Short but not sweet

DULL. Boring. Quiet. These are the words ascribed to the States of Guernsey’s 2022 Budget by its authors, the Policy & Resources Committee, in their own word association game.

Alchemy. Chicanery. Genius. Lacking courage. These are the words that came to my mind when I read it. I will explain.

It is certainly one of the shortest I’ve seen, with the fewest propositions attached to it for the Assembly’s debate and approval.

It is also exceptional that no amendments were lodged before last week’s deadline. It is therefore inconceivable that the States of Deliberation will take the four days allotted to this week’s special Budget meeting to approve it in its unamended entirety.

But is it quite as dull, boring and quiet as they want us to believe? The devil – and the interest – is always in the detail with Budgets and this one is no different.

Generally, the States have a cautious ‘pessimism bias’ when preparing Budgets and the States’ performance this year is no different, with much higher tax receipts than budgeted for, driven by a stronger than anticipated economic recovery from the pandemic in both 2020 and 2021. This is accompanied, once again, by anticipated underspends by committees, currently estimated to be £5.5m. If prior experience is anything to go by, the actual out-turn for 2021 will prove to be even more favourable than is currently forecast – time will tell.

But one area where the States is notoriously over-optimistic in its budgeting is for the savings it can achieve. And once again, nothing has changed. In 2021, it had planned that £7m. (just 1.5% of total spending) could be delivered as savings. The expected out-turn is, as usual, woefully short with only £1.3m. delivered. Procurement initiatives will deliver £300k instead of the planned £1.8m.; and the Revenue Service has managed to save only £100k of its £700k target. What’s happened to the balance? Well, as you would expect, it’s been kicked off into the long grass with the statement ‘These savings will not be delivered in full until 2023’.

But the spending machine rolls on. Although exact like-for-like comparisons are not easily made, given changes in the way some health spending is funded, overall, spending will go up by around an inflation-busting 4.5%. The pay bill will rise by 6.5% between last year’s Budget and this year’s. This doesn’t reflect the pay increases awarded in 2021, but only two groups have had any increases since last year’s budget – employees in the Agenda for Change group (i.e. broadly nurses and ancillary health and care staff) and a largish backdated settlement for the crown officers and judges to realign them with Jersey. There are 19 references to ‘service developments’ – a euphemism used to mean more services and increased spending. These are budgeted to be a whopping £22m. in 2022, including £1.8m. to ‘reshape’ government.

There is an 85% increase planned in spending on the use of consultants to £4.1m. To set this in context, Employment & Social Security’s work on ‘disability and inclusion’ – which is often cited as one of those things we really don’t need – only has a budget of £88k. Every committee’s budget goes up, except two – the Development & Planning Authority and Environment & Infrastructure, who have with quiet competence saved £300k on the bus contract. Both, to their credit, are planning to manage with less.

It is also interesting to observe, once again, that no traction is apparently being made with the realisation of any property owned by the States. Only £1m. of sales were planned and delivered in 2021; and only £3m. is budgeted in 2022. For a property owner with a portfolio estimated to be valued in excess of £2bn, this is equivalent of managing to sell a broken doll from the attic at the front gate. It seems that it is always easier to buy land than sell it, as we have recently seen with the £6.5m. purchase of the Kenilworth Vineries site in the Saltpans.

On the revenue-raising side, the Budget ignores two elephants in the room. Firstly, although tax on fuel is to rise by 4% (2.9p per litre,) the total fuel tax raised is expected to fall £300k. Why? Because of the accelerating decrease in the volume of fuel consumed (estimated at 5% on 2019) as hydrocarbon substitution with, for example, electric vehicles picks up pace. Every year the fuel tax problem is ignored, it becomes a bigger challenge further down the road to replace those increasing amounts of lost revenue. Secondly, domestic Tax on Real Property (TRP) on your home and mine. The Budget says that ‘due to the effect of the pandemic on a large number of individuals’, TRP is only to increase by 4%. At a micro level, this statement will be true – there will be individuals who have been affected. However, at a macro level, this runs counter to the much stronger economic and fiscal recovery reported earlier in the budget. Increased property taxation will need to form part of any revised tax base emerging from stage 2 of the Tax Review and the earlier you start that shift, the less painful it will be for everyone. The truth is the Policy & Resources Committee doesn’t want to put up TRP because – like increases in fuel duty – it’s both visible and unpopular.

This Budget is this government’s second. Last year, its first, it said rightly or wrongly that it had too little time to do anything other than inherit the one drafted by the previous committee. This year would normally be the one for action in which you’d expect a clear tone or direction of travel to be laid. With five Budgets in their quiver, they’ve only three left and the last one will be too late to make any real difference.

So the most interesting observation about this Budget is that it adopts hook, line and sinker all the policy and spending commitments of the previous States. Actions speak louder than words and despite the rhetoric that the last term wastefully engaged in vanity projects, this Budget quietly endorses and funds all those projects and previous States’ decisions. I guess that is praise indeed for their predecessors.

But not a single penny – not one – has been cut-back, including £538k additional funding for sport, £100k for Guernesiais and £1.8m. for affordable children’s primary health and dental care. Why not? Because, we can only conclude, they have decided the spending is needed and these new spending commitments are warranted too. Even £150k for ‘cultural enrichment activities’ in Education’s budget remains intact, to which has been added £634k of new money for special educational needs, which we were originally told would not be needed. Hence my comment that this Budget is political chicanery and alchemy at the same time. That’s its genius and why it will pass almost unnoticed.

By cutting nothing and spending more it offends no one; by avoiding any unpopular tax decisions, while maintaining the narrative of fiscal responsibility, it appeals to the political base of the Guernsey Party and the Van Party. But it demonstrates a lack of political conviction and courage.

Crossing your fingers with the hope that fiscal salvation will be delivered with all your political eggs in the one basket marked ‘Tax Review Part 2’ is not a strategy; it’s naive or irresponsible – or possibly both.