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Fiscal Policy Framework: What services does Guernsey need and how can it fund them?

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Tuesday 26 November 2019

The Policy & Resources Committee is today publishing a review of the Fiscal Policy Framework, which sets out the over-arching principles which govern the States' tax policy.

This seeks to limit the size of government by including a series of constraints which guide the maximum amount of money the States can take out of the economy and from taxpayers to fund public services, the maximum amount the States can borrow and the amount it should be investing in the Island's infrastructure. These principles will help guide the way tax rates are set in the future to pay for public services.

The Framework proposes no change to the ceiling of how much revenue government can raise in taxes or charges, which is currently 24% of GDP. However the States of Guernsey only raises around 21% in practice, which per capita equates to £11,400 a year. Maintaining a tax base this low reflects the significant value for money Guernsey's public services provide. But it is clear that to continue to fund even the current level of health and care provision for an ageing population will mean the States must increase the amount it raises towards this 24% limit.

The current tax model is not capable of delivering that much revenue. The States Assembly will also need to decide what revenue-raising measures are needed to make sure that the tax system has the capacity to raise the amount of money needed to provide people with the services they might expect in the long-term.

Beyond the growing cost of providing our existing health services, are a number of new measures which States committees will be proposing. These include the introduction of NICE TA drugs, secondary pensions, and a review of access to primary health care. Together in the medium term these could add significantly to the total predicted cost of public services.

Most of these items will be brought forward for debate during 2020 and until these policies are presented in detail it is difficult to be precise in what some of these costs will ultimately amount to. However, current predictions indicate that to deliver all of these will cost between £79m and £132m a year in the longer term.

Deputy Gavin St Pier, President of the Policy & Resources Committee said:

'When we issued the 2020 Budget earlier this year, we sought to start a bigger public discussion over which services we want and which services we need - and how they are paid for. Clearly an ageing population will mean higher costs and lower revenues, but the community and the States are not yet agreed on to what extent how best to manage services to address this challenge. The simple fact is the more services we wish to provide, the more it will cost.

This is not a move to halt our attempts to make savings by transforming the delivery of services. Achieving these savings remain absolutely essential. Given the scale of the challenge it is more important than ever to make sure we provide services in a cost efficient way if we are to successfully stay within this limit in the long term. A continuing focus on cost savings must be part of the solution. But the challenge of sustainably funding the growing demand for public services clearly cannot be met by savings alone. Neither can we continue tweaking the tax system around the edges for small revenue gains.

'There is a fundamental issue with the long term sustainability of our public finances and the responsible approach is to ensure that this co-ordinated and managed in a planned way rather than simply reacting when forced to do so. It is for this reason we are recommending a review of the tax base to ensure it is capable of meeting our needs.'

Deputy Lyndon Trott, Policy & Resources Vice-President added:

'Guernsey's economic success is based in part on its status as a low tax jurisdiction. The services most Islanders benefit from cost far more to deliver than many realise, and more than most of us are asked to contribute. As I've said before, the cost of educating a single secondary school student for a year is itself more than the average taxpayer's annual contribution. The 24% limit is intended to maintain that low tax status while accommodating the increased revenues that may be necessary to continue providing the public with the services they need.'

Many of the cost pressures facing the Island are the result of an ageing population. But the single largest pressure identified relates to the review of terms and conditions for public sector employees, which the States of Guernsey has directed the Policy & Resources Committee to undertake. There are important, practical reasons for doing so, as a disparity has been identified between not only pay but also hours, additional benefits, levels of responsibility and other terms and conditions across all public sector roles. This has created a system that is excessively complex, can cause low morale amongst some staff and adds to the already significant challenges of agreeing pay awards with more than a dozen States of Guernsey pay groups each year.

However, the terms and conditions review may potentially lead to a substantial increase in cost, circa £35m to £40m. This figure has been included in the Fiscal Policy Framework for the purposes of forecasting costs. It may be that more affordable options can also be explored but this will not be known until the detailed review is published in Q1 of 2020.

Deputy Jonathan Le Tocq, who leads on employer matters for the Policy & Resources Committee said:

'We have a very dedicated and hard-working public sector workforce who provide a wide range of extremely valuable services. We know our current structure of staff terms and conditions is causing problems. While we don't yet know enough about the potential solutions and how they may impact on public finances, dealing with them in a piecemeal way as we currently do, may ultimately cost more. We face similar uncertainties with many of the other potential new services that have been included in the forecasting. However, we still need to make some decisions now as to the rules for revenue-raising and spending long-term. That can cannot be kicked further down the road.'

Downloads

The Review of the Fiscal Policy Framework and Fiscal Pressures

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