Failure to deliver States savings 'could trigger danger for economy'

GROWING calls are coming from the business community for the States to stick firm to its cost-cutting targets.

GROWING calls are coming from the business community for the States to stick firm to its cost-cutting targets.

Business figures fear ‘inevitable’ tax rises if the efficiency savings are not met through the Financial Transformation Programme.

It follows the news that the FTP – key to eliminating the States’ deficit – is nearly £8m. off target.

Anne Ewing, chairman of the local branch of the Institute of Directors, was among those who said the States must deliver.

‘It is hugely frustrating we are still talking about it and not getting on with it,’ she said.

‘It is a big ask of the government. It involves new thinking and new architecture of work. It is a huge challenge, but it has got to happen and should happen.'

Comments for: "Failure to deliver States savings 'could trigger danger for economy'"

Dani

One area to consider is withdrawing family allowance or means testing for it. In the 2009 accounts around £9 million was spent on them. (I can't find a more recent figure apologies).

It was originally brought in in the UK after the war to help reduce poverty in large families. I am unaware of why it was brought in here exactly but I would assume it was to stop poverty affecting children (very important and I totally agree with this principle).

I can't help think that there are a lot of families that don't really need it here. Some do of course but Guernsey has a lot of affluent families too. They put the savings in a spare bank account for the child when they are older in a lot of cases. Which is very nice of course but we are at a point where we need to consider where savings are going to be made. Tough choices. Where would we prefer the savings to be made? A reduced health care service or removing universal family allowance?

I was just wondering what over people thought of this? Perhaps it could be means tested so those who need it get it? (Unless the expense of running a means tested scheme cost more than the savings - the beauty of it now is the simplicity that we all get it).

I offer the idea as it is an easy answer to help with the problem. It looks like a lot of money is being spent on the FTP (over 4 mill) to shave small amounts off everywhere else, but that is still not enough and higher taxes are being proposed which I am highly adverse to. Politicians are not making the savings/cuts they promised so I can see people not liking the idea on the basis they should make savings first. I also understand that people do value the allowance for other reasons as well.

Thoughts?

GM

Dani

You are absolutely correct. I suspect that at least half of the recipients of Family Allowance would forego it if it was means tested.

I simply used mine for my children to go on school trips which I would have funded separately anyway. There is no way that I "needed" it.

It's easy to deal with it. Transfer it to being an Income Tax allowance instead of a Social Security benefit and treat it as being part of the Income Tax Personal Allowance. It can then very easily be a means-tested allowance based on the taxable income of the taxpayer.

This is an easy "win" to save public money, as would be a full review of Social Security benefits. I am absolutely in favour of fully supporting those who genuinely need support, and totally against the payment of benefits to those who are abusing the system.

PLP

Dani - interestingly enough the UK government is doing just that starting next year. Their idea is to remove family allowance in households where one person earns over £60,000 p.a. In my opinion that particular system is unfair (as you could have 2 people earning £59k p.a. and they are still entitled whilst one sole earner on £60k gets it removed) but I agree with the principle of it.

As you pointed out so called "universal" benefits are not what the welfare state was originally designed for. People often talk about tackling benefit scroungers but forget about the other side of the earning spectrum. Handing out money to people who plainly don't need it is just as wasteful and needs stopping.

Dani

GM I like aspects of your idea. It would be simple to do should the tax office find the time to implement it. That should keep costs low.

Im making up my mind of what the recipient would appreciate more. They would technically get the same amount of cash but not in weekly payments - just pay a smaller tax bill so have more disposable income over the period. It may not be as noticeable then and planned to be allocated to the child in the same way. Although we cannot guarantee now how the benefit is spent on the child. Does weekly payments help them budget/ease cash flow for child expenses?

If they do not have any income or income lower than the allowance it could be wasted and they would not see the benefit. (unless the system is tweaked so they get a refund). Also the income tax base your estimated liability on the last submitted return. If a change in circumstances occurs which would give rise to being able to claim the benefit they would not be possibly quick enough to respond. (the tax office are behind currently we don't want this to be to anyone's detriment.)

