Thursday, 5 March 2015

Time the people of Jersey woke up

A guest posting today, which I first spotted on Facebook in the Politics Jersey group, but which I suspect was also a letter to the JEP.

Time the people of Jersey woke up.
By Alan Breckon

2nd March 2015

I have noted with a passing interest some of the emerging issues regarding the Island’s financial position, and comments and some very loose opinions being expressed as to where we might be and how things may move forward and the various options available, including most importantly who is going to have to pay (more).

I see this at the moment as a “political soft-sell” as we are being softened up with Ministerial comments here and there, but no substance just yet.

I should say at the outset that I have never believed that the Fiscal Policy Panel have ever told us much we did not already know or could not deduce from generally available information both locally and from elsewhere – therefore their latest effort is more of the same in my opinion. It skirts around reality.

Over £100 Million has already been “withdrawn”

I write mainly because I think the general public should be alerted to where we might be going in financial terms and perhaps some of the inevitable consequences.

Firstly I believe that is important to highlight some of the background to what has already happened over the last few years (or is in train). About £100 Million has already been used from other sources to prop-up existing expenditure. This has been “withdrawn” from the Dwelling House Loans Fund, Criminal Offences Confiscation Fund, Car Parks Trading Fund, Health Insurance Fund etc etc …also a sell-back of States held shares to Jersey Telecom, similar proposals for Jersey Water allied to Treasury requests for extra dividends from JT and Jersey Post.

So although cashing in some of these shares and obtaining extra dividends now from these wholly owned States companies will have some short term never-to-be-repeated benefit, it could lead to increased charges in the not to distant future, so the public, who ironically are also the shareholder could end up paying more! So this raise the question once again as to who exactly is representing the shareholders best interests.

Over £26 Million from the Health Insurance Fund

There has been some recent comments about the state of the fund, and how and when contributions will need to increase. However it should be remembered that in both 2011 & 2012 £6.131 Million was withdrawn” from the Health Insurance Fund, (P125 of 2010, taken to the States by the Social Security Minister (then) Deputy Ian Gorst) supposedly to support primary healthcare provided by the Health Department and others, although I have never seen the evidence of what Health actually did with this money. Similarly, £2 Million in 2013, £6Million in 2014 and a further £6 Million is to be withdrawn in 2015. This information is contained in the Government Actuary’s Review of the Fund (R124 of 2014 at paragraph 3.6))

In order to gain access to this money the (Primary) Social Security Law had to be changed, because many years ago someone had the foresight to keep it arms length from politicians (and the Treasury) to use for other spending. It was decided to do this for prudent reasons so that Social Security funds should stand alone, hence financial transactions are to \ from Social Security, as opposed to virtually all other financial dealings with the States, which are to \ from the Treasurer of the States. Whilst the Law changes were being made it was also agreed that it would “for convenience” be made easier for “withdrawals” to be made, mainly at the request of the Treasury, who would then pass it to Health. So despite the fact that it has already been identified that Health Insurance Fund will need to be topped-up by increasing contributions in the not to distant future the Treasury will have access to “withdraw” – so in simple terms we could pay more and they could take away! This is a roundabout way of us – the contributors to the fund – funding Health – without much say, influence and little transparency on where the money is actually spent.

The Health Insurance Fund is, or perhaps that now should be was, designed to provide financial assistance to Jersey residents who need access to General Practitioner services and / or prescription drugs. The Fund is financed by Social Security contributions – 2% of what we pay. So, previously the Fund had a narrow remit and was indeed accumulating money since it was established in 1967, however, the goalposts have been well and truly moved and the States – through the Treasury – have got their hands on it and will continue to do so. The last Government Actuarial Review up to the end of 2012 showed that the Fund had a balance of £80.5 Million, how quickly it is depleted and how much extra we have pay depends almost entirely upon how much the Treasury take out and when!

So forget about the cost of children seeing a GP being a drain on the fund – it’s a red herring!

Instead of taking this money benefits could have been extended to the elderly or those with more complex health, needs, however, the States were not given that option.

So who has been raiding the various funds?

Most of the funds that have been raided, deliberately had a narrow remit – to protect them – however the access changed with Ministerial Government, giving both authority and access to the Treasury Minister and Treasurer of the States. Although Scrutiny or a Review by the Public Accounts Committee could shed some light on how and when funds were siphoned off it won’t bring the money back! I believe it is important to highlight the “withdrawal” of funds and cashing in of shares, mainly because most of this can not be repeated – when it is gone it’s gone! The family silver has been sold! A never to be repeated exercise – or is it?

