. We had initially thought that the amended Government Plan would take the form a Covid- 19 Recovery Response Plan, however, the revised Plan appears to be an iteration of the Plan that had been formulated pre-Covid-19 with Covid-19 impacts embedded where necessary. Our comments from our review of the revised Government Plan focus on the five areas outlined below:

Borrowing Strategy and Reserves

Personal Income Tax

Social Security Contributions

Efficiencies and rebalancing

New Projects

Returning to balance

Borrowing Strategy and Reserves

2. The Government Plan articulates a borrowing strategy to help finance the costs of Covid – 19 on which broad estimates forecast overall exposure costs to exceed £400 million7 as well as other significant investment requirements. The borrowing strategy is built on the retention of reserves which are invested through the Common Investment Funds (CIF) with external loan repayments being financed through the retention and diversion of returns from arrangements arising from transitioning Prior Year to Current Year Personal Tax assessments by way of establishing a sinking fund':

 "We are proposing to borrow up to a maximum of £336 million next year, in addition to the Fiscal Stimulus Fund (£50 million) to cover the costs of responding to the pandemic. This will provide flexibility and allow further work to proceed to minimise the scale of longer-term debt, required to replace the short-term facility in next year's Government Plan.

The annual financing costs of this debt have been included in the Government Plan, but debt has to be repaid and Ministers propose that, should the States Assembly approve plans to move to Current Year Basis (CYB) taxation, the future repayments of the 2019 tax liabilities for Previous Year Basis (PYB) taxpayers will be paid into a ring-fenced sinking fund to repay much, if not all, of this debt.This will support the actions we are taking to restore public finances, while maintaining the strength of our reserves in order to respond to future shocks."[8]

3. The sinking fund is therefore established from the transition from Prior Year Basis (PYB) to Current Year Basis (CYB) transitional arrangements is effectively the main source of external debt repayment. Given the regressive nature of the value of money over time, it is difficult to ascertain what level of sinking fund would be established and how this would how is this would keep pace with the external financing costs some 15/20 years further down the timeline. We would be of the view that this proposition to finance external borrowing costs by way of a sinking fund financed from the PYB transition is speculative at best.

4. The strategy also provides for the engagement of a Revolving Credit Facility provided by external financial institution(s). Part of the rationale for external borrowing within the Revolving Credit Facility is to set up a future strategy for the issuance of a Public Bond to allow Our Hospital' to proceed as well as other significant infrastructure investments to be financed. This was not clearly signposted within the Government Plan yet costs of the revolving credit facility is forecast at approximately £27.415m[9] excluding any breakage charges' for not meeting the minimal level of borrowing. Such Revolving Credit Facility Costs cost are profiled in the context of the overall Covid-19 related spend as follows:

5. In setting up a Bond issuance, we are advised that retained Treasury Management Advisors had provided the Minister with a strategy to optimise the Island's credit rating. Obtaining and maintaining a strong credit rating is critical if there is a prima facie need to externally borrow. Bond finance comes with additional governance costs relating to providing  stakeholders  with  regular  assurance  around  financial  performance  and affordability. The resultant formulation of a strategy, included the need to retain significant reserves/CIF investment and externally borrow the balance to enable to finance support for the economy and Covid-19 impacts, is essentially preparatory to securing the level of financing options for our New Hospital. Excluding any borrowing for Our Hospital' the Plan anticipates the following profile of borrowing[10]:

6. The resistance to using reserves to fund emergency Covid-19 spend appears to be founded upon  the principle that  it  would  be  better  to externally  borrow  than  liquidate CIF investments based on the assumptions that borrowing costs have been at historical lows and that the existing investments will make positive returns over the medium term. This would appear to be sensible in a steady state economic horizon – unlike the present economic climate. Indeed this is articulated as follows:

"Ministers are  proposing  utilising  short-term borrowing  facilities in  2021,  given  the enduring high levels of uncertainty. In 2021, when there is less uncertainty and a final decision relating to Our Hospital has been made, we will propose the nature of longer- term debt issuance to replace the short-term facilities. A draft strategy for medium to longer term debt has been formulated. However, this strategy will benefit from greater certainty as the global pandemic evolves and once a budget for the Our Hospital project is agreed.

All borrowing must ultimately be paid for. We have made allowance for forecast interest on this debt and Ministers propose that the repayment of the debt will be from the payment of the 2019 Previous Year's Basis taxpayers' liability over the next 15 years or more, if the States Assembly agrees to the Treasury Minister's plans to move everyone to a Current Year Basis.

These payments are time limited and avoid the need to raise taxes to pay off the debt."