This would suggest people would have to notify need for the benefit. Some may be unaware they can claim it or may not want to have to claim which could lead to them being disadvantaged. Although if social security department brought it in as a means tested allowance people may have to notify them as well. How does it work now - is it automatic on registering a child's birth or do you have to elect for it? I guess new residents to the island have to notify so a form and current procedure would be in place that could be adapted for purpose.

One thing to consider is that social security and income tax are reportedly now working closer together. They could implement systems between them to detect people who would be due the allowance but not receiving it to help ensure no one is slipping through the gaps.

Apparently Australia has a sliding scale of allowance. They get more the lower their income. Something else to consider is the £15.40 a week does not meet childcare costs as it is. Does income support plug the difference there? Should how much savings a person have effect their right to claim?

When looking for a cut-off point I definitely think joint income should be assessed as PLP points out as this would be fairer. I think it would need to be looked at what point it affects other bills such as mortgage repayments/utilities/food or how it would change the behaviour of mothers staying home or choosing to work. We don't want them to be in a position where they are forced to make choices they don't wish too. Empowered women are essential for the health of our economy. Should we have a buffer zone on the cut off income where it's set a bit higher than where we expect it not to be needed as a safe guard? Could we still do this and as Taff states still live within our means? (Such a great motto).

Would love to hear more how people felt. Also on Twitter now as @daniellesebire if anyone wishes to chat private about any of my posts.

PLP

Psychologically I think people feel better seeing money come into their account. Still, providing the benefit is realised as far as I'm concerned the simplest and most cost-effective way should be adopted.

In terms of assessment, keep it simple. Joint income definitely, although a potential fly in the ointment would be assessing unmarried couples. Married couples would be easy (same tax return) but there would need to be some way to ensure unmarried couples with children were assessed together to ensure a fiddle wasn't going on. I suppose same address is one way, but what would happen if parents separated? All things to consider.

I don't think savings should be included in means testing. Why should people be penalised for good financial management?

Shane Langlois

Dani

The Social Security Dept undertook extensive consultation and modelling when investigating an income related Family Allowance only four years ago. The results can be read on pages 1060-1064, Billet XII 2008 but the conclusion was;

“… it was not possible to design an income related family allowance scheme, on a cost neutral basis, that would not adversely impact upon middle-income families while providing sufficient additional income for low income families to warrant the increased administrative costs and complexities.”

At the time the SSD was not looking to save money but to distribute the pot more effectively to those genuinely in need.

GM

Shane

That's only because the same income data that Social Insurance would need, and which income Tax already have, is not being shared.

The States of Guernsey, in those separate departments, would have all the information they need.

Dani

Shane Langlois

Thank you for letting me know. I'll have a read of the whole lot when I have the chance. :-)

PS now following you on Twitter

PLP

GM - When I was self-employed Income Tax and Social Security shared my income data to determine my contributions.

This would be slightly more complicated though, for example means testing parents in the cases of unmarried / separated households where the tax code would be different.

Shane Langlois

GM

Its more that some middle income families have a low net income after capital repayments on their mortgages and childcare costs. They are the ones who would suffer if Family Allowance was clawed back on the basis of gross income.

As both the above outgoings are not tax deductible Income Tax would not have the data.

GM

Shane

Fair point but if the family allowance was scrapped altogether and was only available by application which would be means tested, how many people would need to be employed to deal with those applications to properly assess them? 2 or 3 perhaps, at a gross cost of say £80k to £120k perhaps? Seems perfectly feasible to me if it was to result in say 75% of family allowance no longer needing to be paid.

Scarlett

Another genius insight from an expert that not one of us mere mortals could have worked out for ourselves.

how exactly is stating the bloney obvious considered 'news'?

kevin

Have these 'business figures' stopped to consider that a good part of the financial mess we find ourselves in comes about as a direct result of the support we give their industry!

Funny how they omit this little detail.

