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Not much to shout about

Emilie Yerby | Published:

THE 2018 Budget is hot off the press, but on first reading it leaves me cold.

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Granted, I was never going to be the biggest cheerleader for this Budget. After all, I think it is based on a faulty premise: the so-called Medium Term Financial Plan, which, in an extraordinary feat of backwards logic, raises taxes in order to make islanders worse off.

The plan, which Deputy Shane Langlois and I challenged fiercely before the summer, will lead to an additional £14m. being raised in taxes over the next five years, while £26m., nearly double that amount, is stripped out of public services. For every £1 extra you pay, we’ll take away £2 in services – hardly a strapline for a government to be proud of.

All the same, that’s what three quarters of States members voted for in June, so that’s what the next few years’ Budgets will be based on. The plan was strongly sold by the Policy & Resources Committee, who said it was prudent, based in reality and constructed on evidence-based forecasts. It was supposed to be very achievable.

So the first test of the Budget is how well it measures up to the Medium Term Financial Plan. In other words, are the promises of P&R worth the paper they’re written on?

First, according to the plan, in 2018, the States should raise additional income of about £3.5m. It looks like the Budget will deliver this by expanding the 10% rate of corporate tax, tinkering with TRP, and reducing tax breaks for the wealthiest. So far, so good.

Then, the States will find £4.7m. to reinstate the Health Service Fund grant – a yearly payment into the fund that covers subsidies for prescriptions, GP and nurse consultations, and some other health-related spending. It was removed last year to help balance the books, with the promise it would be back this year. But, no: P&R is working with Health and with Social Security to redesign the funding of health and social care. In the meanwhile, the grant will stay gone.

General cost pressures of £1.5m., and specific costs of £2.5m. relating to the long-overdue introduction of Income Support, have been identified in the Budget – about £0.6m more than the £3.4m set aside in the Medium Term Financial Plan.

Meanwhile, with blithe optimism, P&R have chosen to attribute the fact that the States Trading Supervisory Board is only able to return £3m. to treasury, rather than the £5m. included in the Plan, to a timing difference.

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It’ll all come out in the wash. This despite a stern speech from Deputy Charles Parkinson in the June debate, warning us that we can only raise so much money from post, electricity or waste collection before it starts to have a damaging effect on the poorest households – a kind of GST by the back door, if you like. If P&R’s optimism about timing is misplaced, then the Budget is already at least £7m. adrift of the Medium Term Financial Plan – and maybe nearly twice that.

So the claim that the Budget contains ‘only good surprises’ – something we’ve already heard several times from P&R in the three days since it was published – clearly depends on a very selective reading of it. It is bizarre, for example, that the Budget celebrates the fact that £53.2m. will be invested in the Capital Reserve, when the Medium Term Financial Plan was premised on exactly that. Of course, behind the scenes, P&R may have been worried that the numbers were going a bit wobbly, and the report might reflect their relief that everything worked out – but as far as the rest of us are concerned, that’s no better or worse than what we were promised.

I suppose what I’m saying is this: despite the annual fanfare, it’s really not a Budget to shout about. It has a few really good things – the revised proposals for independent taxation, which remove the embarrassingly archaic idea that a husband should manage his wife’s tax affairs, while protecting the ability of couples to share their allowances, are very positive, and reflect a sincere and stubborn commitment to gender equality which is to P&R’s credit. The intention behind a Social Investment Commission is good, though I’ve still got many questions about how it will work in practice. Beyond that, its proposals are a fairly ordinary continuation of Guernsey’s usual approach to taxing and spending – remarkable only in the degree to which they have already come unmoored from the Medium Term Financial Plan.

Beyond the unravelling of that plan, there were perhaps two aspects of the Budget which especially bothered me. First was P&R’s obvious desire to exert more control over welfare spending – known as ‘formula led’ expenditure because it includes benefits that are paid to anyone whose financial needs fall below a set threshold. In an egregious comparison, P&R claim that increased welfare spending could crowd out spending on health or home affairs – pitting the poorest against the sickest or most vulnerable, in a move which is unacceptably far from the spirit of the inclusive community they claim to want.

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Welfare benefits are no more or less subject to control than, say, tax allowances, which are equally ‘formula led’ – but, importantly, higher welfare payments usually reflect a failure of the States’ economic or social policies. They arise in times of high unemployment, or when education and social services have been unable to break the cycle of disadvantage, disengagement and poverty among successive generations of the same family. If P&R is serious about reducing the need for welfare, combining the timing of two financial policy papers, as it suggests, is somewhere at the bottom of the pile of useful solutions – proper investment in the kind of policies that give all islanders access to opportunity, and a chance to improve their livelihoods, is pretty close to the top.

Which brings me to the last point, at least for now. Last month, the two most senior members of P&R were happy to take liberties with the budget of the Committee for Education, Sport & Culture by laying an amendment that would have led to multi-million pound, open-ended subsidies to Guernsey’s three private colleges – significantly more than the amount that Education itself was recommending. But this month, it seems that they are not prepared to accept a request from that same committee to increase their cash limit by £3.9m. in 2018, because they cannot deliver on savings targets in the short term. Instead, they will create some kind of joint P&R-Education working group, which will sit on the committee until it manages to strip that £3.9m. out of its running costs.

That kind of thing is usually a huge overhead in terms of time and effort, for very little practical gain. It is entirely inappropriate to lump it on Education just when they need to focus on the wholesale transformation of secondary education. It all but says that the States will make its decisions about the future of education on the basis of cost, not quality or educational outcomes. With Education the burning issue of this States’ term, this clumsy approach to its finances is the unwelcome sting in the tail of an otherwise ordinary Budget.

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