Submission - Medium Term Financial Plan - Economic Development - 5 October 2012

Corporate Services Scrutiny Panel Review Economic Development Department

Medium Term Financial Plan 2013 to 2015 General Questions arising from the Terms of Reference

1. What overall expenditure limits were allocated to the Department in the 2012  Annual  Business  Plan  for  2012,  2013,  and  2014?  Have  the  limits changed in the MTFP and, if so, why has it changed?

The States approved only one year's revenue expenditure at Departmental level in the 2012 Annual Business Plan.

The table below shows the expenditure limit for 2012 and proposed expenditure limits for 2013, 2014 and 2015 in the Medium Term Financial Plan:

The Departmental cash limits being proposed in the MTFP differ from the limits approved in the 2012 Annual Business Plan in respect of CSR savings, central procurement  savings,  inter-departmental  transfers,  inflation  allowances  and growth bids.

Details of these changes are shown in the table titled Reconciliation of Net Revenue Expenditure' in EDD's Departmental pages in the Annex to the MTFP. For ease of reference, EDD's Departmental pages are given in Appendix 1.

The table below shows EDD's approved growth bids for 2013-2015:

2. What commitments for growth were made for the Department in the 2012 Annual Business Plan for 2012, 2013, and 2014? Have growth commitments from  previous  Annual  Business  Plans  addressed  the  issues  which prompted those requests for additional funding and, if not, why not?

There were no revenue growth commitments identified for EDD in the 2012 Annual Business Plan in respect of 2012, 2013 or 2014.

The growth bids approved in previous Annual Business Plans were:

2011 - £1,163,000

Growth in funding for the Incubator and Innovation Initiatives,

renewable energy, e-gaming and Intellectual Property

legislation, reduction in Jersey Enterprise grants 313,000 Funding for the Financial Ombudsman 100,000

Additional support to JFL, grant to fund the States share of the

JFSC for Anti-Money Laundering unit. 750,000

A  significant  cut  in  revenue  expenditure was  required  to  fund  the  additional growth' and CSR savings target of £346,000. It was part of EDD's zero-based budgeting process and reflects the commitment to fund recurring expenditure from the Economic stimulus funding, essential financial services and investment to capitalise on potential diversification and growth in the Jersey economy.

2010 - none 2009 - none

3. What changes in staffing levels if any are being proposed that were not allowed for in the 2012 Annual Business Plan?

There are no proposed changes in staffing levels from the 2012 Annual Business Plan  other  than  net  impact  of  internal  restructuring,  CSR  savings, interdepartmental transfers and growth bids.

4. How does the Department's budget break down into service areas? How does that breakdown compare to that provided in the 2012 Annual Business Plan?

The key differences are:

• Enterprise & Business Support' changes name to Economic Growth & Diversification'.
• Marketing' changes name to Tourism, Destination & Marketing

5. What existing services, if any, are due to be changed and, if so how will they be changed?

International Finance

Following a review of the organisational structure for the support of financial services across the States it has been decided to consolidate all responsibility under a Director of Financial Services who would act as Accounting Officer for all aspects  of  the  financial  services  budget  within  EDD.  The  Director  would  be located within the Economic Development Department with responsibility to the Economic  Development  Minister  and  working  with  three  other  Ministers.  The Director would operate alongside the Chief Officer for Economic Development, will be treated in a similar manner to Chief Officers and be accountable to the Chief Executive of the States for management matters.

Jersey Finance

The additional funding provided to Jersey Finance will enable them to establish

two additional offices and undertake further market development in the BRICS and Middle East.

Tourism

A new strategy for tourism is being developed and a Green Paper is out for consultation  with  a  deadline  of  30th  September  2012.  The  way  government

support for tourism is directed and managed will be reviewed and will include establishing a new Shadow Board to provide advice and expertise to the Minister across a wide range of areas.

Locate Jersey

There will be a step change in the delivery of our inward investment and high value residency team, Locate Jersey, in order to achieve our key objective of creating new businesses and employment in high value sectors. This will involve both increased manpower resource and an increase in promotional and marketing activity.

Skills and Workforce Development

Increased States funding for a new model of Apprenticeships in Jersey based on new sectors/trades/skills, closely linked to vocational training already underway or proposed in Jersey schools. New style Graduate Internships providing Jersey Graduates a full years post-graduate supported internship with companies operating within EGS target sectors or the Finance industry, conditional upon full time employment being provided thereafter.

6. What will Carry Forward funding for 2012 will be used for in the Department? What on-going items, if any, have been funded through Carry Forwards?

Carry forward funding from 2012 will be used in 2013 (See the table in section 7 below).