11

7. A key concern is the establishment of a borrowing policy that establishes an acceptance of gap fund borrowing and extends repayment into the longer term. Behaviorally, this has the potential to erode or weaken the rigour and challenge that would normally exist around difficult and politically challenging overall tax and spend decisions. What makes the planned level of borrowing potentially more problematic is that we do not think that total external borrowing will be able to be linked to the creation of an equivalent level of assets. We are also aware of problems encountered by organisations that have drawn down Bond Finance in advance of a specific need. These typically present as a sub-optimal treasury management position.
8. Investment performance through the first six months of 2020 has been problematic, The States of Jersey have approximately £3 billion of investments available within the CIF.

11 Proposed Government Plan 2021-24 – P13/14

During this first six months of 2020, due to the volatility of the markets as a result of Covid-19 a £102.6m or 5.2% loss was sustained on investments held against the Social Security Reserve Fund. Any forecasts on returns on investments is going to involve an element of risk and movements in the reserves are highlighted below covering this period:

9. We understand from the antecedent planning that a liquidity ladder' is being used to retain investment positions on assets that are deemed to have a higher cost/benefit if liquidated in the short term. Within the updated Plan there is an indication of why this approach has been taken and again reference is made to the proposal to pay any external finance charges:

"Ministers are  proposing  utilising  short-term borrowing  facilities in  2021,  given  the enduring high levels of uncertainty. In 2021, when there is less uncertainty and a final decision relating to Our Hospital has been made, we will propose the nature of longer- term debt issuance to replace the short-term facilities. A draft strategy for medium to longer term debt has been formulated. However, this strategy will benefit from greater certainty as the global pandemic evolves and once a budget for the Our Hospital project is agreed.

All borrowing must ultimately be paid for. We have made allowance for forecast interest on this debt and Ministers propose that the repayment of the debt will be from the payment of the 2019 Previous Year's Basis taxpayers' liability over the next 15 years or more, if the States Assembly agrees to the Treasury Minister's plans to move everyone to a Current Year Basis. These payments are time limited and avoid the need to raise taxes to pay off the debt." [11]

10. Reference is made to the future "long term debt issuance to replace short-term facilities" obviously with a view to retain and grow existing reserves. This appears to be similar to a previous Pre-hedging strategy for a public bond issue' provided by the same Treasury

advisers[12] in relation to fund a new Hospital in the context of outlining some of the preparatory steps that would need to be considered.

11. The rationale for not touching the Strategic Reserve is laid out on page 80 of the Plan:

"Faced with this financial challenge, the Council of Ministers strongly believe that the Strategic Reserve should be maintained in these uncertain times and, instead, we propose to borrow to meet the shortfall caused by the pandemic and to maintain investment in services to Islanders, as well as in vital infrastructure. This decision is also informed by the likelihood that the cost of debt will be far lower than the long term returns on our reserves.

The immediate future remains highly uncertain and the Ministers are therefore proposing the use of short-term debt facilities ahead of further action to reduce the debt level before it is replaced by medium term facilities.

This Government Plan seeks approval to utilise £336 million in 2021 from the Revolving Credit Facility of £500 million obtained by the Minister for Treasury & Resources in May 2020."

12. No evidence has been made available to demonstrate that the "cost of debt will be far lower than the long term returns on our reserves". Additionally, no assessment has been made of all of the set up fees and additional governance measures (required to provide on-going assurance to stakeholders) that will be generated through on-going recurring costs throughout the life of the issuance.
13. On  investment  performance  the  Plan  envisages  significant  growth  in  returns  from investments as outlined below for the Strategic Fund and overall Reserves funds:

14. On a broad arithmetical basis we would see this level of expectation delivering the following rates:

15. There is an implicit assumption that the core level of the CIF will not be unduly impacted by any significant market downturn from year 3 of the Plan as can been seen from the indicative returns highlighted above – hovering around 6%. From the overall movements highlighted above, the projected individual Fund balances are set out below with the Strategic Reserve estimated to exceed £1 billion in 2024:

16. On debt repayment, the proposal to establish a Sinking Fund' –( "we will establish a sinking fund for the debt and use receipts from property disposals, and from the change to Prior Year Basis taxation system - subject to approval by the States Assembly - to fund

the repayment of the debt proposed in this Government Plan."[13]) is to facilitate repayment of Financing Costs on some £444.5m of external debt will be significant. The notion that part of this will be financed by the future repayments of the 2019 tax liabilities for Previous Year Basis (PYB) taxpayers will logically mean that such liabilities will not be included within Income Tax income profiles. Given that Income will be first call on external debt repayment, any dampening of Income Tax income may be self-defeating over the medium and longer term.

