Fiscal Framework

The fiscal framework has been due to be debated by the States with the 2020 Budget. However, it becomes obvious that what had due to be presented did not reflect the financial situation that was being faced with Committee bids far exceeding the funding available to an extent not seen before. Instead, the policy letter was presented in January 2020 with an express proposition recommending a review of taxes in the next term. This is my speech in that debate.

Sir, A fiscal framework provides a structure and control that, for a small jurisdiction which can’t run up a national debt and for whom political, social and economic stability is crucial for its future, is absolutely essential. It may not have been in the past when life was simple, but in today’s complex world it absolutely is.

And really there is little that can be fundamentally be challenged in what is set out in this policy letter when it comes to the framework. 

BUT what is missing from this policy letter is any connection between the principles laid out and what sort of society we want. Principle 5, setting the aggregate amount of States revenues as a % of GDP is really where this becomes obvious. We are told in paragraph 5.13 that this governs the aggregate size of the public sector providing a limit on the maximum amount of money it is deemed appropriate to take out of the general economy to be directed at the provision of public services.

There is reference to pressures such as from the ageing population and the need for fiscal discipline. The need to set a limit that is, supposedly, challenging but achievable’ but nothing about what our long term goal is. 

BUT we do have a long term goal and is something referenced by  P&R in its letter of comment on the policy letter we will be debating shortly – that is to be one of the healthiest and happiest places in the world. 

We have a Policy & Resource Plan that is meant to determine how we get there.

BUT there is no connection between the P&R Plan and the Fiscal Framework, which seems odd given that the development of both is the responsibility of P&R.

The policy letter is written in such a way that it makes out the Principal Committees are just doing their own thing without any direction. 

Paragraph 2.2 is symptomatic of the mindset where it states, and I quote, ‘each policy brought forward for debate is undoubtedly done so with the best of intentions’.

This completely ignores the fact that the Committees have been following the direction of the States. Through the Policy & Resource Plan. 

Of course, the problem is the Policy & Resource Plan itself where everything is a priority. Every key strategy is treated as a priority and that is where it has gone wrong and which I said at the time phase 1 was being developed. Instead of recommendations from key strategies being prioritised, the strategies themselves have been. 

It really should not have been a surprise to P&R that the fiscal pressures are now becoming apparent. Just looking at ESS’s mandate – all their big ticket items they have brought and will bring this term have arisen from strategy decisions from last term – SLAWS, Disability & Inclusion, SWBIC, secondary pensions. No one expected to come without a hefty price tag.

Public sector pay, in particular equal pay for work of equal value, has been an issue for many years and just not addressed whilst it was clearly apparent that the situation was getting more and more indefensible.

Neither should the pressures on health and care come as a bolt from the blue. This was clearly referenced in our policy letter on the Partnership of Purpose and proposition 21, which became a resolution directed P&R to consider, as part of future budgets, what steps, if any, are required over and above transformation of health and care  to ensure the sustainability of funding for health and care. 

This policy letter just references what was provided in this year’s budget. And on that, I need to correct what is stated in paragraph 2.33. HSC was not awarded £6.2m to meet above inflation pressures on baseline costs. HSC was given £6.2m to reflect its true staff costs and inflation. It does not take into account growing demand.

And this takes me back to the point I am making – we have a fiscal framework and we have a policy & resource plan but nothing linking the 2.  The fiscal framework all seems very dry and it hasn’t had much interest in the media. But it really is important. It feeds through the Medium Term Financial Plan which in turn determines the budget Committees receive. It has meant that before HSC made its budget submission for this year, it had already cut £5m from the requests that came to it and then what we received was £3.6m less than the Committee applied for. We are in a completely unsustainable situation.

Now I was interested to read the Better Life Indicators Report that came out last month which showed Guernsey has the 5th largest household income and 6th highest life expectancy compared with 30 OECD countries and second only to South Korea for broadband access with such good news backed up by the latest economic and financial stability overview. All excellent stuff.

And then we have the Gini Coefficient, the measure of inequality in a society. We are told in that report that Guernsey has a Gini Coefficient of 0.37, which seems quite close to the OECD average of 0.32. However, this is a classic example of where using a mean does not reflect the reality. Having looked at the Gini Coefficients of all the OECD countries it is evident that, rather than being somewhere in the middle which is the assumption you could make from the scoring, Guernsey comes in as the 6th most unequal compared to the 36 members of the OECD. Only, US, Lithuania, Turkey, Chile, US and Mexico being worse than us. The median is .307 similar to Ireland and Luxembourg.

The importance of this? As all the work done on the Social Determinants of Health shows, there is a direct correlation between wealth and health.  Conversely, the greater the public expenditure on health care and education the higher the human development index – an index the UN uses to show that societies that spend more on schools and health care are those societies that score better on education, health and income.

This does not mean throwing money at social policy. It does mean targeting funding where it will make a difference and empowering people to live better lives. It is not about government meddling in everyone’s lives either. The saddest thing I read about that Better Life Indicators Report, which was backed up by the recent Joint Strategic Needs Assessment HSC undertook on the over 50s, was how poorly Guernsey performed in terms of how people perceived their social network – whether they felt they had people to turn to when they needed help – we are 7th from bottom. This is backed up by the recent health and wellbeing survey where those living in affordable housing, including social housing are more likely to be emotionally and socially lonely. 50% of whom felt intensely socially lonely. The younger you are the more likely you are to be intensely socially and emotionally lonely. We also see that the greatest causes of stress are work with 36% always or often stressed by work and 30% by money and financial pressures.

I want to quote again what Jacinda Aherne the Prime Minster of New Zealand said- if you are somebody at home listening to a politician say, well according to GDP we are now in a recovery phase and yet you are sitting there and don’t feel it, your situation is not improving, then that means you have a disconnect and an increase in the lack of trust in your institutions and lack of democracy.

Joseph Stiglitz, Nobel Prize winning economist and former Chief Economist at the World Bank wrote in his book the Great Divide wrote that growth is not just a matter of increasing GDP. It must be sustainable and inclusive. At least a majority of citizens must benefit. That trickle down economics does not work: an increase in GDP can actually leave citizens worse off. But that there does not need to be a trade off between growth and inequality as governments can enhance growth through inclusiveness – education and social protection. He references Singapore that has prioritised social and economic equity while achieving higher rates of growth demonstrating inequality is not just a matter of social justice but economic performance. Ultimately he says how inequality actually restricts growth, which has become increasingly apparent since the 2008 crash which is hitting the young in particular.

This is why we have made under 21 contraception free, why we have made cervical smear testing free, why we are seeking to restructure primary care funding and why we are proposing changes to our drugs policy. It is because they make sense for future growth and sustainability.

It is why any review of the tax base is not only necessary to consider future funding pressures, but is also an opportunity to take into account that current inequality and really help make us one of the happiest and healthiest places in the world. 



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Email: heidi@heidisoulsby.com