GM

Kevin

And have you stopped to think how dire our economy would be looking now if we hadn't protected it via zero-10?

kevin

From where I'm standing it looks pretty dire now, easy to say with hindsight but we have been (and continue to be) far too reliant on finance - lets face it, the industry is shrinking and looks likely to continue to for a while yet.

Do you think there is any loyalty to the islands on the part of these companies?

One sniff of a better deal elsewhere and they will be off.

The article above says as much in not so many words.

GM

Kevin

A very significant number of fund administration and fiduciary businesses, as well as accounting firms, law firms and investment managers,are owned by local people who have a very strong loyalty to Guernsey. If we don't support them, Guernsey's finance industry will be well and truly dead.

The banking sector is definitely declining but other sectors are resilient and will survive if we don't do anything stupid re zero-10. We are talking directly about several thousand jobs, and probably 2 or 3 times as many indirect jobs again if we get that one wrong.

I totally agree with you that we should have diversified the economy 10-15 years ago, but in that period absolutely nobody has come up with any sustainable alternative industry. As we saw, LVCR was not sustainable.

If you can think of anything economically viable and sustainable then we are all ears!

The article says nothing of the sort - it's saying what many islanders are saying, which is don't introduce new taxes until more than the current lip service (in several but not all areas) has been applied to cut the ridiculously high cost of government.

Taff

Dani and GM are right. And a belated Merry Christmas.

Guernsey States needs to reduce its costs, although it is always easier to increase taxes.

But there appears to be little thought given to how to reduce costs, judging by the recent nonsense at HSSD, which was a complete over-reaction to the problem.

It all depends on "will". If it is there, costs can be reduced such that services suffer very little. But it is not easy.

If I was St Pier I would task every department to prepare a simple report showing how they could reduce costs by 10, 15, and 20%. And what would really suffer as a result. Then we have some facts to deal with, not emotions.

Another suggestion would be to have a means of allowing staff to report ways of cutting cost and waste. In business we used to call them PIPs - Profit Improvement Plans. And staff were rewarded for those that were implemented.

I sense that in many ways Guernsey is still living in the past, when there was plenty of money. Those days are over. Local businesses are right to draw attention to the problem, and the States needs to get a grip. And soon.

But the answer is not to increase taxes, but to live within your means.

PLP

The difficult with living within our means is deciding what gets cut. I think it was Neil Foreman on another thread who pointed this out - one persons candidate for cutting is anothers sacred cow.

Here's an example: a while back I posted a comment on TiG that found its way onto the paper. Basically I said that the Schools Music Service should be cut before any schools were closed. My goodness what an uproar it caused on Facebook when John Gollop criticised it! I had to explain to John and others that actually I didn't want to close anything, it was just a question of priorities. As a parent I'd rather no front line Education Services were closed....still I can understand why others (particularly those without children) would be clamouring to shut a primary school or two and ditch the Music Service.

So you see the dilemma - what do we cut?

A couple of Primary Schools?

Schools Music Service?

Beau Sejour?

Non-essential operations?

Mental Health Services?

Universal Benefits?

Civil Service Jobs?

Dairy Subsidies?

Bus Subsidies?

Infrastructure Maintenance (Airport / Harbour / Roads)?

.....and what do we not do?

Sewage Treatment Plant?

Waste Management?

Everyone will have their ideas which ones are more important than others, but wherever the axe falls someone will be unhappy, and therein lies the crux of the matter on this island. The problem with Guernsey is we want world class public services with low taxation. This is all well and good in affluent times - jobs are plentiful and salaries are high, but gradually those times are changing.

At the moment though we're a bit stuck as low taxation is necessary to maintain our core industry. No matter what people say we are reliant on finance and we'd be in a much bigger financial mess without it. What this does mean though is that that cuts do need to be made, and we need strong political leadership to decide what these will be. Yes we can trim some of the fat but unless the economy dramatically improves at some point we're just delaying....eventually the books won't balance and we'll be back to where we are now. It will require Deputies to be tough, even cold hearted, to ensure things get seen through - as we can't afford to have too many u-turns just because some folk get upset.