17. Income Tax yields and investment returns will be pivotal to the ability to repay borrowing. Income Tax as the core element of income that finances state expenditure will be deemed to be first call on external debt repayment. The challenge with that is that any significant external financing charges correspondingly reduces the level of the ability of the States to finance operational recurring expenditure.

Personal Income Tax

18. Table 1 of the Financial Annex Part 1 to the Plan outlines the estimated total States Income to be paid into the Consolidated Fund. Members may recall that the balance on the Consolidated Fund in 2020 is/has been used to enable covid-19 related cash requirements to be expedited:

19. Notwithstanding our previous comments on Income Tax year on year growth,(especially given the potential retrenchment arising from the pandemic, the revised year on year increases look extremely optimistic growing from 2020 to 2024 by some 27.3% or £127m. Indeed, the 2019 overall outturn for Income Tax was £585m. Notwithstanding the highly disruptive economic shock linked to the global pandemic, the estimated difference between

the 2019 outturn and the 2020 forecast is only a drop of £31 million or 5.3% in Income Tax (Personal and Corporate)– see below:

20. To move from a pre-covid position of £585m in 2019 to a 2024 position of £671m of £86m or 14.7% is seen as highly optimistic given the unprecedented nature of the pandemic and the high level of downside risks associated with the UK position on a no-deal Brexit. The updated Fiscal Policy Panel have revised their previous forecasts and have predicted a severe recession for 2020.
21. Personal Income Tax accounts for some 60.3% of overall general revenue income whilst Corporate Tax some 16.7%. Forecasts on Corporate Tax are regarded as being more straightforward to predict and Revenues Jersey is able to secure significant intelligence on the financial performance of the Finance Sector which is core to the latter element of tax yield. Income Tax estimates rather than actuals are used within the annual accounts process as well as the Government Plan. Such estimates are now largely based on forecasts produced by the Jersey Economics Unit, with any differences between current and prior years made when assessments are finalized. There is a lack of real time assessment or sensitivity analysis around actual tax yield used in key financial actuals. The  emphasis  is  placed  upon  economic  projections  rather  than  the  reality  of  core assessments adjusted where necessary for incremental forecasted change. The practice that permits adjustments to be treated in the balance sheet within future years avoids the required precision needed to allow considered strategic decisions to be made on the largest components of income. In such circumstances there is the risk that key decisions on overall borrowing and affordability might be made based upon potentially unreliable forecasts.

22. Within the 2019 Government of Jersey Annual Report and Accounts, the External Auditor commented that the estimation of the income derived from this type of approach imported an element of risk and highlighted this issue as a key audit matter':

"The estimation of the amount of revenue in advance of submission of tax returns and completion of individual tax assessments requires significant judgement. The estimate for personal income tax revenue for 2019 and the restated 2018 comparative are both derived from an economic model which requires particular judgement in the selection of subjective inputs, as well as in the determination of the relationships between inputs and their relationship to the predicted level of income tax revenues. There is an increased level of estimation uncertainty due to the delays in finalisation of assessments in respect of the 2018 year of assessment, increasing the scale of the estimates required. Notes 4.2 and 4.3 to the financial statements provide disclosures in relation to judgements over the recognition and estimation of personal income tax revenue. Given the level of judgement applied and the potential for manipulation, we consider this to be a fraud risk."[14]

23. The level of uncertainty on Tax Income was also acknowledged within the latest Income Forecasting Group's Report. On page 21 the IFG acknowledged that "There is a risk that the current economic disruption might result in a permanent adjustment to the relationship between economic variables and the tax base. Under the FPP forecast, the economy is smaller throughout the period, with a gradual recovery to a lower level, and this is considered sufficient to capture the impact on taxes in the medium term."
24. The IFG report highlights a number of significant risks to the economy in the short and medium term yet the changes to the economic forecast metrics such as GVAs and Average Earnings are relatively marginal yet the prolonged impact of the pandemic seems to entrench further. This narrative is inconsistent with the relatively marginal changes in Revenue Income forecasts when there was a previous revision in May 2020. In summary, the IFG's report narrative would be more consistent with taking the "Downside Forecast" calculated as a "£50 million decrease from the base forecast for spring 2020 arising from the extended period of reduced economic activity. The downside forecast for 2024 is £54 million less than the base case, reflecting the assumption of more significant structural impacts arising from the Covid-19 pandemic."
25. As the Independent Auditor has highlighted that the recognition of Personal Income Tax revenue by way of estimates represents some risk and the IFG report narrative acknowledges a high degree of uncertainty around the trajectory of the economy, it may be more appropriate and prudent to use the IFG's downside forecasts than the mid-range forecasts that have changed little since May of 2020.
26. The additional Domestic Compliance Tax income totalling £45m of extra Tax recovery is something we cannot recall encountering within Budget setting. This is £45 million of personal income tax which islanders have failed to pay or will fail to pay but for theadditional compliance measures. As with base Income Tax estimates it would be highly appropriate to seek evidence of how:

Such additional income will be generated through improved compliance

Identifying examples of what could be put in place to secure optimum compliance; and

How this additional Domestic Tax compliance translates into enhanced assessments that realises additional tax.