7. What funding pressures are facing the Department and how will they be addressed?  

The table below shows the pressures the Economic Development Department is facing  and  for  which  it  sought  some  funding  through  the  MTFP.  This  table includes new initiatives and regulatory requirements:

8. Which bids for growth in revenue expenditure have been taken forward? For those which have, is it proposed that they be funded from Growth expenditure, Contingency Expenditure, Restructuring Provision, or another source?

The table below shows the successful bids and the proposed funding source in the MTFP:

9. Which  bids  for  growth  appear  for  the  first  time  in  the  Medium  Term Financial Plan and which have been madeby the Department in previous years?

All EDD's bids appear for the first time in the MTFP as a formal proposal to the States for recurring funding although most are existing cost pressures which have been funded to a lesser extent for a number of years from non-recurring sources.

The growth bids are directly aligned to the priorities in the Economic Growth and Diversification  Strategy,  which  are  in  turn  aimed  at  achieving  sustainable economic growth and getting people into work.

There is only one bid which is completely new in the MTFP which is the JFL Saudi/GCC office.

10. Which bids for growth in the MTFP were unsuccessful and which relate to bids which have been made by the Department in previous years?

The Tourism growth bid of £250,000 was unsuccessful but was not requested  through the Annual Business Plan process in previous years.

11. In which areas of the Department were CSR savings identified? Will the Department meet those specific savings targets? If not, in which areas will the  savings  not  be  met  and  what contingency  plans,  if  any  does the Department have in place?

The Department has met the 2011 and 2012 CSR savings of £1,039,000. The table below shows the proposed 2013 savings.

.

12. What capital projects are proposed for the Department, both specifically for 2013 to 2015 and for the Long Term Capital Plan for 2012 to 2032?

There are no capital projects proposed for EDD. However, Harbours and airports do have capital projects planned, but these are handled as separate Trading Entities.

13. Have any capital projects not been provided for?

There are no capital projects proposed for EDD. However, Harbours and airports do have capital projects planned, but these are handled as separate Trading Entities.

14. What policy changes are being considered by the Department (but which have  yet  to  be  agreed and/or  implemented)  could  impact  upon  other Departments or the public?

Harbours  and  Airport  Incorporation  and  the  potential  transfer  of  rural responsibilities to the Environment Department.

15. What new user pays' charges have been considered and which will be pursued?  What  increases  to  existing  user  pays'  charges  have  been considered?

As  part  of  the  Licensing  Law  development  process,  it  was  the  intention  to increase liquor licence fees by c. 60% (£175k additional income) as part of CSR user pays. The Minister has indicated that ED should not seek to increase fees more than the RPI, although the actual outcome maybe determined by changes to the final legislation

16. What  requirement  if  any does  the  Department  have  for  restructuring provision?

EDD received a restructure bid of £205,000 for the Integration of Jersey Business Venture  and  Jersey  Enterprise's  On-Island  functionality  to  form  a  single independent and confidential business information, advice and support service – Jersey Business'.

Currently  under  consideration  is  a  restructure  bid  of  £156,551  for  the reorganisation of the financial services within EDD (see question 5).

There may be a restructuring requirement for the transfer of rural responsibilities to the Environment Department and the reorganisation of Tourism (see question 5).

17. What source of income does the Department have and what changes, if any, are proposed to the levels levied?

EDD has a 2012 income target of £1.7m:

The income is generated by:

• Enterprise & Business Development - Enterprise Awards & Business Incubator rent.
• Marketing – Advertising received for tourism brochures etc. (£401k), Jersey Pass (£114k), Visitor Services sales and Central Reservation commission (£196k).
• Policy  &  Regulation  –  Regulatory  licence  fees  such  as  liquor  licence  fees, shipping registry etc. Also income received from Ofcom in respect of spectrum licence refund (303k).
• Skills – Enterprise Education sponsorship.

The only proposed change (other than RPI or 2.5% per annum), is that from 2013 onwards  responsibilities  from  the  Enterprise  Awards  will  transfer  to  Jersey Business Ltd. and the Business Incubator has now closed.

18. What funding if any does the Department receive from charitable or other sources  in  order  to  support  the  delivery  of its  services  and  for  what purposes?

The Department does not receive charitable or other funding apart from the fees and charges in response to question 17 above.

19. What outstanding issues facing the Department, if any, have not been taken into account in the Medium Term Financial Plan?

The  Department's  MTFP  submission  has  been  designed  to  cover  all  of  the expected funding pressures through the MTFP's three-year period.

