Tuesday, 23 September 2014

Strong on rhetoric and weak on recognising reality?

The recent Scrutiny report on the budget by the Corporate Services Scrutiny panel is well worth reading, if only for the shocking way it exposes the weakness in the Treasury, and the parlous state of the Island's finances.

The expert advisors who looked at the budget were from the Chartered Institute of Public Finance and Accountancy (CIPFA) and MJO Consultancy. The advisors are independent, and free from any political interference. 

Here are some extracts from the advisors, but I would suggest the whole report also be read.

CIPFA = The Chartered Institute of Public Finance and Accountancy
MJO = Professor M. Oliver

Extracts from the Summary Points:

CIPFA : “…we understand that as there is a continuing deterioration in 2014 income (which is now estimated at approximately £40m below budget within 2014), we would take the view that such positions may be optimistic given the downward trend in income….” (Para 1.5, page 3 of CIPFA report)

MJO : “…It is very difficult to comprehend why the Treasury did not use the May 2013 forecasts for the 2014 Budget and to persist with forecasts which were out-dated even at the time of the publication of the MTFP in July 2012….” (Para 4.5, page 124)

MJO : “…In turn, this raises some very important questions…

- Did the Treasurer provide advice to the Treasury Minister which was based on more optimistic scenarios rather than those which were prudent and if so, why?

- When were the Council of Ministers aware of the deterioration in the income forecasts? Did they express their disquiet about the forecasts?

- Were the 2013 forecasts not published in the 2014 Budget because policymakers were concerned that this would have called into question the wisdom of the marginal rate tax cut and drawn attention to the potentially deteriorating fiscal position in Jersey when the authorities were seeking to obtain a favourable review from the credit rating agency, S&P? …” (Para 4.5, page 124 / 125)

MJO : “…Finally, this report has shown that there have been weaknesses in the policymaking process over the last few years…” (Para 4.9, page 131)

MJO : “…Prudence has been lost. As remarked above, it is difficult to understand why the revised forecasts to the MTFP (Medium Term Financial Plan) made in the first half of 2013 were not included in the 2014 Budget…”(Para 4.6, page 126)

MJO : “…The significance of the Fiscal Policy Panel’s …comment that ‘the medium-term outlook, while uncertain, suggests that there are significant challenges in even maintaining a balanced budget’ should not be underplayed….” (Para 4.6, page 126)

MJO : “…The constraint of the MTFP has been breached and because of this alone it is difficult not to come to the conclusion that States expenditure is out of control…” (Para 4.8, page 129)

CIPFA : “…The fact that a further 1% cut in the marginal rate of Income Tax was in contemplation when Income Tax Forecasts produced by the ITFG showed significant downturn further suggests a lack of clear direction in the setting of Financial Strategy …”
(Para 7.6, page 37 of CIPFA report)

CIPFA : “…The need to fund core net spend from specific reserves/funds, together with the apparent speed by which the remedial measures have been put together does not inspire confidence that the 2015 Budget has been founded on sound principles and good financial management practice. …

It is clear that the proposed remedial measures lack maturity and in some examples clearly contradict what was thought to be settled strategy …” (Para 1.7, page 4 of CIPFA report)

CIPFA : “…The very phrase “Other measures if required” suggests an inherent lack of certainty and confidence in the Financial Modelling even by those involved in promulgating such proposals…” (Para 3.24, page 17 of CIPFA report)

CIPFA : “…It would be our considered view that the timing and the character of the remedial measures, as now presented, seriously undermines the confidence attached to the robustness of the States’ Financial Strategy….” (Para 3.26, page 17 of CIPFA report) (and para 7.4, page 36)

MJO : “…Like its predecessor a year ago, the foreword to the Budget is strong on rhetoric and weak on recognising reality….” (Para 1.4, page 101)


James said...


I think that it is fair to say that MJO Consultancy is free from political interference, but I think "independent" is stretching it a little. Prof Oliver is a member of Global Partnership, an organisation which exists primarily to serve the needs of ultra-high net worth individuals (UHNWIs) and their families. He is thus closely bound in with representing the finance community, which in turn is closely bound up with a majority of States members.

He and CIPFA are both obsessed with ensuring the budget balances. However, the question of the value of a balanced budget is actually far less clear than might be imagined. Nicolae Ceaucescu balanced the budget in Romania in the late 1980s, but only by bringing economic ruin on most people...

Nick Palmer said...

I know Professor Oliver personally. His forte is being a Professor of economic history. He has quite strong Thatcherite leanings, indeed he has had at least one meeting with the "great" lady herself in the past.

If Ozouf and co were "doing it right" (applying the economic theories they rate so highly) MJO would be purring like a kitten. The fact that he obviously is not and has to try so hard to keep the disparaging tone out of his writing, speaks volumes about the economic policies, how thye have been applied and the spin that the Ministry, Geoff Cook et al have come out with to reassure themselves and the public.