Thursday 26 September 2013
The following statement providing an update on the FTP and States' Financial Position was delivered to the States of Deliberation on 26 September 2013 by the Minister of the Treasury & Resources Department, Deputy Gavin St Pier.
Mr Bailiff, in my Statement to the May sitting of the States, I indicated my intention to provide the Assembly with a further update in September. I am therefore grateful to you, Sir, for permitting me to provide this further update to the Assembly on the overall States financial position - including progress on delivery of the Financial Transformation Programme. This update will summarise the progress made during the 4 months since my last update; it includes the forecast to the end of the year and the overall FTP projections to the end of the programme. In that sense, it will help set the scene for the Budget Report which is due to be published in a couple of weeks time.
Based on the information available in the year to date, I am disappointed to inform the Assembly that overall revenues are down against our budget estimates. Whilst there are some signs of recovery in our economy, this has not yet translated into income tax collections.
Income Tax collections are at least showing some growth against the 2012 position, but not at the levels envisaged at this time last year when the 2013 budget was being finalised. Receipts from ETI recovered in the second quarter - at that stage, Sir, you may recall that they were 4% down on the Budget estimate - and are expected to reach £178m by the end of the year, which is about 2% down on budget estimate. In addition, in the first year of the extension of the 10% corporate band, only £5m is forecast to be collected which is substantially down against the budget estimate of £12m. However, the Department's expectation is that this will increase in 2014.
Overall, this means that we are now expecting income tax receipts to end the year some £7m, or 2.5%, down against budget.
In addition to this, transactions in the housing market have remained subdued until very recent weeks. This obviously translates into lower than anticipated document duty from conveyances and bonds and this income stream is now expected to deliver revenues totalling £14m in 2013, against a budget of £18m.
All in all, my Department is now projecting a total revenue income shortfall in 2013 of some £10m.
Turning to expenditure, there have been some significant underspends in the year to date. However, Departments continue to forecast budgetary pressures towards the end of the year and that the overall outturn will be in line with the budget. I will return to the question of spending in the last quarter later.
As detailed in the Social Security Department's recently published Report, the spend on supplementary benefit in 2013 is now forecast to be some £750k in excess of the original budget estimate. Although this is partially offset by lower than budgeted social and health insurance grants, the Department expects to exceed overall estimates for expenditure by some £500k.
In my last statement I reported that the Health and Social Services Department had overspent in the first three months by almost £1m and were forecasting a year end overspend of some £2.5m. Since that time we have been working closely with the Department to monitor the position including monthly meetings between the Minister and me. I am encouraged that HSSD has put in place financial recovery actions which are being actively monitored by its Board and are designed to bring the Department's spending back into budgetary balance in 2014. However, it seems likely that there will be an overspend in 2013. HSSD have advised - with a high degree of confidence in the event of no exceptional matters arising in the last quarter - that their latest forecast is this overspend will not exceed £1.3m and could be less. Given the progress made by HSSD and the commitment shown by the Board to achieving a sustainable balanced budget, my Department, by a majority with Deputies Perrot and Adam dissenting, intends to use its delegated authority to increase the Department's cash limit up to this amount, if required. We remain hopeful that actions already in progress will reduce the expenditure still further.
The other material expenditure strain in the last three months of this year will come through funding the voluntary severance programme currently underway across the States. Members will be aware that the scheme is intended to facilitate sustainable savings to the States through restructuring, but it does of course come with an up-front cost which will be borne in 2013. This will be a one-off cost which will distort the position in this year only, but will then result in ongoing and sustainable general revenue savings in future years, that will also help deliver against the FTP targets. The programme has not yet closed, so I am not yet in a position to advise the States what the cost might be.
I am pleased to inform the Assembly that during June, July and August FTP projects have released a further £2.8m of savings bringing the total saved by the programme during 2013 to £6.9m, an increase of 64% from the end of last year. This is a welcome indication that the improvement in the momentum of the programme I highlighted in my last update, has been sustained. This is a significant achievement - and I would like to take this opportunity to recognise the hard work that has gone on across the States to make it happen.
Once again, the majority of these savings, in fact over 95%, have come from improvements in our efficiency, as opposed to increased fees and charges or changes to grants and subsidies.
The success in delivering FTP targets along with a general shift in the financial consciousness of the States means that, despite the expenditure pressures I have already spoken about, I am confident that we will deliver in line with the general revenue expenditure budget of £348m.
