External relations and thwarted ambitions

Policy and Resources Committee (P&R)

May 2016 onwards deputies: St Pier, Trott, Le Tocq, Stephens, Brouard

I INTEND to restrict my review of P&R to its performance in just three areas: the economy and public finances; the conduct of our external relations; and as the committee that enables other principal committees to do their job, that of constantly improving the delivery of public services and where necessary transforming them.

I am not remotely interested in the ‘grand vision’ thing, and although I am as interested as any deputy in such policy areas as the environment and social reform, I do not look to P&R to be their guardian and driver of change. In my view that is within the power of other committees and their specific remits, and to a certain extant is within the hands of pioneering individual deputies or groups of deputies armed with parliamentary devices such as requetes and amendments. By contrast, and within the current structure of our government, it is only P&R that can decisively manage our economic and fiscal health, deal with the powers that be in Westminster and Brussels and provide other principal committees and States bodies with the resources they need.

In June 2016, at the start of one of the earliest States meetings of the current political term, the P&R president rose to address the Assembly on the state of our economy and public finances. It began reasonably well. The economy had contracted in 2009 but had grown in every year since. Registered unemployment remained low at 1.3%; real earnings had grown, albeit modestly by 0.2%; inflation remained low at 0.5%; the population had increased by 140 the previous year; and surveys indicated that the business community was justifiably optimistic about the coming year. Throughout the Assembly, hearts rose at the prospect that some of those promises made during the general election campaign might actually be deliverable.

Whoever said that when delivering good and bad news always give the bad news first, had a point. There was indeed bad news to follow. The last budget of the previous States had been predicated on a budget deficit for 2015 of £20m. but Deputy St Pier could now reveal that the finalised accounts showed a deficit of £24.5m. Jaws began to drop as the explanations followed. Revenue was £26.5m. below expectations, mainly due to lower than anticipated receipts from income tax. To make matters worse, some principal committees were heading for substantial overspends. Forecasts for 2016 had now been adjusted and indicated that the new States faced a budget deficit of between £10m. and £15m. in its first year in government. Oh, and by the way, the limited reserves previously held within the General Revenue Account Reserve had been exhausted in 2015. And for those Assembly members seeking to console themselves that this was just a cyclical blip, there came a clear warning that the problem was structural; the island was set in a pattern of spending more than it earned.

I begin with this lengthy reminder of early 2016 because a central duty of P&R is to ensure that the policies of the States match the resources of the States. The clue is in the title. In that case, an understanding of how the term began is fundamental to a fair appreciation of the committee’s performance across the entire political term, a term that began with a structural, unpalatable mismatch between a relatively healthy real economy and public finances that were feeling distinctly poorly.

A series of P&R-directed expenditure controls and fiscal measures meant that by February 2017 the P&R president was able to tell the Assembly that, contrary to previous gloomy forecasts, the public finances for 2016 had been in the black to the tune of around £15m.; in effect, an improvement of between £25m. and £30m. over the previous forecast of a £10-15m. deficit. In each of the following three years, the news was similarly encouraging: public finances ended 2017 with a surplus of around £23m. and further surpluses were recorded for 2018 and 2019. All this was accompanied by year-on-year growth in our reserves.

So all was hunky-dory then, before Covid-19 descended on us? Well, not quite. Much of the positive balance owed itself to simply raising taxes, examples being annual, above-RPI rises in the Tax on Real Property (TRP), increases in charges for States services or the withdrawal of allowances. In support of such measures, P&R consistently made two points. The first was that even after such increases in taxation Guernsey remained a low-tax jurisdiction in that our tax take represents only 21% of GDP compared with 26% in Jersey, 38% in the UK and somewhere in the area of 50% in France. This assertion is substantially true, although I am not totally convinced about the accuracy with which we measure our GDP and – by extension – about the reliability of base lines set by that measure. The second mitigation for tax rises offered by P&R was that they were to be borne by those with the broadest shoulders. Personally, I wouldn’t advise telling any of our ‘just-about-managing’ families or our old-age pensioners who have had their £450 tax allowance withdrawn at a stroke that they have the broadest shoulders.

