States’ £15m. surplus the first for eight years

STATES finances returned to a surplus in the region of £15m. last year – the first time in eight years.

gavster

But Policy & Resources president Gavin St Pier, who updated the States yesterday on the overall financial position, warned that government was ‘not out of the woods’ yet, as a lot of what resulted in the surplus was a one-off.

Forecasts in June last year predicted a deficit of £10m. to £15m., largely due to a projected shortfall in revenues.

At the time Deputy St Pier outlined a series of emergency measures to balance the books, including a tightening of States recruitment controls, limiting paid overtime and a delay to capital projects where possible.

‘I am pleased to report that these measures have had the desired effect – and a material impact on the year-end position,’ he said.

Almost £2m. was saved by measures to limit revenue expenditure, he said, and the States’ Trading Supervisory Board returned £2m. to general revenue.

Health & Social Care also got a grip on its finances and turned a forecast overspend of £2m. to £4m. into an underspend of around £700,000.

Environment & Infrastructure benefited from higher bus fare income, following a 10% growth in journeys; Home Affairs had a 4% or £1.4m. underspend; the Development & Planning Authority benefited from bumper receipts from planning control and Education, Sport & Culture returned £1.6m. of routine capital allocation, previously held as a sinking fund for future maintenance of Les Beaucamps High School.

Deputy St Pier said tight control over the budget reserve had resulted in £1.9m remaining unused.

As well as the active measures, economic conditions also contributed to a better out-turn.

Comments for: "States’ £15m. surplus the first for eight years"

Atlast

Good news. Time for A pay rise for the civil servants!

markB

Great news!! But how much is that £330m bond burning a hole in the bank costing us each year in interest??

Oh and any chance you could let us know why you took the bond out please?

Jake

The bond is justifiable (not necessarily justified) in secured capital, should it be needed, for projects. If the bond charges 4% (just a figure off the top of my head) then drawing £100m for a project that has a life of 20 years and saves £5m a year nets a £1m a year for the life of the project. Whether any of this is happening I don't know, but that's what I mean by justifiable but not necessarily justified.

Toby

If you read GSPs report ( https://gov.gg/article/158355/Statement-from-the-President-of-the-Policy--Resources-Committee-on-the-2016-year-end-financial-position ) you will see that the payment on the Bond in 2016 was £7m. Which means in 2016 it actually made a profit of £10m. Factoring in the £5m loss in 2015 we're supposedly still up £5m .

No idea exactly why we have it but at least ( for now ) it isn't costing the taxpayer money, it's making it .

Although how a Bond of £330m at 3.625% plus amortised set up costs only results in a £7m annual payment is beyond my schoolboy maths .....

Island Wide Voting

For real savings it might be worth considering putting Heidi in overall charge of the Civil Service for a year or two

Watcher

I cannot believe somebody as savvy as IWV has been taken in by this plethora of misinformation ! Deputy Soulsby and her team have "saved"money because they are simply not spending it. Routine operations are being put back months, people who need cataract operations are being told to wait and just turn up with a wonky knee and see how long you have to wait! All of here procedures cost money, and it comes from Deputy Soulsby's budget. Der!

Island Wide Voting

Well if the good lady could shave an annual 700K recurring off the CS wage bill I would go for that and vote her back in,in 2020 ... no questions asked

100% Donkey

This is good news. I'm quick to come down on bad news, so credit where it's due (particularly Heidi Soulsby) and others who returned funds.

Now for the bad news :

1. This will slow down any rationalisation of the Civil Service.

2. It will encourage our politicians to go on a spending frenzy (as if they needed encouragement).

3. it won't help our case in pension negotiations with the Civil Service.

4. It will deflect political attention from the challenging times that lay ahead.

5. It won't last......

Atlast

Donkey, I hope those unfortunates having to wait 8 months for a hip or knee replacement appreciate Soulsby as much as you. Soulsby has flown on the wind of others and will gladly accept bouquets that others deserve. When the brickbats arrive (and there are a number to come) let's see who fronts those - I bet it won't be her or her anonymous Secretary who continues to be a fish out of water.

davegorvel

We pay mores taxes with less disposable income and get less for them with all the cut backs.

Also not included is the 30 million on capital projects, so making a loss of 15 million per year.

Interesting this good news? has come up when P&R will most likely be given a blank cheque with no controls for the Waste bill.

All we need now is another dandelion announcement to make it even better.

Is anyone taken in by Gav the Saviour of Guernsey?

Common sense

I have a total distrust the current administration and its abilities. Figures like this are early to manipulate by moving items to the next budget or allowing the cost of the projects to be spread over years etc hiding the real financial picture.