27. Additional tax yield arising from this set of measures appears to be counterfactual rather than leading to extra tax yield through the capturing of tax which taxpayers should have paid but had not due to process weaknesses or tax evasion - not avoidance.

Social Security Contributions

28. In addition to the reported significant deterioration in the investment value of Social Security Funds (over the first 6 months of 2020), a significant fiscal policy change has led to Social Security contributions being redirected to Covid-19 activities as follows:

"Following a States debate in 2020, it was agreed that no grant would be paid into the Social Security Fund in 2020 to allow £65.3 million to be allocated to support Covid-19- related financial pressures. Additionally, due to the exceptional financial pressure being faced by the Government as a consequence of the pandemic, it is being proposed that the States Grant is not paid in 2021, 2022 and 2023, allowing an additional estimated £235 million to be allocated to urgent financial pressures. This critical element will support the Government in managing the lost income and additional costs associated with the pandemic and help to fund our capital and revenue expenditure programmes, whilst we implement a plan to return to balanced budgets by 2024."

"At the end of 2019 the assets held in the Social Security Funds represented more than seven years of fund expenditure. These assets form an important part of the overall financial stability of the Island and play a significant role in our credit rating."

"By the end of 2024 the value of the funds is estimated to hold six years of fund expenditure. This still represents a significant investment in the pension provision of future generations of Islanders and is in excess of the target of five times spend established 20 years ago."

29. Whilst we recognise the concepts involved in helping businesses and self-employed manage their cash flow in deferring contributions, we have yet to see any impact study on the central scenario implications on the viability of future social security funding for islander beneficiaries in relation to potential changes in demand/demographic management.

30. In summary, the Plan does not set out what the potential impact will be on the overall sustainability of Social Security Funds as a result of the redirection other than a reduction on fund capability by about one year at current rates. In the absence of relevant background analysis it would seem more prudent to retain the equivalent £65.3m within the existing Fund – particularly when the plan is to divert some £235m covering 2021, 2022 and 2023.

Efficiencies and rebalancing

31. The Plan advises that central to rebalancing budgets over the period to 2024 is the package on efficiencies of £20m targets for 2021, in addition to a £100m recurring target per annum by 2023. The change towards a rebalancing narrative suggests a tacit acceptance that the required quantum of efficiency savings may not be achievable and that wider concept of rebalancing may be more pragmatic. Additionally, the extent to which efficiencies are to be delivered from deferred growth does not provide confidence that efficiencies were actual management interventions specifically capable of being efficiency savings in nature.
32. We are advised that the efficiency targets have already been taken off Department Budgets in a way that suggests a salami sliced' approach is being employed. In practice, Managers will be more likely to adjust and control the pace of spend rather than addressing the fundamentals on direct management intervention through service challenge and redesign should difficulties arise. In the absence of defined programmes we do not recognise this approach as meeting good practice and failure to meet a revised expenditure/income target on such efficiency savings may have negative implications on the ability of Departments to meet standard operational service delivery if bottom line budgets are to be contained. The overall Budget and Medium Term Financial Planning setting process within the formulation of the Government Plan has been the principal driver for the articulation of the individual efficiency savings lines. However there is little evidence that collectively the schedule of efficiencies has been based on a strict value for money (VfM) approach, rather such changes, including planned changes, have been driven by the acute demand for the realisation of cashable savings to bridge the budget setting gap – including the financing of the Modernising Government Programme - containing a base budget requirement for significant savings irrespective of the impact on service.
33. The updated Plan outlines the allocation of efficiency savings aggregating to the £20.013 million for 2021. Whilst there is a schedule outlining each saving initiative the high level roundings suggest a highly aspirational and broad brush' approach being taken. The background information as contained within the Plan associated with some of the larger components do not give a high level of assurance that recurring cashable' savings can be sustained from these initiatives. These include the £5 million zero based budget review at HCS, the release of funds from GHE for hospital maintenance programme of £4 million, managing inflationary pressures around Government of £3.7 million, and the OneGov Modernisation of £0.9 million[15]:

