A year in the Treasury

This Council of Ministers is almost exactly a year into its term; it sometimes seems much longer!

When I arrived at Treasury last November I was determined to set a clear path to sustainable public finances. I wanted long term solutions not short term fixes. It meant tackling a number of items in the ‘too difficult to handle’ box. That’s why we arrived at a potential £145 million recurring deficit by 2019.

We could have taken the easy option and carried on as we were, pushing the problem to the next generation. Let me be clear, the £145 million is only a ‘potential’ deficit. I say that because a significant portion, £63m, is investment in new and improved services. In addition we chose to recognise future expenditure and liabilities.

For example a further £50 million of the £145 million is depreciation, where for the first time we prepare for future capital expenditure as assets wear out and need replacing. It’s a prudent, sensible and realistic approach. It’s about long term planning. It’s certainly not the disaster that some would like to paint it.

Having identified the full extent of the funding required, together with a prudent income forecast, we developed the Medium Term Financial Plan. Next June we will publish the ‘addition’ covering 2017-19 with all the efficiency and savings details. It’s a realistic plan that aims to return us to balanced budgets by 2019. The delivery is going to be challenging and will take political determination and courage to see it through – but see it through we will.

Waterfront development

The States Assembly voted to establish a publicly-owned development company. The Jersey Development Company is not a bunch of civil servants having a bash at property development. It is run by property professionals who act on behalf of government to extract greater value from public assets. The board has extensive experience. One member, a Jersey resident, spent more than forty years in the UK market and became chairman of the Berkeley Group, one of the UK’s largest developers.

But why did the States agree to set up a development company?

• to deliver quality office space and infrastructure that wasn’t being delivered by the private sector during a recession
• to maximise the value of the land owned by the public of Jersey so we could invest more in regenerating St Helier
• to control what our land is used for and the quality of buildings. Generous amounts of open space for community use are included – more than 50% of the site. No private developer could afford to include such community space

Jersey is not the only government to use this model. The UK has an equivalent development company, called The Crown Estate. All its profits are paid to the UK Treasury each year. The Crown Estate has property worth £11.5 billion and in 2014 delivered revenue profit to HM Treasury of £267 million.

JDC holds land and investments that on behalf of the public that are currently valued at £54 million. It has been paying a dividend to Treasury which this year will be £1m. No taxpayers’ money is being used to build the offices. JDC is borrowing from banks, like any other developer, and those banks have done thorough, independent checks on the viability of the projects before lending.

To mitigate risk, work only starts when enough legally binding pre-lets are secured to cover the cost of constructing each building. This was a requirement agreed by the States Assembly.

There have been three recent independent valuations commissioned: by the bank funding the development, by the Treasury and by the Corporate Services Scrutiny Panel. All have concluded that the first building will make a profit.

The report commissioned by Scrutiny assumed lower rental figures and weaker yield than the bank’s report, but it still said that the building now under construction will make more than £3 million profit if sold on completion. The JDC aims to sell three years after completion, by which time they estimate a £7.5 million profit.

Plan for Jersey

Budget 2016 contains a set of proposals that demonstrate longer term thinking. We are proposing to introduce new measures over a number of years, with no sudden changes to the tax system.

At the heart of the budget are the principles from the long term tax policy – namely that tax should be ‘low, broad, simple and fair’. It goes without saying that our tax system must also ensure we are internationally competitive.

We are proposing to phase out mortgage interest tax relief. This process started in 2004 when the relief was capped at £300,000 and continued in 2014 with an interest cap. We are avoiding any sudden changes by starting the final stage in 2017 and completing it over a 10 year period – as the UK did and Guernsey are also doing.

To support first time buyers we are reducing stamp duty on properties up to £450,000. The enhanced tax thresholds for older people will be maintained at current levels until the thresholds for the under-65s catch up over a period. Senior citizens will receive other benefits as we invest more in health services, especially care in the community.