£15,000,000 surplus well, GSP how about reducing the fuel levy or easing the tax burden on the public by other reductions.

If you have this surplus then you have taxed the public. Did you really need to increase the price fuel by 13 pence per litre over the last 18 months. (Perhaps GSP over compensated for the amount of interest on his loan that the public are paying off)

I also find the time of the release significant as we are now entering vanity project season and this will no doubt be used to try and argue that the states can afford big projects if properly managed e.g. Runway extension, waste strategy. Watch this space for the next big spend.

Still no signs of trimming the CS or reforms to cut the cost of running the states. Perhaps if we had some competent deputies incharge and got rid of the likes of Whitfield in the CS we would have some, real progress in getting rid of the oversubsidied busses and over staffed CS, etc then perhaps there would be a chance at having a happy island and before 20 years has passed by running and island wih less expense and not on debt.

Jasperino

That's the bond issue cost paid for then. Aren't we so so very lucky to have a Government who have got everything sorted out.

Jasperino

Gav, Gav, what's occurring?

Disgruntled

Tax cuts next year the New!

Jasperino

Disgruntled

Don't hold your breath on that one

Disgruntled

We can dream

Banned again!

Just wait till the export of trash costs cut in. These will escalate year on. This surplus is just a flash in the pan.

CommonSenseIsDead

Sorry Gav but I don't see how delaying capital spending can be classed as a saving. Yes congratulations, you can pat yourself on the back and say what an amazing thing you've achieved, but 12/24/36 months down the line those capital projects you delayed will have risen in cost and start overlapping with "scheduled" capital expenditure.

Beanjar

Just smoke and mirrors from Gav. Deferred expenditure, false economies and virtually no genuine savings through restraint, efficiency or cost cutting. Tiresome extra taxes for everything they can think of. I recently even had to pay £25 for a pathetic certificate from Income Tax to prove that I live here! Meanwhile, its business as usual and payrises all round for the deputies and everybody in the public sector, particularly those with the cushiest jobs.

Res1gned

GSP has said that the "savings" we're mostly a one off and cannot be repeated so where is the good news!!

This is purely a delaying tactic to take people's eye off the fact that no serious attempt to cut real costs has been achieved.

This is typical CS mumbo jumbo of delaying achieving anything so that the backlog of non achievement grows requiring more incompetent managers to be appointed to delay rather than do anything constructive.

How do CS worldwide get away with incompetence that would incur the wrath of employers in the PS

The argument that they need high salaries to be competitive is rubbish, bet they aren't able to get jobs paying half the rate senior managers get as a package if they moved to the PS

markB

plus where would some find a job working 9 till 4 and Friday afternoons off

Prospero

Good morning

A true measure of how well the economy is performing is:

Did the 4th quarter ETI and SI returns generate more than the quarter before and in addition, the 4th quarter of 2015 ?

Does anybody know if this is the case ?

The 1st quarter of 2017 may well rise because SI thresholds were increased:

ER's by 0.01%

EE's by 0.60%

This of course is an increase in indirect taxation and not increased saving or efficiency.

islander

Great news £15 million saving. This will cover the £12 million annual £330 million interest cost.

Galvin got his priority right in reducing the workers on the shop floors overtime and recruitment in favour of His big boys in the back room robbing the poor to make them richer for avoiding consultants fees thereas more in his managements pockets.

Dick G

Has anyone been taken in and actually believed GSP, how can he declare a £15 million surplus when we have a £330 million bond that will take 40 odd years to pay back !!! Also his so called savings are not savings at all but mostly under spent budgets being given back at the end of the year instead of the old way of spending it willy nilly before the end of the year. In the same week he announces the spending of over £400,000.00 on 3 extra staff to look at Brexit, why could not the existing senior financial staff / economists deal with this, the civil service staff levels at senior management level continues to grow year on year, when are 10 year Whitfields cuts going to start ?????

Major Denis Bloodnok

That's not strictly true there's 34 years of interest to pay. How the Bond is paid back at the end of that time remains to be seen. According to the 'best advice that the States received at the time' the interest and capital would be paid back by vacating existing loans and allowing States commercial undertakings to pay the Bond interest and capital off with no additional cost to the tax payer. Unfortunately the advice from those at the top of the civil service was no good (research wasn't done properly) and the States were misinformed. The existing loans couldn't be paid off (the terms of those loans didn't allow for that) and oh you can't just give the bond money back either. A real conundrum.