The Department undertakes continuous business planning and monitoring throughout the year, which ensures that budgets are directed to the most effective investments. Where there are issues that will require funding beyond that allowed for in the MTFP, the department will seek to meet the demands within existing budgets or call upon central contingency funding where necessary.

20. What delivery plans have been developed to ensure that clear systems, action  plans  and  success  criteria  are  developed  for  the  Strategic  Plan priority entitled promote family and community values'?

The Strategic Plan priority promote family and community values' falls principally within  the  operational  remits  of:  Home  Affairs;  Health  and  Social  Services; Education, Sport and Culture; and Social Security. The Economic Development Department  will  provide  support  to  these  departments,  within  existing departmental budget, to help them meet their objectives.

21. What funding has been allocated to ensure the delivery of these plans?

There  is  no  funding  allocated  for  the  development  of  the  delivery  plan  for Strategic Planning Priority promote family and community values'.

Appendix 1 EDD's Departmental Pages – Extract from Annex to the Draft MTFP

Minister's Introduction

The Medium Term Financial Plan (MTFP) comes at a critical point in the development and evolution of our economy.

The worldwide economic crisis has lasted longer than most predicted and Jersey, as an international finance centre, has not been immune to its effects. The most devastating outcome of this has been rising unemployment which is at its highest recorded levels; if left unchecked, this will have a long-lasting and damaging effect on the social fabric of this Island. That is why one of the key priorities identified in the States Strategic Plan is to get people into work.

But at a time when we are aiming to facilitate the creation of more jobs in our economy, it is vital we take a strategic view and establish what kind of jobs we wish those to be. In taking this view, it is clear that if we are to seek to generate new employment, we must do so with the aim that these jobs will contribute to the delivery of economic growth. This is not growth for the sake of growth – but growth to deliver the tax receipts necessary to avoid having to raise taxes whilst still being able to fund our public services to the standard that we expect.

The Economic Growth and Diversification Strategy (EGDS) (P55/2012), sets out how we intend  to  achieve  this.  There  are  four  priorities:  to  encourage  innovation  and  improve Jersey's international competitiveness; to grow and diversify the financial services sector, capacity and profitability; to create new businesses and employment in high value sectors; and to raise the productivity of the whole economy and reduce the reliance on inward migration.

Without the growth bids put forward in the MTFP, this strategy simply cannot be delivered. A thorough assessment of our current and future work programme illustrated that to deliver growth we would have to reduce support for tourism and agriculture to unsustainable levels. This would have a highly damaging impact to those sectors, the people who work within them as well as to Island life as a whole.

This is not acceptable; and therefore the growth in the Department's budget to invest in economic growth is absolutely vital. Whilst recognising the financial constraints we must operate under, now more than ever we need to invest in developing the economy.

The table below sets out our MTFP bids, all of which are directly aligned to the priorities in the EGDS, which are in turn aimed at achieving sustainable economic growth and getting people into work.

Support for Jersey Finance and increased investment in developing finance legislation is vital if we are to enter new markets and develop new products so we can grow and diversify our finance sector, which is and will remain absolutely critical to delivering future growth. As the industry which contributes 40% of our GVA, we cannot afford to neglect the sector which in turn funds such a substantial proportion of our public services.

Digital Jersey is one of the key components of our strategy to create new businesses in high value sectors. The e-commerce sector is set to have increasing significance on our economy and it is vital we can invest in and encourage its growth. Alongside this, strengthening our inward investment activities across all high value sectors is an essential driver in delivering diversification and creating jobs for local people.

We must accept however, that in seeking diversification into new and growing high value sectors, Jersey cannot operate in a vacuum. We need the external talent and investment as the catalyst for the creation of new jobs. As demonstrated by the successes over recent years, inward investment does create significant employment for local people – but to do this there needs to be an element of inward migration. This is good for our economy and good for Jersey.

Therefore, running in parallel to investment in growth, given the well-founded concerns of managing population growth on an island of limited resources, we must reduce our reliance on inward migration in other sectors. We should use our migration policy to encourage job creation and economic growth; rather than to fill jobs which could be filled with local people. That is why we are aligning our future support for traditional sectors such as tourism, construction and agriculture with reduced reliance on inward migration. Investment in skills is critical to fill that gap; as well as develop a workforce that can capitalise on the new and exciting opportunities inward investors provide.

Across  the  whole  range  of  new  and  established  businesses,  Jersey  Business  will  be available  to  help  organisations  achieve  their  full  potential.  As  a  new,  independent organisation, there is an opportunity to provide a step-change in business support, which the additional  funding  will  enable  them  to  deliver.  Furthermore,  the  Tourism  sector  gets additional  support,  with  a  stable  and  secure  funding  mechanism  for  the  Tourism Development Fund to help enable Jersey to compete in the global marketplace.

