The Medium Term Financial Plan: An Electoral and Democratic Straight Jacket
At the Chamber of Commerce Lunch on 15 May 2019, I asked Susie Pinel what she thought about the Medium Term Financial Plan, and how it constrained the budget until a new one is passed, which will be well into 2020, nearly two years after the general election. This is something, I noted, which you will not find in the UK, the Isle of Man or Guernsey.
She said that some kind of continuity was needed until a new MTFP was passed, but that doesn’t really answer the question, which is why other countries manage perfectly well without this constraint.
Moreover, voting when there are rigid fiscal constraints, and whoever is voted in will not be able to make changes, is not conducive to democracy. Why vote for change, if change is blocked by the MTFP until well into the lifetime of a new States?
It is useful to consider what has happened in the UK when there has been a significant change of government from one party to another. Obviously, when a party retains power, no budgetary changes are made early in the lifetime of a parliament, but when there is change, the new party introduces a new budget – usually very early in the lifetime of the parliament.
As can be seen from the historical examples set out below, below, sometimes there is a modest change, sometimes hardly any changes, and sometimes what might be termed a seismic shift, as when Mrs Thatcher came to power. Just imagine if she had been constrained by Denis Healey’s budgetary policy for two years after 1979! The mandate on which she stood had indicated a significant change of direction, and not to permit that – whatever you think of her or her policies – would have been a punch in the face of the electorate.
The important thing to note is that while a new party in power may only make minor changes to their predecessors budget, they do so with due speed, not delay, and they have the freedom to make whatever changes they want, even if they decide to follow the previous budget.
In this way, the electorate, when they vote for change, gets change and gets it early on in the lifetime of Parliament, not over a third into a term of office. Democracy is wells served by this.
Contrary to what the Treasury Minister said, the UK - and indeed other small Crown Dependencies - manage perfectly well with this kind of arrangement. It is Jersey which introduces an element of rigidity which stands out from tried and tested practice elsewhere.
Now Jersey does not have parties, but nevertheless, with John Le Fondré we saw a significant break in continuity. The previous line of incumbents as Chief Minister were Frank Walker, Terry Le Sueur and Ian Gorst (twice), and both Terry and Ian had been Ministers in their predecessor’s government.
In this kind of situation, the development of a Medium Term Financial Plan - because of the element of continuity - made sense as a means of preventing short term solutions. The downside was that it prevented change when the electorate and the States Assembly indicated they wanted change. This was the unexpected consequence which we saw in 2018.
John le Fondré was a significant change, having not been a Minister previously, and appointing a Council of Ministers with only two previous Ministers (Lyndon Farnham and Susie Pinel), and no existing Assistant Ministers apart from Steve Pallet. Like the Chief Minister, most of his Ministerial colleagues were new to the job.
While the lack of an election mandate meant that a policy statement had to be produced as a first task, there was really no reason why the December 2018 budget could not have been an opportunity for a change in direction, except that the Council of Ministers agreed to be bound by the Medium Term Financial Plan. And yet former Minister Kristina Moore was now quite happy to have it set aside to enable the new Council of Ministers to achieve some flexibility.
While the lack of an election mandate meant that a policy statement had to be produced as a first task, there was really no reason why the December 2018 budget could not have been an opportunity for a change in direction, except that the Council of Ministers agreed to be bound by the Medium Term Financial Plan. And yet former Minister Kristina Moore was now quite happy to have it set aside to enable the new Council of Ministers to achieve some flexibility.
That is not to say that it should be set aside on an ad hoc way, as both Kristina Moore and Geoff Southern have advocated, but as we have seen, the bar for change is very high. What would surely be preferable would be that the Treasury Minister would have, as in the UK and elsewhere, greater flexibility in her first Budget, to retain or change it, prior to, but in line with, the development of the next MTFP.
It can be seen that if nothing changes, the new plan will, like its predecessor, act as a fiscal straightjacket for whoever is elected in 2022. It seemed like a good idea in its day, just as Collective Responsibility once did, but it needs to be repealed because it is too rigid and because of that too damaging to democracy. As in the UK, the new Treasury Minister needs to freedom to remain within the constraints of the MTFP or make changes to them.
If at any time in the future, a party system or the rudiments of one, develops in Jersey, which might be likely if Russell Labey’s proposals were accepted by the States (and I am not in any way endorsing them), it could lead to a nightmare scenario where the first two years of an incoming government were forced to follow a fiscal regime laid down by their predecessors, regardless of how the electorate vote, or what they had in their election manifesto. Democracy is poorly served by this.
https://www.parliament.uk/about/how/role/check-and-approve-government-spending-and-taxation/the-budget-and-parliament/
In election years, after a change of Government, a Budget will usually be introduced by the incoming Chancellor of the Exchequer, even if the outgoing Chancellor has already delivered one.
https://www.bbc.co.uk/news/uk-politics-31803593
Budget: 1979 April 3
New Budget: June 1979
Changes: Complete Change of Direction
What was announced: Known as the "caretaker Budget", it came shortly after Labour government lost a vote of confidence in the House of Commons, triggering an election.
Prime Minister Jim Callaghan still had to keep the business of government going and Chancellor Denis Healey's statement was designed to ensure taxes continued to be raised until a new administration was elected.