GM

PLP

Very well put. You have summed up the challenge to our elected representatives perfectly.

Will they have the nous, drive and political will to do what's necessary, or will too many of them just be looking at securing a deputy's wage from 2016 to 2020?

PLP

GM / Taff

Do you remember what happened with St Andrews School? Whatever the pros and cons of closing / keeping the school, in my view that illustrated the current dilemma in a nutshell. Some people saw it as a politically motivated u-turn with Deputies just trying to save their political skins. Others saw it as a good example of democracy in action - after all the clamour to keep the school was pretty loud and Deputies (in theory) are elected to represent the public.

I suppose the question we really need to ask is, do we want the States to lead or be led by public opinion i.e. who shouts the loudest?

I suppose there could be a happy medium (it would need some pretty astute leadership) but one thing is for sure, if it's too much of the latter I fear we're in line for a few more u-turns in the coming years and precious few savings.

GM

PLP

A very accurate summary. I know that re St Andrews if the likes of Mike O'Hara hadn't fought tooth and nail to save it, then re-election next time around would have been impossible.

But politicians are not paid to the popular thing and to ensure that they get re-elected. They are paid to make decisions in the best interests of Guernsey, whilst at the same time representing those who elected them. A blatant conflict of interests in many instances.

All that tells me is that without political parties such conflicts will always exist.

Spartacus

Is the States funded new £2M slaughter house a service provision or an investment? If it is the latter they ought to start negotiating payment options for users.

Foret

Agree with thee comments.

Foret

Agree with these comments.

Peter

The civil servants don’t listen to us the voters or to our representatives. So why not remove the deputies out of the equation? Who needs them anyway?

Klaus Fluoride

Why all the fuss over means testing? The family allowance is an anachronism in the 21st century and should be phased out altogether. It was introduced to help fight child poverty after the war (malnutrition in poor families was a real problem), proof enough that it is no longer required.

GM

Klaus Fluoride

I agree. Cut it altogether from 1 January 2014 if its too late for 2013. My original thought was to means test it, but the social security system would be best to deal with those who really need that benefit.

GM

So that's £9m-plus of savings that we've sorted over the Xmas break from our armchairs. It's probably more like £9.5m as Dani's £9m was based on 2009 figures. However, we should be prudent and assume that maybe 20% would need to continue to be paid to those who genuinely need it, so that's still just over £7.5m of annual savings.

Anything else we can find before the New Year?

Slash

College subsidies. Overseas aid.

GM

Slash

Overseas aid I agree with. Contributions should be linked by reference to our annual surplus. If we don't have a surplus, then no contribution, but give a bit more in boom times.

Removing College subsidies would save nothing at all. (Sorry everyone - I will have just caused Spartacus to spontaneously combust). The hard facts are that it costs the States an average of between £6000 and £7000 a year to educate a child in the States secondary system. The States gives a contribution of around £2100 per child per annum who is educated at the Colleges, with the parents picking up the balance (of around £6000 as College education is more expensive. So it only costs the States around one-third of what it costs if the child was educated in the States system.

A cost to the taxpayer of £2100 per child per annum at the Colleges versus a cost of between £6000 and £7000 at a States school makes the current system very beneficial to the taxpayer. Remove the subsidy and an unknown number of parents would simply withdraw their children (and their parental subsidies) and the taxpayer has to pick up an extra £4000 to £5000 per such child per annum.

Yes, it's true that this might also partially reduce the cost per capita of educating each child in the States system, but the overall quantum would still be higher for the taxpayer.

It would be "Armageddon" for the Education Department if huge numbers of parents took the withdrawal route. The secondary schools could not cope with the extra capacity - a new school would be needed to be built overnight.

Bear in mind also that these parents who currently contribute so much of the education bill are also taxpayers who are not taking up their right to free education for their children. As times get harder, some will have to move anyway to the States system, so Education's bill will rise anyway. It's already going to rise due to the surge in university education costs. That's one budget which is going to come under massive pressure.