Rises in taxation and charges at least have the virtue that they provide a structured approach to balancing the budget, but we should note that our recent budget surpluses have partly been the result of unstructured, possibly one-off features within the economy. For example, the States has around £2bn of investments, the return on which has been well above expectations in all but one of the past four years. No reliance can be placed on yields from investments remaining at such levels.

We all know that the more we grow the economy, the less we have to rely on fiscal measures to keep pace with our appetite for spending. Of course, governments don’t grow the economy, but they can make it either easier or harder for those who do. With that in mind, P&R can point to consistent, year-on-year growth in our economy, even allowing for the mid-term adjustment to how we measure our GDP.

Perhaps the least appreciated but most valuable contribution made by P&R these past four years has been in its conduct of our external relations. Our status as a Crown Dependency without a written constitution is not well understood beyond our shores. It has its advantages and disadvantages, and it takes shrewd management of that status to extract every possible benefit from the former and to mitigate the effects of the latter.

It doesn’t help that we are wedged between two powerful states whose historical relationship with each other has ranged from that of hostile enemies to friendly (sort of) rivals. During around 800 years of our life as a Crown Dependency we have learnt that in any bar-room brawl between England and France, we tend to get hit by the flying furniture, so when the new States became faced with the reality of a pro-Brexit vote in late June 2016, deputies like me looked to P&R to watch out for us on the international stage with increased energy and vigilance. And we have not been disappointed. In these reviews, I wish to avoid – as much as is humanly possible – either promoting or undermining the election prospects of sitting candidates, but any neutral review of the conduct of our international relations these past four years would be incomplete without acknowledging that our interests have been represented with huge competence and authority on the international stage, especially and crucially in Westminster and Brussels and at national and provincial level in our near neighbour, France. Brexit, a possible no-deal Brexit and MPs Margaret Hodge and Andrew Mitchell have all posed serious threats to our constitutional position and our wider interests, and all could not have been better handled on our joint behalf.

I now turn to P&R’s role as coordinator and provider of support for the work of other States committees and bodies. The first point to make is that, given the structure of our government, there is an inevitable tension between the senior committee and others. The principal power held by P&R lies in its holding of the purse strings, and even that power is subject to challenge in the States Assembly, whose ambitions frequently exceed the amount of money in the purse. Add to that the failure of the current States to devise and then observe a true planning process for setting States-wide priorities, and the result, all too often, is stalemate, paralysis and start all over again. I don’t need to point to the obvious examples.

The outgoing States can fairly be described as institutionally averse to risk and P&R has been no less prone to excessive caution than others. There has been a mismatch between on the one hand the rhetorical narrative of the high-level Revive and Thrive paper produced by P&R and later endorsed by the Assembly, and on the other the evidence of the first four years of this States term. The rallying cry of Revive and Thrive is ‘ambition’ and yet many principal committees will have seen their detailed, well-researched proposals for reform greeted by the most negative of letters of comment from P&R and their advisers. At times it has been as if Sir Charles Frossard House has a minefield tape around warning all who approach ‘Danger, ambition not welcome here’.

There has been extreme timidity within the Assembly, too. If it was up to some members, the construction of our 13th-century Castle Cornet would still be awaiting States approval of the business case. I don’t know why such negativity is endemic within the States. Have fingers been so severely burnt in the past that the pendulum of decision-making has swayed beyond the line marked ‘sensible reflection’ to the end point marked ‘if at all possible do nothing or defer’? Do we no longer produce politicians prepared to take responsibility if a project goes wrong? In my view the States long since reached the stage where it is almost impossible for a major capital project to be developed from scratch and taken to the point where construction begins, all within the four years of a States term. I cannot remember when it last happened. It is not only time that is lost; literally millions of pounds are spent on preparing seemingly-endless, intensely-bureaucratic business cases.

This institutional failing is not the fault of this first P&R but it is true that the committee has failed to solve it. Its successor, with the cooperation of the wider States community of members and officers, will need to do so if Revive and Thrive is not to be their nemesis.

Rating over four pre-Covid years: 7/10