34. We would have thought that the successful delivery of the recurring cashable £900,000 of Modernisation and Digitalisation of One Gov would be wholly dependent and contingent upon associated capital projects being delivered without slippage. On deliverability, there appears to be a lack of risk stress testing and we have still to see a risk assessment on the deliverability of these recurring and non-recurring savings. We would expect an assessment on how specific Departmental Chief Officers will be able to deal with the impact of such budget reductions without a detrimental effect on service delivery performance. Delivery on the full £100m over the life of the Government Plan still appears to highly optimistic particularly as current prevailing operating conditions constitute a substantial set of risks to non-achievement.
35. As with Income Tax estimates, the nature of key components of specific efficiency savings within the £20.013million total appear to be highly aspirational rather than founded upon robust stress tested business cases.
36. In respect of rebalancing' the Government Plan proposes a rigourous application of scrutiny on the control expenditure and the introduction of rebalancing measures:

"Efficiencies and other rebalancing measures approved through the Government Plan debate will result in cash limit reductions and/or income forecast increases at departmental budget level. The performance of each proposal will then be tracked monthly through the finance budget monitoring process and, where appropriate, with additional qualitative information provided through a project management system."[16]

37. Within the Government Plan there is a recognition that both core activities and efficiencies need to be adjusted to reduce expenditure and maximize income under the overarching One Government principles :

"At the time of writing, the impacts of Covid-19 are still readily apparent and the effect on Government finances is considerably greater than the impact of efficiencies. As described in the 2020 Government Plan Six Monthly Report – multiple approaches will be required to balance Government finances, including a wide range of fiscal measures, borrowing strategies, economic stimulus, treatment of funds and the delivery of savings and efficiencies. This represents a shift to a broader set of financial re-balancing measures into which the efficiencies have been subsumed."[17]

38. Whilst this rebalancing approach may appear to be nebulous, with limited clarity on efficiency savings and Modernising Government investments, it does signal that the Government of Jersey is open to rework underperforming or undeliverable efficiency savings. This level of change capability over policy is going to be more important where

the focus is moved from more non-critical improvement investments and efficiency improvements back to protecting critical core service delivery.

39. At the outset of the Covid-19 lockdown arrangements we were impressed by the agility in allocating from central reserves through the Consolidated Fund to front line services to cover the immediate costs associated with the effects of COVID-19 at a time when it was predicted that "public revenues in 2020 would be £106 million below their autumn 2019 forecasts, and that revenues will remain below the previous forecasts for the whole of the next Government Plan period and are likely give rise to a structural imbalance in public finances".19 The resulting Halt, Defer and Reduce approach taken by Departments to "stop and not start, defer and change "20,highlighted in April 2020, exemplified an emerging financial strategy that provided much needed agility in redirected cash towards front line support. A demonstrable requirement to re-balance and create control over the equilibrium between income and expenditure. However, the revised Government Plan 2021-2024 appears to  have  restored  scheduled  improvement  aspirations, moving  on  from  the immediacy of challenges presented by front line supporting demands. This is counter to what we are increasingly seeing in the UK with organisations steadily moving away from improvement related investment towards the financing of core services as a consequence of demand led pressures driving a return towards meeting basic primary legislative service obligations.

New Projects

40. On the basis of value, new projects within the Modernising Government category account for an ambitious investment at a level of £127.2 million to 2024 within an extract from the Government Plan 2021-2024[18]:

