Accuracy of figures used in tax review defended by treasurer
THE States Treasury has denied several claims about inaccuracies in the figures used in the calculations of States finances for the tax review.
States treasurer Bethan Haines denied that public spending growth and public sector pay had increased by more than four times the rate of labour income growth in the decade from the introduction of the zero-10 corporate tax system in 2008.
‘During the period in question, the States has expanded some of its services, but a significant element of the cost increase relates to increasing demand for services as a result of the ageing of the population,’ she said.
The number of people retiring each year began to increase in 2011, and since 2009, the working age population has fallen by about 1,900 people and the number of people over pension age has increased by 2,200, creating downward pressure on taxes and increasing public spending on pensions, health and care.
‘This has created an unsustainable situation which is precisely what the tax review is intended to address, as part of a solution that also involves reducing spending and economic growth.’
She added that pay awards to civil servants were about 8% less than median earnings and 6% less than inflation between 2009 and 2020, and the biggest pressure on public sector pay was in relation to those in the Agenda for Change group of States staff, mainly nurses and care staff – and about a quarter of all public sector employees – who had seen a 12% rise in pay in real terms over the decade.
And while civil service staff had increased by 33 over the period, the number of nursing and medical staff had increased by 343, and numbers had fallen in all other public sector groups.
Ms Haines also defended the calculations creating ‘taxation headroom’ of 3% in public spending as a share of GDP, the basis on which the tax review was carried out to assess how best to raise some £78m. in taxation. Former States economist Dr Andy Sloan has criticised these calculations and described the headroom as a ‘mirage’.
She said that the States fiscal framework, which set a total limit for States expenditure, had evolved over the years, including the introduction of the spend on social security contributory benefits, such as old age pension and long-term care grants.
‘When the framework was extended to incorporate these in 2015, the level set was derived based not only on what government had spent historically, but also what was coming down the road – showing significant upward pressure on the public sector cost base as a result of demographic change.’
She said the decision to introduce a limit on government revenues, allowing States members to debate the size of government, was intended to ‘allow for open and transparent discussions about these long-term financial pressures’.
The higher limit recognised the scale of approaching financial pressures, and was outlined in previous tax reviews in 2015 and 2020 with the headroom clearly outlined.
‘It is a difficult and uncomfortable truth which was clearly articulated. There is no “correct” answer to the level at which this limit is set. As demonstrated again in the tax review policy letter, the limit in place will not cover all known spending pressures unless combined with other measures to grow the economy or reduce spending.
‘The argument about the size of the “headroom” ignores the more fundamental problem – the gap in funding for public services exists regardless of whether the States gives itself more or less “headroom”.’