Makes the public service pension scheme finances trivial and of course the States voted yesterday to kiss off another £300million over 20 years - that's conveniently 20 years at £15,000,000 per annum. Underspend gone in the blink of an eye and of course the 97 orthopaedic operations cancelled last year because of lack of appropriate bed space at the PEH had nothing to do with cuts. Get a life don't insult the intelligence of the general public with such rubbish and don't insult the health service workers who'd worked so hard over the years to deliver the type of healthcare islanders actually want. These are real people who have suffered physical pain as a result of the cancelation of their treatment.

Common sense

I have often on this site that when the loan was taken out it was the first step towards the Guernsey national debt as GSP intended. £40,000,000 has been lent to Aurigny and this means the public will have to subsidise this amount plus the interest or as the 32 years approaches another consolidation loan will have to be taken out to pay the existing loan off.

The decisions the states makes e.g. Waste strategy and other vanity projects that are being mooted (runway extension) will decide if the money can be paid back in the time scale.

The deputies are keen to use the loan but the existing conditions need to be rigorously enforced to prevent the above.

Common sense

Should read, I have often written

Banned again!

"Unfortunately the advice from those at the top of the civil service was no good......" Perhaps Whitfield should explain the reason why as he's intent on pushing up their pay scales as they are such fine fellows?

Perhaps one of his underlings (a deputy) would answer for the great man?

Hammerhead

How can the forecasters get it so wrong. This happens every year as well. But how can a projected overspend of £15m turn into a surplus of £15m or £30m out. The forecasters should be sacked and replaced by those who are more accurate. If forecasts were so wildly out in the real world heads would inevitably roll.

Devil's Advocate

What's the annual States turnover? I suspect as a percentage, £15million is pretty small.

Island_Ranger

That's quite the cock up on the projections, whether it incidentally happens to be good news or not.

Beanjar

Before Gav and the other big spenders get too carried away by this £15m 'surplus', has he paid out this year's Bond interest of OVER £11 MILLION?

Accountant

Pretty sure, based on their "accounting policies", that income tax receipts are overstated (12 months in a year not 13!) So realistically, calculated as a 7m deficit for the year...

Klanm

The surplus result was mostly down to the return on investments. I see St Pier did not give out that number. All foreign holdings would have benefited by sterling devaluation . So give the number for this windfall, as that was it was . If global markets full back in 2017 and sterling rises then will be the totally opposition for 2017. So simple . Tell us the windfall excess return over long term target / rolling return

Beanjar

I wonder what rate of interest Gav managed to get on investments? I can pretty much guarantee it was not as much as the 3.625 that we are paying out. On the bond he should never have been allowed to set up. And that's even before the buffoon gets the go ahead for his stupid 'Dragon's Den' style speculation idea which can only end in disaster.

Rupert Walthumstow

I don't recall if it was a speech / twitter but the numbers quoted were something like +14% last year for the long term investments and +8% for the medium term investments. I believe the medium term was where the unspent bond proceeds were invested so that more than covered the interest payments.

I too agree the bond was a shocker of an idea and poorly executed but the return last year was sufficient at least to not further indebten us.

Beanjar

Sorry, Rupert, I couldn't understand your post. Are you saying Gav has achieved returns on investment of 14%p.a. and 8%p.a. respectively? If so, I find that impossible to believe. Is it, perhaps, the compound return over periods of years? If so, we would need to know how long those periods are.

Rupert Walthumstow

Yes, that's exactly what I am saying, over the last twelve months. Given market moves and assuming they are relatively heavily invested in equities - quite appropriate for a long term investment - neither is implausible.

Of course, that's only one year and past performance is no indicator of future performance so I wouldn't go expecting that every year, but for 2016 that was what happened. Source here https://twitter.com/gavinstpier/status/831915878690279424 although apparently it was +7% not +8% as I originally stated.

Beanjar

Thanks for that Rupert. I didn't realise Gav was gambling with our future. I am shocked, I would have thought anybody prudent would stick to very high grade government and corporate bonds. OK, so he managed a gain of between 7-14% in a year when the FTSE had an annual gain of 14.4%. I did even better, but have been selectively taking profits and top slicing since November.

I don't mind gambling with my own money but how much will Guernsey lose in a year when the markets drop? When that happens, he will of course blame 'market conditions' but is he acting responsibly?

Gav and his ilk talk grandly of 'strategies' but in reality nobody knows if markets will rise or fall in 2017. Since we ended 2016 near an all time high, I would say a fall is more likely. If he is gambling with equities this is no more responsible than taking the bulk of that £330M to a casino and betting 'black' or 'red'. Does anybody know what the portfolio of Guernsey's investments consists of?