Spartacus

GM

Anyone who wishes to opt out of the state school system should pay full whack for private education. It is that simple.

We have a set number of schools and adequate capacity for pupils. Therefore costs per head decrease the more children there are. If you have a band playing at a live gig, it costs no more to put on the show whether 500 or 700 turn up to the 1000 capacity venue.

If you are disputing capacity or demand, we have Ozouets campus, the college buildings would be vacant for rent, so many options so many facilities. The evidence indicates that roll numbers are falling so there will be extra capacity in future years. The LMDC decision will ensure there is capacity when 11 plus is abolished.

GM

Spartacus

Utter garbage. We've been here before. Ad nauseum.

What part of "subsidy" are you unable to understand? If the parents are willing to pay circa £5k per child per annum that the States would otherwise be liable for, then its impossible for there to be anything other than a big net cost to the States if the parents no longer pay anything.

(a) States pay circa £2100 and parents pay the difference, or (b) States pay circa £6k to £6.5k and parents pay nothing. Its not just a no-brainer. You'd need to be lacking a brain altogether not to see that.

Multiply the number of fee-paying students x £4k per annum and that is the annual amount that parents are SUBSIDISING the Education Department. The total was around £8m a year the last time I worked it out.

I accept that there would be some economies of scale if some feepayers moved to the States system, but £8m a year savings? No chance! Education's bill would rise considerably.

Unfortunately you are allowing your left wing beliefs to prevent you from seeing the complete lack of economic logic of your argument. But then again, logic and numbers have never been your strong point.

Spartacus

GM

Yes it fulfills my left wing beliefs. It also fits the States policy for equality. It also makes logical sense to me economically. It also makes sense economically to Capita who are driving the FTP.

I understand your hypothesis that subsidised private education reduces overall education expenditure however this idea is discredited by many educationalists and economists.

Island Wide Voting

Spartacus

'Anyone who wishes to opt out of the state school system should pay full whack for private education. It is that simple.'

Would you be of the same opinion if a few words were changed to ....

'Anyone who wishes to send their child to University should pay full whack for private education. It is that simple.'

Spartacus

Ray

Sort of. The States considers higher education to be part of the education package for which everyone should have equal opportunity. Parental contribution is means tested and anyone who wants to opt out of that states scheme pays full whack.

GM

Spartacus

Oh yes - equality. We can't possibly allow some students to outperform. That would be dreadfully unfair on the rest. How on earth would they cope with that? Best dismantle the outstanding Colleges and Grammar School to avoid all that. I think not.

Fortunately we only need to look at how the UK's comprehensive system has drastically driven standards down and produced mediocrity, totally under preparing school leavers either for the workplace or for life in general when they suddenly have to compete and face "failure" for the first time.

Another classic example of why we should NOT simply follow the UK's failing system. Lets avoid this namby pamby, "must not fail" system of wrapping kids in cotton wool and let's continue to prepare them for the real world.

Do we really want every Guernsey schoolchild to emerge with 5 or 6 GCSE "passes" and, for some, a couple of scraped A Level grades which won't be enough to get them into decent universities?

Spartacus

GM

Equality yes. We must allow all students the equal opportunity to outperform. Then Guernsey might avoid UK mediocrity and start matching up to the likes of Finland.

GM

Spartacus

No - you mean all must be given the chance to be equally average.

If Finland is so great, there are regular flights from several UK airports. I'd take a coat though at this time of year!

JJ Lehto

GM, I generally agree with most of your posts, but I don't agree with your position on the college subsidies. Your figures are based on the "unknown number of parents" who would withdraw their children and place them back into the state system. I think this number would be very low. I personally don't know any parent (and I know a large number) of a college pupil who wouldn't stump up the extra 2.1k per year. I drive past both colleges each morning, and you only have to look at the majority of the cars dropping off pupils to see their parents are not poor.