41. Within the Modernising Government category there are a number of disparate projects that seek to provide more effective impacts, save the increased audit fees, Insurance Premium and the Revolving Credit Facility. It is not clear how the current Pandemic will affect the pace of implementation on the more significant structural and process change. In relation to the Commercial Services restructure, in the context of deferment, we cannot see what the payback from this additional £6 million of investment will bring to Government capability.
42. We have already commented upon the Covid-19 Revolving Credit Facility (and related £27.415 million of linked costs) and the link with external borrowing in the face of maintaining existing levels of reserves.
43. On delivering effective financial management (presumably more effective) we are unsighted as to the tangible benefits arising from the outputs of more effective financial management. Quickening the pace of the annual accounts closedown process does not in itself produce a position that necessarily provides more insight. However we do recognize that improved in year financial performance reporting should aid decision making but again are unsighted on the cost benefits of this significant level of investment - presumably linked to external consultancy support. Whilst significantly improved accuracy, versatility and speed on in-year financial and operational performance may be highly desirable, such improvements require to be appropriately aligned to enhanced/diffused financial management capability and that requires upskilling and ownership around financial performance. In this way Departments can fully utilize any greater system capabilities that can be harnesses by this investment. However, in practice, without a commensurate improvement in skilling and accountability, the utility of such changes may be marginal at best.
44. It is noted that the central reserve for risk and inflation relating to the Capital Programme has remained at similar levels to previous versions of the Plan yet the quantum and nature of the Capital Programme has changed. Given the historically low levels of general inflation, this type of reserve would appear to be maintained as a hedge' against unforeseen risks. In such circumstances, the profiling of exposure appears to be based upon guesswork rather than tracking capital spends. We are assuming increased Audit Fees will allow the Comptroller and Auditor General to increase capabilities within that service. Together with increased Audit Fees and additional Insurance Premium exposure, these additional investment requirements appear to have only a minimal link to the concept of Modernising Government. Such projects appear to be more aligned to existing commitments or marginal structural change whereas there appears to be more of a linkage with this concept relative to the Jersey Bank charges which are designed to enable and facilitate electronic payment for Government services.
45. Securing improvements in Domestic Compliance delivered with an investment of £6.077 million (£1.562 million in 2021, £ 1.505 million in each of 2022, 2023 and 2024) appears to be a spend to raise' investment. Within the £20.013million efficiencies schedule there is additional increases tax revenues through the continued enhancement of domestic tax compliance valued at £1.250 million. This value, in itself appears to be inconsistent with

the quoted additional yield arising from improvements in compliance work at Revenues Jersey – "Taking account of the slower-than-anticipated commencement of compliance work  (resulting  from  lockdown),  improved  collection,  as  part  of  the  Efficiencies Programme, is estimated to increase revenues by £6.35 million in 2020, rising to £13.5 million in 2024."22 In essence, we cannot see evidence of what the payback for this £6.077 investment looks like and how this is aligned to the additional £6.141 million investment in the Revenue Jersey Team (£2.685 million in 2021, £1.466 million in 2022, £0.995 million in both 2023 and 2024). It is difficult to see how both planned investments totalling some £12.218 million contribute towards both a more effective and efficient services in a way that optimizes tax yield.

46. We found it difficult to track changes between 2020-2023 commitments and refined 2021- 2024 additional spend and at this point in time have been unable to reconcile such movements. Notwithstanding this position and based on the materials supplied to us, a recurring theme across the projects categorized as Modernising Government is a lack of detail surrounding the related business cases, from proof of concept through to the engagement, implementation and management of such changes.

Returning to balance

47. Notwithstanding a forecasted deficit of some £282 million in 2020 (this year), deficits are forecasted through 2021 and 2022 as £178.1 million and £50.7 million respectively with a surplus position returning in 2023. These forecasted deficits are contingent upon all of the core assumptions within the financial modeling being delivered. On the high level metrics, as highlighted in Section 2 above, the latest update reveals that:

Income is now £96m lower (previously £107m) with incomes set to be some £395m lower than approved within the 2020-23 Government Plan

Covid related expenditure is likely to be approximately in excess of £400m – previously reported approximately £255m with approximately £250m additional in this year alone 2020

48. Such is the element of volatility around forecasted income and elements of expenditure, arising from the impact of the Pandemic, that potential material deviations from the core assumptions  outlined  within  the  revised  Plan  may  require  recalibration  leading  to additional changes (and agility) around tax and spend decisions.
49. During  our  review  we  have  expressed  some  concerns  about  the  strength  of  the assumptions underpinning key tax and spend assumptions. Due to the high level of

22 Government Plan 2021-2024 – Page 119

integration within the high level financial modelling, the sensitivity to marginal changes to income and expenditure may produce significant shifts in bottom line deficits arising from the 'gearing effect'. During the course of the Plan, key assumptions relating to a number of critical income and expenditure components may need to be further revisited. Such recalibration may consequently change the overall bottom line position on future deficits and in turn, impact corporate decision making on tax and spend. Given the unprecedented level of uncertainty we would recommend that the Government Plan 2021-2024 is updated every six months and recalibrated/fine-tuned' and adapted for pressures and opportunities as they emerge.