The present Treasury Minister, Senator Alan Maclean, is now between a rock and a hard place, which is a shame for such a nice bloke. Then questions may be asked about his predecessor Senator Ozouf, who’s passed on the mantle!

New Hospital = sale of Jersey Telecom?

We need money to fund a new hospital so how do we fund it – perhaps sell JT – who recently have slumped in the popularity charts – so are nicely lined up for disposal without too much public outcry. This possibility is being “softly-sold” at the moment. Although if JT was sold in whole or in part the financial conundrum is that we will gain much need capital (cash) and gain a much needed modern health facility instead of owning the cash-cow that JT has become to the States. But we will need to forgo future States income from dividends from JT. So it’s not a win \ win proposal. There will be a benefit but there will be a cost – so in financial terms it will not be a simple case to balance the books.

Also the sale of JT would not fully fund a new hospital, however, it could provide a significant part.

Those who talk of the local economic benefit of the development to the construction industry should be aware that any such scheme would probably be too big for a local contractor and a great deal of the materials and fitting out etc, especially with specialised medical equipment would need to be imported.

Perhaps one-third of the money or more could go straight out of the Island.

A £250 Million housing loan over 40 years

Also it needs to be remembered that we have recently borrowed £250 Million to refurbish States rental properties and maybe build a few more. This is money that is needed now because over many years properties were never maintained properly, (evidence is Le Squez etc), or others built, due to inadequate funding from the States despite surplus rental income. This is mainly because the Treasury has been – and still is – siphoning off the tenants rent money, based loosely on a return on asset value to the taxpayer.

Curiously, the basis of this has been the rampant increase in residential property prices based on lack of supply, with demand being out of kilter and neither the tenants or the taxpayer are responsible, but the tenants are picking up the bill. The money is borrowed over a 40 year period and has as its base for repayment inflation-busting property prices and rents, funded by a combination of tenants contribution to rentals – topped up by Social Security from Income Support. I believe that the above could prove to be a recipe for disaster and it would be someone who is either very brave or foolish who is comfortable with such a situation.

Unless of course you continue allowing un-checked housing demand. by maintaining immigration growth that continues to create this demand, against a known supply-side deficit and ongoing affordability issues.

Such a “market-price-prop” from the equivalent of “council housing” does not exist in any other developed economy to my knowledge.

Transport & Technical Services – scope for raising money!

While the issue of a sewerage charge has recently emerged – deliberations about introducing one are not new - and I believe more background work has done than is being revealed at present. However, throughout the UK such services and charges are “the norm” and are already levied by the numerous water authorities, who also deal with liquid waste. The charging system is not complex, in that there is a basic annual charge per property and then any increases on the basic charge are linked to water meters, nearly 90% of Jersey Water’s customers are on a meter. Water in means waste comes out in various states of contamination, so this is considered the fairest means of charging – user pays! Which, in Jersey needs to be approved by the States, if it’s a new charge.

In Jersey’s case it would be fairly straightforward for the charges to be collected by Jersey Water who would be paid a fee for doing so to cover their costs. The technology for the billing should be readily available from the UK.

I believe that this will happen fairly soon because as things stand TTS have already received a loan from the Treasury’s Currency Fund of £25.4 Million which is repayable over 40 years for improvements at Bellozanne etc, also this is only about one third of the total cost. So the £80 Million, or so question is where will TTS get the funds to repay the loan and I don’t think it will come from coming round offering to cut your grass, or pull a few weeds out of your garden!

Extended Parking Charges

Presently most of the income for parking is generated between the hours of 8am & 5pm from Monday to Saturday, however, this leaves a great deal of scope to increase the income by extending the chargeable hours. Also the introduction of technology to parking, may be welcomed by many, however, somebody will pay and guess who that might be? Also the Treasury have already started taking money from the Car Parks Trading Fund so they will support an extension to chargeable hours by viewing it as another form of income.

Long Term Care Scheme

Initial start-up funding came from Social Security underspends, which I understand was over £11 Million in 2014, however, I believe this will not continue in future years.

When responding to a written question in the States (25\11\14) from Deputy Montfort Tadier the Social Security Minister replied as follows;

“The Department may also be affected by the possibility of the deferral of contributions into the long term care fund. This will have no impact on the operation of the fund itself. It would however reduce the potential to build up a working reserve in the fund in the first few years of its operation.”