What happened next? After Labour's defeat, the new Conservative government delivered an emergency Budget in June, marking a major change in economic direction.
Budget: 1996 November 26
New Budget: July 1997
Changes: Minimal
What was announced: Although the 1997 general election was held in May, the Conservatives - trailing Labour badly in the polls at the time - opted to announce their final Budget nearly six months earlier, at the end of November 1996.
What happened next? Following Labour's landslide, Mr Clarke stood for Conservative leader but was defeated by William Hague and had returned to the backbenches by the time Gordon Brown delivered his first Budget in July 1997.
Labour had already said it would stick to Conservative spending plans for the first two years and it left a number of other measures in Mr Clarke's final Budget untouched.
Budget: 2010 March 24
New Budget: June 2010
Changes: Mixed Changes
What was announced: In the run-up to his third Budget, Mr Darling ruled out any pre-election giveaways, saying his package would be "sensible and workmanlike.
What happened next? Mr Darling stood down as chancellor five days after the general election when the Conservatives and Lib Dems formed a coalition government, although he remained as shadow chancellor for a further five months.
In his "emergency" Budget in June, the new chancellor George Osborne reversed some of his predecessor's measures, including the 10% tax on cider - although Labour had already effectively ditched the plan due to opposition. However some other measures in Mr Darling's Budget - including a four-year freeze on inheritance tax thresholds - survived the change of government.
Budget: 1970 April 15
New Budget: 1971
Changes: New Tax proposed but not introduced until 1973
What was announced: Labour Chancellor Roy Jenkins pledged a "modest stimulus" to an economy that was still recovering from the devaluation of sterling three years earlier. New tax reliefs worth £220m were announced as was a cut in interest rates to 7%.
What happened next: Labour surprisingly lost the election to the Conservatives. In the 1971 Budget new Chancellor Anthony Barber announced a new value added tax (VAT) would come into force in 1973.
It can be seen that if nothing changes, the new plan will, like its predecessor, act as a fiscal straightjacket for whoever is elected in 2022. It seemed like a good idea in its day, just as Collective Responsibility once did, but it needs to be repealed because it is too rigid and because of that too damaging to democracy. As in the UK, the new Treasury Minister needs to freedom to remain within the constraints of the MTFP or make changes to them.
If at any time in the future, a party system or the rudiments of one, develops in Jersey, which might be likely if Russell Labey’s proposals were accepted by the States (and I am not in any way endorsing them), it could lead to a nightmare scenario where the first two years of an incoming government were forced to follow a fiscal regime laid down by their predecessors, regardless of how the electorate vote, or what they had in their election manifesto. Democracy is poorly served by this.
https://www.parliament.uk/about/how/role/check-and-approve-government-spending-and-taxation/the-budget-and-parliament/
In election years, after a change of Government, a Budget will usually be introduced by the incoming Chancellor of the Exchequer, even if the outgoing Chancellor has already delivered one.
https://www.bbc.co.uk/news/uk-politics-31803593
Budget: 1979 April 3
New Budget: June 1979
Changes: Complete Change of Direction
What was announced: Known as the "caretaker Budget", it came shortly after Labour government lost a vote of confidence in the House of Commons, triggering an election.
Prime Minister Jim Callaghan still had to keep the business of government going and Chancellor Denis Healey's statement was designed to ensure taxes continued to be raised until a new administration was elected.
What happened next? After Labour's defeat, the new Conservative government delivered an emergency Budget in June, marking a major change in economic direction.
Budget: 1996 November 26
New Budget: July 1997
Changes: Minimal
What was announced: Although the 1997 general election was held in May, the Conservatives - trailing Labour badly in the polls at the time - opted to announce their final Budget nearly six months earlier, at the end of November 1996.
What happened next? Following Labour's landslide, Mr Clarke stood for Conservative leader but was defeated by William Hague and had returned to the backbenches by the time Gordon Brown delivered his first Budget in July 1997.
Labour had already said it would stick to Conservative spending plans for the first two years and it left a number of other measures in Mr Clarke's final Budget untouched.
Budget: 2010 March 24
New Budget: June 2010
Changes: Mixed Changes
What was announced: In the run-up to his third Budget, Mr Darling ruled out any pre-election giveaways, saying his package would be "sensible and workmanlike.
What happened next? Mr Darling stood down as chancellor five days after the general election when the Conservatives and Lib Dems formed a coalition government, although he remained as shadow chancellor for a further five months.
In his "emergency" Budget in June, the new chancellor George Osborne reversed some of his predecessor's measures, including the 10% tax on cider - although Labour had already effectively ditched the plan due to opposition. However some other measures in Mr Darling's Budget - including a four-year freeze on inheritance tax thresholds - survived the change of government.
Budget: 1970 April 15
New Budget: 1971
Changes: New Tax proposed but not introduced until 1973
What was announced: Labour Chancellor Roy Jenkins pledged a "modest stimulus" to an economy that was still recovering from the devaluation of sterling three years earlier. New tax reliefs worth £220m were announced as was a cut in interest rates to 7%.
What happened next: Labour surprisingly lost the election to the Conservatives. In the 1971 Budget new Chancellor Anthony Barber announced a new value added tax (VAT) would come into force in 1973.
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