Overall then, due to the reduced revenues so far this year, it is likely that the draw down from the Contingency Reserve will have to increase to some £27m this year, £10m more than budgeted, unless action is taken in the final months of the year to curb expenditure further.
It is a common phenomenon that spending in the last months of a financial year in all sorts of organisations shows a marked increase. This has historically been the case in the States - and continued despite the ability for Departments to retain unspent balances for a number of years. There may of course be valid reasons for these increases, but I fear there may still be an element of the 'use it or lose it' mentality. I therefore urge all Departmental Boards, in order to minimise the drawdown on the Contingency Reserve this year, to put in place additional Departmental controls until the end of the year in an attempt to curb such expenditure. I will be writing to all Ministers in the next few days with suggestions as to how this may be done - and we will certainly be implementing such controls in my Department.
Returning to our overall position, our sustained deficit underlines the continued need for the States' three pronged strategy for eliminating the deficit of increases in indirect taxes, economic growth and expenditure restraint. Although the forecast £27m deficit in 2013 does not reflect the underlying position of a gradual reduction in the deficit, it certainly highlights the need for continued attention to the budget position and further expenditure restraint.
It is vital that we continue to deliver on the FTP and reach the minimum target set of £31m. So far, we have achieved savings of nearly £18m. We should stop and congratulate ourselves on this achievement. We tend to beat ourselves up for not having delivered on this programme but, as a result of it, we are already spending eighteen million pounds per annum less year in year out than we otherwise would be, which is the main reason that we will still have some £60m available in the Contingency Reserve Tax Strategy at the end of this year. However, we must ensure that we continue the effort if we are to see a return to an overall balanced budget.
In my last update I highlighted Policy Council's concern that the forecast benefits for the whole FTP had - for the first time - dropped below the £31m target, especially bearing in mind that was a minimum target.
I am pleased to be able to report that since then, the positive action taken by Departments to revisit their FTP portfolios, to ensure the forecasts associated with existing projects are realistic, and to identify new opportunities for savings, has seen the forecast steadily rise so that as at the beginning of September the combined forecast value of the projects within the portfolio was £35m.
As I'm sure Members will appreciate, the forecasts associated with a wide ranging and diverse programme such as the FTP will naturally fluctuate as projects are progressed. I do not intend to list all of the ups and downs that have occurred in the portfolio forecast during the last three months, but some of the most noticeable changes include;
- The identification of five new initiatives from the Social Security Department with a forecast general revenue saving of £1.2m;
- The identification of £250,000 in additional benefits from existing initiatives within PSD, which will mean that Department will exceed its target;
- An increase in the overall value of the projects within the Home and Education Departments of £500,000 and £160,000 respectively; and finally
- The identification of the opportunity to reduce baseline budgets by £1.6m without impacting on staffing levels or service provision through the removal of persistent under spends. Sir, members may recall that this was one of the actions I identified in my May Statement as requiring attention - and I am pleased that Departments, working with Treasury & Resources have been able to deliver on this.
Sir, Members will also be aware that during this period the decision was taken to cease the market testing exercise seeking to establish the level of savings available through outsourcing the management and operation of Beau Sejour and Footes Lane. As the political sponsor of the FTP I was fully supportive of this decision and believe that retaining the management of these facilities in-house but adopting a more "commercially minded" approach to their operation is the best way forward at this time. More importantly I am pleased to inform the assembly that with this in mind the Culture and Leisure Department has revisited its portfolio and has already identified additional savings in a number of its existing projects and a number of new saving opportunities. As a result, the Department is still well placed to achieve its FTP target despite the loss of benefits forecast for the outsourcing exercise, and I commend the Department for this not inconsiderable achievement.
Despite the £35m forecast, there is still a long way to go before we can release all of this and some remaining risks to its delivery. There will be significant challenges in the remaining 15 months of the programme and some difficult political choices. The forecasts show the level of savings that are available; the question now is whether we can work together to ensure these are delivered in the remaining programme period.
Sir, Members of the States, I thank you for your patience once again this morning during this update. As I said during my statement in May, these are crucially important matters for all of us, which my Board, my Policy Council colleagues and I take very seriously. Delivery against our 2013 Budget is vital, not only in returning to a sustainable balanced budget but also in delivering on the organisational development and change that makes the States fit for the challenges ahead.