A further breakdown of how the growth bids will be spent is provided within this document. However, it is essential to recognise that although the individual elements of the bid are discrete,  as  demonstrated  above  they  are  complementary  and  must  be  implemented contemporaneously to address the strategy for jobs and a sustainable economic future.

Each initiative is being progressed as far as possible in order to impact on job creation without delay once recurring funding is agreed. I would like to take this opportunity to thank all the staff at Economic Development for the work they have done to date as well as the significant additional work that this plan for growth and jobs will require over the next three years.

Senator Alan Maclean

Minister for Economic Development

ECONOMIC DEVELOPMENT

AIM

To deliver growth, improve competitiveness, diversify the local economy and create employment.

SUMMARY OF KEY OBJECTIVES AND SUCCESS CRITERIA FOR 2013 TO 2015

Key Objective 1: Encourage innovation and improve Jersey's international competitiveness Success criteria:

(i)  Work with the Treasury and Resources Department to establish a new  Innovation Fund as a Separately Constituted Fund under the Public Finances (Jersey) Law – managed by EDD with an independent Board including EDD, Treasury and Resources, and Chief Ministers' Department representatives and non-Executive Directors drawn from the private sector.

Note: Success for this objective will be to have established a fund, and assessment framework, that could be used for strategic investments into innovation and new technologies that would deliver a competitive advantage for Jersey, attract additional private sector investment and create new high value businesses resulting in signification new job opportunities in a more diversified economy.

Strategic Plan References:

- Vision: A strong and sustainable economy

- Priority: Get People Into Work

Key Objective 2: Grow the financial services sector capacity and profitability Success criteria:

1. Publish a new Financial Services policy framework that allows industry, Jersey Finance Ltd, Jersey Financial Services Commission and Government to align with a set of common objectives.
2. Develop both existing (UK/EU) and new markets (BRIC).
3. Contribute to the increasing the speed of legislative development alongside the Law Officers Department and Chief Ministers Department
4. Raise Jersey's international profile as a transparent and cooperative jurisdiction.
5. Work with the Treasury and Resources Department to improve Jersey's competitiveness in international market place through continued development of tax policy.

Note: Success for this objective will be to, within the financial services sector, improve productivity and maintain employment numbers at, or above, current levels whilst diversifying into new products, services and markets.

Strategic Plan References:  

- Vision: A strong and sustainable economy

- Priority: Get People Into Work

Key Objective 3: Create new businesses and employment in high value sectors Success criteria:

1. Enhance efforts to secure high-value inward investment, exceeding previous levels of inward investment.
2. Task Jersey Business to increase the rate of high-value business start-ups and the growth of existing high value businesses.

3. Develop a "Whole of Government" approach to ensure that the education system, Social Security and benefits policies, Planning approvals process and Housing and Work Laws recognise, where appropriate, the creation of employment as a priority.
4. Maximise the potential of Gigabyte Jersey and further develop an internationally competitive telecoms offering.

Note: Success for this objective will be that by 2015, in addition to exceeding previous levels of business development and inward investment success, a minimum of 10 flagship projects will have been delivered over the next three years, leveraging significant economic and growth opportunities for Jersey or Jersey businesses.

Strategic Plan References:  

- Vision: A strong and sustainable economy

- Priority: Get People Into Work

Key Objective 4: Raising the productivity of the whole economy and reducing the reliance on inward migration

Success criteria:

1. Align the education and training of the current and future workforce, with the needs of employers.
2. Remove the barriers to enterprise, encourage innovation and use of new technologies.
3. Link continued support for the Tourism and Rural sectors to increased local employment and reduced reliance on inward migration.

Note: Success for this objective would be improvement in the productivity of existing business, increased number high value start-up enterprises, reduced numbers of hard to fill vacancies and skills gaps reported by employers. and increases in the percentage of locally qualified staff working in the traditional sectors.

Strategic Plan References:

- Vision: A strong and sustainable economy; a highly skilled workforce

- Priority: Get People Into Work; Manage Population Growth and Migration

Key Objective 5: Continue to improve efficiency and effectiveness across the Department Success criteria:

1. Reform the mechanisms of delivery for areas of the Department where service can be improved and efficiencies delivered through a change in organisational structure
2. Continue to develop and improve regulatory and policy frameworks which that support business whilst protecting the public's interests
3. Continue to drive efficiencies through the use of arms-length delivery organisations

Note: Success for this objective would be private sector led organisations delivering more of EDD services with the Department focused on developing and improving policy and regulation.