Building upon the 2020-2023 Government Plan

1. Within our previous assessment of the Government Plan 2020-23 we made positive comments about the Government Plan's attributes in bringing operational policy and financial strategy together. Indeed, we were of the view that the Government Plan 2020- 2023 was "well-constructed and we would commend the articulation and incorporation of explicit corporate objectives within a financial plan. The GP seeks to provide the stability to enable such objectives to be delivered over the four year period whilst enabling agility to recalibrate for any unforeseen events or over/underperformance.[19]" "The Government Plan 2020-2023 is a bold and ambitious plan. It is essentially a fiscal framework which incorporates unparalleled levels (in respect of Jersey) of transformational change".
2. We identified the following high level strengths:

Architecture/structure of the Government Plan is comprehensive and well presented

In context the information is presented in a user friendly format, is intelligible and accessible to non-expert users

The Government Plan clearly outlines service priorities in a way that previous MTFPs have not and attempts to integrate priorities with estimated/planned financial exposure – this is not commonly evident within UK equivalents

On financial strategy formulation there is clear strategic direction, strong corporate co-ordination and for the first time real direction on performance management delivery and officer accountability

Concentration on cross cutting approaches to efficiencies

Elimination of the reservation of funds for Capital Project approval

Incorporation of Balance Sheet management within the Plan (we had been previously critical of the absence of this within previous MTFP reviews)

3. These attributes were considered to highlight examples of good practice. Given our experience of evaluating financial strategy modeling (across a wide range of organisations across the world), on a comparative basis, we considered the Jersey Government Plan 2020-2023 as an exemplar. However, within the same review we did highlight what we thought to be weaknesses in terms of a lack of detail underpinning:

Basic departmental service plans and staffing structures

Lack of detail behind transformational change project business cases

Aspirational Income Tax forecasts

Absence of assurance around efficiency savings proposals

4. We concluded that for the 2020-2023 Government Plan, foundational budgets and investment allocations appear to be more aspirational than being formulated on detailed stress tested business case change plans. Whilst we fully appreciate that the changing focus on Covid-19 has brought different priorities, the above developmental issues appear to still exist and be prevalent within the revised Government Plan 2021-2024. This includes a continuing level of optimism bias across personal tax income, lack of detail behind the ability to deliver efficiency savings and around service change. It may well be that these issues have been amplified by the management challenges posed by the pandemic. If so the reliability of the Government Plan 2021-2024 may be impaired and it is important that the States of Jersey address issues on transparency, detail and reliability.

Issues and Recommendations

5.1  Five key issues were identified as requiring development during our assessment. The  issues  outlined  below  are  have  some  causal  linkages  and  therefore  potential accompanying recommendations may be interdependent. These recommendations have been translated into a more detailed Improvement Plan which will be agreed with the Corporate Services Scrutiny Panel.

Summary area  Issues  Recommendation

Financial sustainability

Revised  Borrowing Strategy,  affordability and  linkages  to Reserves

Full retention of reserves and gap  funding  of  up  to  £406 million  met  by  external borrowing via a £27.4 million Revolving Credit facility. The establishment  of  a  sinking fund  composed  of  receipts mainly  from  transitional arrangements  arising  from the  change  from  Prior  Year Tax  to  Current  Year  Tax assessment,  to  finance external  borrowing  costs  is regarded as speculative

Blended  approach  of  reserve utilisation  and  external borrowing with financing costs being met by existing Income Tax  streams.  A  balanced' approach would provide a more realistic and stable outlook on medium  and  longer  term borrowing costs

Personal Income Tax

Personal  Income  Tax Estimates

Importation  of high  risk  on the reliability of Income Tax estimates  used  within  the Annual  Accounts  and Government Plan

Revenue  Jersey  system  based data needs to be significantly enhanced  and  Personal  Tax forecasts/estimates  subjected to  independent  stress  testing. In the interim, the utilization of the lower ranged Income Tax forecasts should be used within Government Plan modelling in a way  that  will  allow  a  more prudent/considered  approach to be taken on overall strategic financial  modelling  -  in  the context  of  the  extent  of volatility  arising  from  the pandemic  and  potential  UK impacts  of  a  no  deal  Brexit position

Efficiency savings

Efficiency savings  

Central  to  rebalancing budgets is £20 million target for 2021 in addition to £100 million  of  annual  recurring savings by 2023. Within the schedule of planned savings there  is  a  high  level  of aspirational  efficiency savings  which  have  been already  top  sliced'  from Departmental budgets. Some savings  proposals  lacked validity  –  at  worst  some components could be aligned to unrequired budget. There is  not  enough  evidence  to demonstrate that some of the significant efficiency savings proposals  are  realistic  and will  not  impose  significant impacts  on  normal  activity funding  should  they  not  be delivered  at  departmental level. There is little evidence that  collectively  the scheduling  of  planned efficiencies  has  been  based on a strict value for money approach  and  that  service redesign  is  going  to  be delivered  in  a  way  that produces recurring cashable savings based on real change rather  than  stopping  or changing the pace of activity

There  needs  to  be  a  more realistic  approach  to  gap funding  efficiency  savings formulation with business cases for  each  component  being independently  risk  tested  and validated by a form of external scrutiny.