Rupert Walthumstow

It's not for me to say how it should be invested of course, but if you just (for example) picked the FTSE Gilt All Stocks index, that made 10% last year. You could argue that's too risky as it has short and very long dated Gilts but for a 30 year bond some 30 year exposure is fair, with some exposure also in much shorter issues in case capital needs to be spent on projects.

Assuming we can't go back and not issue the bond in the first place, I would want the opportunity to at least earn my 3.375% interest costs so having something not in high quality fixed income is reasonable but who knows how much should be appropriate. That probably comes down to whoever is in charge's appetite to tweak risk levels.

Castelian

So lets get this straight, they borrowed £300m and the debt interest to be paid is 3.5%, but its invested in an account that gives 8% interest back? Wow if that is the case then we should borrow more!

Rupert Walthumstow

No, it's not 8% (or 7%, my mistake) interest back like a bank account, it's return on investments. This year those investments may go down 2% and over two years we'll be in the hole again but assuming they remain invested over the whole period, one would hope they could average out at more than the cost of borrowing.

Borrowing more just to invest on the premise you could make more than the required interest would patently be dangerous financial management and definitely something the SoG should not be doing though!

rjp

It is totally unacceptable that a statement is not produced to show to taxpayers

States revenue

States expenditure

Financing costs

Net surplus deficit

plus

States assets

States liabilities

An idea of what can be produced can be found on the UK government website

https://www.gov.uk/government/publications/whole-of-government-accounts-2013-to-2014

where everything is summarised in the key facts and figures document over 4 pages

Mark

You can find the full financial statements if you look hard enough, well, first result on Google so you don't even have to look that hard.

2015 accounts

https://www.gov.gg/CHttpHandler.ashx?id=102751&p=0

Klanm

As mentioned above 2016 investment returns were above the rolling long term average , Mr St. pier must advise the effect this return had on the public finances that he was so proud to report. If as I expect in the next few months we see quite a severe equity market correction and at the same time rising bond yields as inflation takes hold what effect this will have . I do hope this has been stress tested and models produced , what I don't take kindly too is the lack of real transparency. Sorry Mr ST Pier we are not stupid !!

Beanjar

I don't know a great deal about bonds but I understand how the market works. From just a quick look at current bond prices I can see that Gav is taking a big gamble with our future. Many Bonds, and particularly long dated Gilts, are trading at an enormous premium to their face value. Any upward movement in interest rates will take a huge bite out of those premiums overnight.

'Gilts' sounds like a nice, safe investment but it is quite possible that he holds some that he bought at, say, 120% of face value a year ago. They might be worth 135% of face now, but in a year's time could conceivably be worth far less. It all depends on interest rates, if the market expects them to rise significantly, then Bond prices will drop like a stone.

I understand the need to get a return on investments and that all investment carries inherent risk. However, it stands to reason that any investments with a 14% return must be very risky. If we look, for instance, at a UK Gilt 30 Year with a Coupon of 3.50%. That means a yield of 3.5%, but only if one owns it from the date of issue to the date of maturity. Because prevailing interest rates are low this gilt currently trades at 130% of face, which reduces the effective yield to 2%. If interest rates start rising the price will drop back towards 100% of face. If/when interest rates return to 'normal' levels the price could well drop to less than face value - quite normal for long dated Gilts.

I don't know if the States has any controls in place to manage the risk of investments Gav is allowed to make, but it certainly needs some. It is simply not good enough for him to take the credit for gains when he has been lucky, then blame market conditions or bad advice when he subsequently loses us £ tens of Millions.

Prospero

Good morning Beanjar

Excellent post. Thank you.

It is purely speculation on my part but I wonder if this spins out from the fact that the Bond (£300m) total was far in excess of what was required in order to settle other debt consolidation - its original and official purpose.

I seem to recall Dep Le Clerc confirming on Radio Gsy that this was the case.

The question may then arise - If far more was borrowed then why and what for ?

Scrutiny will pronounce on this shortly - speculation again on my part but if the intended future use of the residual amount is contrary to official constraints vis a vis Capital v Revenue Bearing projects then this investing / hedging is something that has been forced upon Dep St P as he need to justify why he borrowed so much above stated requirements.

Dep Laurie Q has been trying for some time to gain clarity regarding terms / use of the Bond.

Maybe he could update us and / or add to this thread ?

Also - I am hearing that Scrutiny's findings are very illuminating and, according to Dep Le Clerc should be guaranteed a public hearing.

If there is no public hearing then of course we should wonder why.

Klanm

What St Pier should tell us income against costs ( forget invest returns) we can then see if we are running a operating surplus or not. Come on be transparent please