Budget 2016 raises £1.8 million, which by 2019 translates into £7.5 million. If our income forecasts hold up, this extra revenue will act as a safety net. We will use it to reduce the impact of planned charges, like the health and sewage charges.

We are also making sure that people pay the tax that is due. The new comptroller of taxes is redesigning the administration of tax collection. We have £9million for a new tax I.T. system, and we will be introducing self-assessment and online filing of tax returns.

Our plans will support the economy in the short term, a clear recommendation of the Fiscal Policy Panel. By balancing the books at the right time we are providing the financial stability that both individuals and businesses need to thrive.

Productivity and competitiveness

Professor Sir John Vickers acted as an adviser on an independent review of our competition and regulatory framework. He said it is just as important for markets in a small island economy to work well as it is for markets in larger economies. He added that we should recognise that competition policy is not just the task of the competition authority, but also that of Government.

The report has set out 23 recommendations that either require changes in legislation, can be implemented by the JCRA itself or require involvement from the Government. Senator Ozouf’s team is now working with the JCRA to develop a plan to implement the report’s recommendations.

Reform of public sector

We are redesigning services to remove duplication and improve efficiency. We are analysing the services that government should be delivering and considering those that could be delivered in a different way, including outsourcing.

We are reviewing staff salaries to ensure that they fairly reflect jobs and we are simplifying policies. We have reduced them from 70 to 31.

We are cutting costs through voluntary redundancy, vacancy management and pay restraint. We have reduced the headcount by 120 so far this year with 45 more to go by the end of December – saving £7.7 million.

We need to accelerate office consolidation and improve space utilisation. Jersey Property Holdings used to occupy 10,523 sq ft – we’ve reduced it to 5,300.

Customs occupied 12,200 sq ft which has been reduced by 3,000 sq ft.

Home Affairs have relocated into Cyril Le Marquand House, freeing up their old offices at 23 Hill St.

Government is getting smaller and more efficient but the pace of change needs to accelerate, and it will.

eGovernment

Our move towards great efficiency is being supported by egovernment, which aims to put more of our services online. We are building a platform that will eliminate duplication, maximise our use of data, and allow teams across the States to work together with minimum fuss and maximum efficiency.

There are already many examples of this in action:

• the Planning Department has created an easier online applications process
• some Social Security contributions have moved online with more to follow
• the Health Department is combatting non-attendance by moving its breast-screening appointments online
• a redesign of the government website has made it easier for mobile and tablet users and for people with disabilities to access our services.

We are accelerating this investment in eGov, so we can move more services online, cut costs and continue these measurable efficiencies across all departments.

Future Jersey

So how is the future looking? Our plan for Jersey proposes significant new investment in infrastructure, health and education:

• £96 million of extra funding for health and social services over the next 4 years, including key areas like children’s services and mental health
• an extra £27million for education
• £168 million for capital projects
• £20 million set aside for projects that boost economic growth and productivity

We are supporting the economy while it’s still recovering. Recent statistics show our support to date is working:

• staying visitors are up
• retail sales are up on an annual basis by 2%
• employment is up
• unemployment is down
• financial services are growing – total net profit up by 25% from 2013 to 2014
•  5% economic growth in 2014
• almost all business surveys are more positive than since the downturn began

There are still uncertainties in the world economy. That’s why we have maintained the £14 million of growth funding to support Back to Work schemes and the economy. People talk emotively about cuts, about deficits, about black holes and about austerity. I don’t call this level of investment austerity!

We are cutting spending in some areas and spending more on our priorities so we can ensure that the services people need and value are maintained and improved; so we can continue to support the vulnerable in a more targeted way through our benefits system.

The action we are taking will avoid a deficit as long as we make the agreed savings, maximise our use of technology and restructure our services to make them more efficient.

If we do this – and I am determined that we will – our books will balance by 2019.

How many other jurisdictions can say that? Targeted investment, built on reform, restructuring and achievable savings. Delivering economic security, opportunity to all and a positive future.