It is critical that the States re- appraise  their  budget  setting process  and  recalibrate  the process  by  using  more  of  a credible  bottom  up'  approach rather than deploying top-down top slicing. Each departmental Directorate  should  be  fully involved and signed up to the delivery  of  each  efficiency saving initiative. In relation to in-year  performance management, delivery of each savings  initiative  should  be transparently tracked and risk rated  with  each  Directorate being  fully  accountable  for delivery  performance  on  a monthly reporting cycle.

Departments  should  also  be incentivised  to  return unrequired budget early within the  financial  year  for redistribution where necessary

New Projects/Investment

Modernising Government – rigour on pay  back  and implementation

Acute lack of background on the strength of the relevant business cases that underpin the  schedule  highlighting Modernising  Government initiatives to be delivered by 2024. There is insufficiently detail  on  non-financial  and financial  payback.  Examples of  this  include  additional

As with efficiency savings, improved assurance is needed over the validity of  both  business  case  and prospectivity  of  implementation  of New  Projects  within  the  expected investment  cost  estimates  and scheduled timeline.

£6.141 million investment in the Revenue Jersey Team and £6.077 million in securing an improved  level  of  Tax compliance. It is difficult to see what the actual impact of this  overall  £12.218  million investment will be in securing higher tax yields. There is an absence of an assessment of the linked technical capacity (island  and  external)  to ensure  these  projects  are delivered successfully.

Government Plan Updates

Returning to balance

Forecasted  deficit  of  some £282 million in 2020), deficits are forecasted through 2021 and 2022 as £178.1 million and  £50.7  million respectively  with  a  surplus position  returning  in  2023. These  bottom  line  positions are contingent upon all of the core assumptions within the financial  modeling  being delivered.

Given  the  current  unprecedented level  of  uncertainty  we  would recommend  that  the  Government Plan 2021-2024 is updated every six months  and  recalibrated  for pressures and opportunities as they emerge.

Such  is  the  element  of volatility  around  forecasted income  and  elements  of expenditure arising from the impact  of  the  Pandemic  on planned  activities  that possibly  material  deviations from  the  core  assumptions outlined  within  the  revised plan  may  require  additional key  changes  (and  agility) around  tax  and  spend decisions.

During  our  review  we  have expressed  some  concerns about  the  strength  of  the assumptions  underpinning key  tax  and  spend assumptions. Due to the high level of integration within the  financial  modelling,  the sensitivity  to  marginal changes  to  income  and expenditure  may  produce significant  shifts  in  bottom line  deficits  through  the 'gearing  effect'.  During  the course  of  the  plan,  key assumptions  around  a number of critical income and expenditure components may need to be revisited and this may  materially  change  the overall  bottom  line  position on future deficits.  

Appendices

Appendix I: Evidential Sources

List of Interviewees - 1

Forename Surname Job Title

1 Richard Bell Treasurer to the States and Director General

List of Documents Reviewed

The documents reviewed by CIPFA included but were not limited to the following:

Government Plan 2021-2024

Master Annex to Government Plan 2021-2024

Rebalancing Growth Review 2021-2024

Government Plan 2020-2023 – 6 Months Progress Update

Government of Jersey Annual Reports and Accounts 2019 including External Auditors opinion

Debt Financing Options for the New Hospital – Refreshed- September 2019

2021 – 2024 Government Plan – Proposition – 28 September 2020

Ratification of CoM Workshop decisions on Finance Workstreams – 4 September 2020

Covid-19 Funding Framework & Scheme – March 2020 – Treasurer of the States

Covid-19 Financial Update - Financial Update - Treasury & Exchequer – 24 April 2020

Government Plan 2021-24 Committee and Panel Officers Update

Results from the Jersey Opinion and Lifestyle Survey and the Government Plan Priorities Survey - Anuschka Muller, Director Strategic Planning and Performance – 4 September 2020

R54 – 2020 Recovery Plan

New Growth Funding for the Government Plan 2021-2024

Jersey Fiscal Policy Panel – Annual Report – October 2020

Jersey Fiscal Policy Panel - FPP supports Government Plan's short-term economic stimulus and borrowing; but highlights need to return to sustainable government finances – October 2020 Press Release

Income Forecasting Group (IFG) - Report on the revised forecast of States income for autumn 2020

R122 – Proposals for the payment of the 2019 Tax Liability of Prior Year Basis Taxpayers

P147 – 2020 – Draft Finance (2021 Budget) (Jersey) Law 202

Ministerial Decision Reports – various – allocation of reserves to meet emergency funding pressures due to the impact of Covid-19

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