Wednesday 15 February 2017
The President of the Policy & Resources Committee, Deputy Gavin St Pier, gave the following statement today on the 2016 year-end financial position
Mr Bailiff,
I have good news and bad news. First, the good news: I am delighted to advise members, that the States returned to surplus in 2016 - for the first time since 2008.
In June last year, members will recall that I informed the Assembly that a deficit for 2016 was being forecast at that time, in the order of £10 to £15million. This was largely due to a projected shortfall in revenues. Income tax forecasts estimated a deterioration of some £5-8m against the budgeted position, which continued the trend seen in 2015. In addition, customs duties and document duty were also lagging against expectations in the first three months of the year - a trend which if continued, would have resulted in a year end shortfall of £2-3m.
Revenue shortfalls were not the only reason for the projected deficit. Health & Social Care were also predicting a material overspend of between £2 and £4m, mainly due to off-island referrals and reliance on expensive agency staff.
At that time, I outlined a series of measures put in place to seek to balance the position by the end of the year. This was an absolute necessity in order to deliver a balanced position - and given that the limited reserves previously held within the General Revenue Account Reserve to manage in-year fluctuations, had been exhausted.
The measures included a series of expenditure controls put in place by the Chief Executive, including control of all vacancies; a review of overtime usage; closer control of the use of consultants; cancellation or deferral of non-pay expenditure; and the re-prioritisation of routine capital expenditure. My Committee announced its intention to limit any further use of the Budget Reserve in year - and that it had approached the States Trading Supervisory Board to request that it consider making a return of surplus capital to General Revenue in 2016.
Sir, I am pleased to report that these measures have had the desired effect - and a material impact on the year-end position. Notably, almost £2m was saved in-year by measures to limit revenue expenditure, including in large part control around managing vacancies. In addition, the States Trading Supervisory Board returned £2m to General Revenue; the Committee forHealth & Social Care arrested the expenditure trends across their services, to turn a forecast overspend of £2 to £4m into an underspend of around £700k, about which the President of the Committee forHealth & Social Care, may say more in her Statement; the Committee for theEnvironment & Infrastructure benefited from higher bus fare income, following a 10% growth in journeys; the Committee forHome Affairs had a 4% or £1.4m underspend; the Development & Planning Authority benefited from bumper receipts from planning control, which may bode well for the recovery of our construction sector; and the Committee forEducation, Sport & Culture returned £1.6m of routine capital allocation, previously held as a sinking fund for future maintenance of Les Beaucamps High School - although I must stress that this will not affect plans for maintenance of the school.
Tight control over the Budget Reserve resulted in £1.9m remaining unused at the year end. All of these measures, have had a considerable impact on the year-end position and I wish to thank all Committees and officers across the States for the contribution they have made.
In addition to these active measures, I am enormously pleased to report that an improvement in economic conditions has also contributed to a better outturn:
- Firstly, claims for supplementary benefits have been significantly lower than forecast, contributing to an underspend on the formula-led budget of £2m.
- Secondly, Customs duties have ended the year in line with budget, after significant shortfalls earlier in the year - albeit, after a further fall of 2% in the volumes of fuel, continuing a prior trend, which clearly presents a challenge for this as a source of income in the future.
- Thirdly, an increase in the number of property transactions - 11% on the local market - has contributed to a limited improvement in document duty receipts. Despite falling short of the 2016 budget, document duty receipts rose by almost 3.5% against those collected in 2015.
- Fourthly, investment performance over 2016 was exceptional, with our long term fund achieving returns of over 14% and the medium term fund returning almost 7%; and the funds overseen by the Committee forEmployment & Social Security grew by 12.1%. These returns have contributed to investment income exceeding the budgeted figure by over £5m. I should also add that the return on the as yet unallocated bond proceeds, was £17m - comfortably exceeding the £7m sum required to meet the annual 3.625% coupon and amortised set-up costs of the bond. This not only meets the shortfall experienced in 2015 of approximately £5m, but also provides a cushion against fluctuations in investment performance, until all proceeds have been on-lent. Members may also recall that any above inflation returns on the Core Investment Reserve, are now transferred to the Capital Reserve, which will see the amount available to fund strategic capital bolstered by over £15m. This makes good the £14m shortfall in the target appropriation to the Capital Reserve which we reported in the 2017 Budget Report.
- Finally, income tax receipts have improved steadily throughout the year, with a forecast shortfall of £5 to £8m after the first quarter, turning into a final shortfall of some £2m. It of course remains a concern that we have fallen short of the budget for this important income stream. However, within this shortfall, lie some good news stories. Importantly, the main income tax stream from employment income, ETI, has ended the year in line with the budget and 3.7% above receipts in 2015, a real terms' increase of 2.1% - which an important indicator of growth in our economy in 2016; there has also been a modest 1% increase in other income tax receipts from individuals; and receipts from banks have ended the year in-line with budget contrary to earlier forecasts. The one area of shortfall has been from 'other companies' which has seen a like-for-like reduction of 3.2% between 2015 and 2016. This is largely due to reduced profits from property developers.
Sir, I am pleased to be able to report that, subject of course to final year-end adjustments and audit, the outturn for 2016 is a surplus in the region of £15m. This £30m improvement on the worst case I set out in June, is self-evidently extremely good news. My Committee will be making recommendations to the Assembly later in the year, as to how this surplus should be used - for example to replenish the General Revenue Account Reserve, which I referred to earlier - it having been depleted in 2015 - or to make further appropriations to the Capital Reserve.
Now for the bad news. We are not out of the woods yet. The good news does not mean an end to our fiscal challenges; or an end to the need for ongoing firm fiscal discipline and pay restraint. The pleasing 2016 outturn should strengthen the underlying position but, as I have just outlined, many of the factors that contributed to the surplus were one-off in nature.
We cannot of course expect or rely on exceptional investment performance each and every year; the in-year returns from the Committee forEducation, Sport & Culture and the States Trading Supervisory Board are not regular income streams; and some of the restraint exercised over revenue expenditure, may not be sustainable. Further, the declining numbers of economically active in our community is inexorably driven by the aging demographic - and this remains a challenge to our tax base and future revenues.
At this stage, we have no reason to revise the estimates set out in the 2017 Budget. However, work will now commence to consider the extent of any underlying improvement and what that may mean for the 2017 position and beyond. We will include the results of this analysis in the medium term fiscal strategy to be considered by the Assembly in June, as part of the Policy & Resource Plan. In the meantime, it is vital that the efforts to deliver a balanced position in 2017 are maintained, including the delivery of the 3% savings agreed for the year. However, it is worth noting that in 2016, every Committee underspent, totaling some £7.5m in all - and this puts the 3% target for 2017 of £6.6m - of which all but £2m has now been identified - in context.
Sir, members will recall that when work on the 2017 Budget commenced, modelling showed that if existing policies in respect of capital allocations were followed, no Budget measures taken and the increased cost of health and social care services met, there would have been a deficit of £25million this year. This Assembly approved a balanced and responsible package of measures in the 2017 Budget to eliminate that expected shortfall, through a balance of revenue raising and expenditure restraint, demonstrating how seriously this States take the fiscal discipline required to return our public finances to a strong, sustainable position. The 2016 outturn is another step towards achieving that goal - and should be celebrated as such.