Strategic Plan References:

- Priority: Reform Government and the public sector

Economic Development

Net Revenue Expenditure - Service Analysis

2012

Net Revenue Expenditure

+ Depreciation £

1,881,300 Economic Growth & Diversification 5,923,300 Tourism, Destination & Marketing

5,531,400 Policy and Regulation

2,144,900 Rural Support

421,100 Skills

15,902,000 Net Revenue Expenditure (non cash)

(3,600) Less: Depreciation

15,898,400 Net Revenue Expenditure (near cash)

2013 Gross Revenue Expenditure

DEL AME

£ £

2,513,000

7,122,000

7,799,100 3,200 1,957,000

588,600

19,979,700 3,200

- - 3,200

19,979,700 -

2013 Income

2014 Gross Revenue Expenditure

DEL AME

£

£ £

- (767,500) (956,400)

-

-

2,741,400 7,257,800 8,680,800 1,725,900 777,300

3,200

(1,723,900) -

21,183,200 3,200

- - 3,200 -

(1,723,900)

21,183,200

2014 Income

2015 Gross Revenue Expenditure

DEL AME

£

£ £

- (767,500) (956,400)

-

-

2,798,000 7,380,900 9,033,800

3,200

1,701,100 784,900

(1,723,900) -

21,698,700 3,200

- - 3,200

(1,723,900)

21,698,700 -

2015 Income

£

(767,500) (956,400)

(1,723,900) -

(1,723,900)

Net Revenue Expenditure - Service Analysis

2012

Net Revenue Expenditure

+ Depreciation £

1,881,300 Economic Growth & Diversification 5,923,300 Tourism, Destination & Marketing 5,531,400 Policy and Regulation

2,144,900 Rural Support

421,100 Skills

15,902,000 Net Revenue Expenditure (non cash)

(3,600) Less: Depreciation

15,898,400 Net Revenue Expenditure (near cash)

(3,200) 18,255,800

Increase/ (Decrease)

631,700 431,200

1,314,500

(187,900) 167,500

1,725,300

(3,200) 19,459,300

Increase/ (Decrease)

Increase/ (Decrease)

228,400 135,800 881,700 (231,100) 188,700

56,600 123,100 353,000 (24,800)

7,600

975,100

458,900

(3,200) 19,974,800

Net Expenditure - Operating Cost Statement

2012 2013  2014  2015 Net Revenue Estimate Estimate Estimate Expenditure

£ £ £ £

Income

(685,200) Duties, Fees, Fines & Penalties (667,800) (667,800) (667,800) (831,200) Sales of Goods and Services (967,600) (967,600) (967,600) (241,600) Other Income (88,500) (88,500) (88,500)

(1,758,000) Total Income (1,723,900) (1,723,900) (1,723,900)

Expenditure

- Social Benefit Payments -

4,119,600 Staff Costs 3,852,400 3,896,800 3,896,800 6,190,600 Supplies and Services 6,288,300 6,451,500 6,491,500 314,400 Administrative Expensives 251,500 251,500 251,500 606,000 Premises and Maintenance 389,700 389,700 389,700 177,000 Other Operating Expenses 60,700 390,000 700,500 6,246,400 Grants and Subsidies Payments 9,137,100 9,803,700 9,968,700

2,400 Finance Costs -  -  - 17,656,400 Total Expenditure 19,979,700 21,183,200 21,698,700

15,898,400 Net Revenue Expenditure (near cash) 18,255,800 19,459,300 19,974,800 3,600 Depreciation 3,200 3,200 3,200

15,902,000 Net Revenue Expenditure (non cash) 18,259,000 19,462,500 19,978,000

Reconciliation of Net Revenue Expenditure

2013 2014 2015

£ £ £

Base Department Budget 15,898,400 18,255,800 19,459,300

Price Inflation - Dept Income (44,000) (47,900) (49,100) Price Inflation - Dept Expenditure 339,800 326,400 334,600 Price Inflation - Provision for Pay Award 0 0 0

Commitments from Existing Policies

FSR - Employers Social Security 2% increase above cap

Department Savings (834,000) 0 0 Department User Pays (116,000) 0 0

Departmental Transfers

International Finance

Regulation of Undertakings and Developments to CMD (368,800)

Capital to Revenue Transfers

Currently Proposed Funded Growth 3,425,000 925,000 230,000 Currently Proposed Procurement Savings (44,600)

Currently Proposed Other Budget Measures

Net Revenue Expenditure (near cash) 18,255,800 19,459,300 19,974,800 Depreciation 3,200 3,200 3,200 Net Revenue Expenditure (non cash) 18,259,000 19,462,500 19,978,000