In other words taxpayers / contributors will pick up the cost.

Presently contributions have been set at 1\2 % from January 2015 and will increase to 1% in January 2016 (to all individual taxpayers), but what will happen after that – how will the Scheme be funded and who will pay – clearly it appears that taxpayers will need to pay, and the increases in contributions will come sooner rather than later. I say this because the Treasury, who had identified States funding into the LTC Scheme are now clearly backing off as they identified “savings” in the most recent Budget of £5Million in 2015 and a further £5M in 2016 which was intended for the LTC fund.

So the question is who will have to fund the shortfall, (and you won’t need 3 guesses here), when it is identified in the first actuarial review - and the answer is individual taxpayers with increased contributions – as the “savings” from the Treasury are passed on as a reduction in the monies (or reserve) available to the Scheme, therefore, sooner rather than later the percentage payable will increase to 3% , probably in two or three steps between 2017 and 2020, if not before.

Another cautionary note here is that residents of Health’s beds and facilities will in some instances qualify for monies from the LTC Scheme, so a careful eye needs to be kept on this to ensure that Health are not trying to offset clinical costs against the LTC Scheme, something that requires a clinical judgement rather than one from the Treasury!

GST Petition

I believe that is important to remember the actually wording of the petition signed by over 19,000 people in 2007, which was; “We, the undersigned, petition the States of Jersey as follows – The Minister of Treasury & Resources is requested to take no further steps to introduce a Goods and Services Tax in Jersey until public finances have been examined independently to identify potential savings and until alternative methods of raising funds have been investigated”

This has still not been done with any vigour, and as we know the rate of GST was set at 3% and pretty soon increased to the present level of 5%, despite assurances that this would not happen (from Senator Ozouf). So the many million pound question is will it rise again and when? As GST now raises about £85 Million annually (every 1% raises £17 Million) – it could be a blunt instrument to plug the States Income & Expenditure gap.

The softening of any increase could be to take it off food, a much debated and contentious area, at a cost of about £10 Million a year. This would not be that difficult to administer and not much more expensive to collect. It would have an effect on inflation and on the Retail Price Index, however, this may be seen as a “blip” to the powers that be.

Although some Ministers may say they would never do this we should treat any such “promises” with caution. The above figures speak for themselves and will fill a sizeable black hole. I can hear Ministers saying, “well we’ve looked at everything else and it is with some regret … but it MUST be done”

While I am in no doubt that we as ordinary people will pay more in taxes and charges there are those who are paying nothing or getting preferential treatment – so the public should now, I believe, be questioning whether this is fair and reasonable or indeed sustainable in the present financial climate.

For example International Service Entities pay an annual fee of £150 a year to get exemption from GST. This is a very good deal that most households would welcome, however it’s not available to us! On a number of occasions ISE’s have been consulted as to whether they would like to pay more and guess what they said? It may well be time to increase this fee to £1,000 per year or scrap ISE status altogether

Companies paying no tax

A way has still not been found to get a tax contribution from those companies paying nothing, it has been considered to difficult to do. However most people would agree that when the window cleaner is paying more tax than the company something is wrong! A quick backwards glance at the tax collection figures shows that company tax take has reduced in real terms in the last ten years whilst individual taxpayers contributions have risen significantly.

To add insult to injury some of those companies paying nothing are charging us UK equivalent prices – including VAT – in the high street, also we may perhaps be building some posh new offices for other non-contributors to settle on public land. Could we be told of some of the economic benefit of those with the posh offices or new arrivals. Perhaps greater transparency regarding which companies are paying tax and those that are not is required so that we as consumers can make informed decisions about who we give our custom to.

I have no doubt that some, if not all of the above mentioned will happen in the next five years. Although this may appear to be somewhat pessimistic, my analysis is based on facts rather than rhetoric!

However, the warning signs are there to see and are publicly available and should, I believe act as a warning to the public of what’s waiting in the wings.

Finally the States taking money from the Jersey public in one or more of the above ways will lead to us having less disposable income – or spending power – hardly a catalyst for economic growth in the domestic economy, regardless of how many times one Minister or another mutters this as being a “strategic objective” (and also a good sound-bite). So the Jersey public may well ask; “are we really any better off since the introduction of Ministerial Government in 2005 and when exactly did we vote for it?”

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