Undoubtedly there are some pupils who would have to leave, but I doubt the extra cost borne by the taxpayer for these pupils would exceed the savings made by abolishing the subsidies.

GM

JJ Lehto

Numerous parents with several children would have no choice. I accept that those with just one child would find it easier to find £2100. A heck of a lot harder to find an extra £6300 if there are three children of various ages.

jj lheto

GM, I agree that 500 quid per month would be a fairly big ask for a lot of families but one would hope that (despite the data protection laws) the states can cross reference tax returns and come up with a sensible estimation of how many people could afford the extra cost. Especially considering that any child removed from the colleges would (in most cases) end up in one of our wonderfully performing high schools....

What annoys me the most is the parents who "play the game" and pull their kids out of Melrose and Beechwood in time to enable them to pass the 11 plus with flying colours and thus secure a scholarship to the colleges.

GM

JJ Letho

I agree with you - that tactic should be stopped.

Phil

I thought that practice had been stopped some time ago, is the loophole still open?

Taff

PLP, and others.

If it was easy to cut costs no doubt we would not be discussing it. And I would not know which would be best to cut, but those we elect to represent us should, and by how much without causing too many problems. And the top Civil Servants. And the employees - use the PIP system to uncover waste. Most organisations can reduce by 10% without too many problems.

Based on experience to date, costs will not be cut, and taxes will rise. Which will have more serious consequences that cutting costs.

Guernsey States needs much better financial management and control, or we will all suffer, and the longer it goes on the harder it is to recover.

Paul

There are many soft targets that would impact little on thecGuernsey public. Schools Music service and bus subsidies would be a good start. £ 3 million without blinking now did that really hurt?

Dave

GM/Spartacus These boards are for putting people's points across not two people to comment on everyone's post on every subject. You may think you are a fountain of knowledge on every subject but you are not. 13 comments on this thread out of 33 some others are worse.

GM

Dave

Then ignore those posts - its very simple.

The topics on which Spartacus and I joust are very important ones for Guernsey. Excuse me for being passionate about them. I only wish that others were less apathetic, as apathy tends to rule in Guernsey until something is about to hit people directly, by when its too late. The two sides of the argument get very well aired (yes, I accept over-aired on occasion when I'm especially frustrated that Spartacus is failing to grasp a point).

But if you don't like it, don't read them. Its a free world.

Spartacus

Dave

A fountain of opinions maybe! You will be relieved to hear that I intend to make a new year resolution :-)

Watcher

Dave,

Spot on ! Two so-called experts in all things under the sun arguing on a public forum is not very edifying and does nothing to encourage others to participate. It seems almost like walking into a bar and interrupting two customers having a private conversation, except of course that on here you are not likely to end up in A. & E.!

nemesis

Well said, Dave. I have given up even reading many of the threads on here when I see their two 'names' alternating at the top of the most recent comments.

A.J.

Hear hear Dave. Some people appear to have far too much time on their hands and, also seem to suffer from an unlimited supply of verbal diarrhoea.

GM

Watcher/Nemisis/AJ

And your own respective contributions to this blog is what exactly? I don't recall any of you posting significant.

Just ignore what you don't wish to read.

A.J.

Sorry mate, but you have to read 'all' before you know what to 'ignore'.Do you not understand precis? Happy new year to ALL.

GM

AJ

Sorry if that puts you off, but some topics are too complex to get across in shorter posts to those such as Spartacus who need to be told something 10 times, in 10 different ways, before the penny finally drops. Most other posters don't tend to jump in with both feet unless they really know what they are talking about.

In the case of a pension scheme, we are talking about a current £320m black hole, which has huge implications for every one of us. Not sure about you but I think that's worth getting a full understanding about, because our politicians seem unwilling to confront it. I'm not even sure that more than a handful of them actually understand the implications either, which is truly frightening.

It would be nice to hear what regular deputy posters like Dave Jones and Matt Fallaize have to say about it, and especially Gavin St Pier - all noticeably silent. Have they been gagged?