States will have to squeeze its assets to make books balance

GREAT THINGS are expected of the States’ Trading Supervisory Board – £30m. of great things in fact.

It is the single biggest contributor to the States creating a surplus under the medium term financial plan, in fact. This makes it odd that some see the presidency job as less important than, for example, sitting as a member of Policy & Resources, especially given the ability to essentially go into submarine mode on that committee.

Last week, STSB president Charles Parkinson was busy carrying the final parts of the waste strategy through the States, while also giving members a more general update on his committee’s work.

It is easy to get distracted by the waste debate given how significant it is, but in terms of the overall health of public finances much rests on STSB’s wider mandate.

When the States debated the medium term financial plan, which sets out to find £70m. from tax increases, spending cuts and a £30m. contribution from the trading assets, it spent the vast majority of its time on the first two, and very little on the last point.

Even now, 10 months on from that debate, the £30m. is a fantasy, finger-in-the-air guesstimate.

That point should be understood, it was well teased out during a Scrutiny Management Committee hearing, as was the Gordian knot situation that even if you accept that target, it can only largely be achieved by one-off savings under the current laws and policies of the States.

So even if you make the circa £6m. savings each year, they will not be available for the next Assembly to do the same – which in a way is very reminiscent of some of the tricks being pulled off under the financial transformation programme.

Some of what has gone on at STSB is simply shuffling money around on the books.

Giving back cash to the capital account and using the bond money instead for the cranes and sewage projects, for example.

It has been described as smoke and mirrors, not balancing the books, and at the end of the day the consumer ends up paying for the debt – more spending pressure on households but disguised.

In his speech on the plan in June, Deputy Parkinson said there were nine trading operations within its portfolio, but some will never be able to pay a dividend to help to that target.

‘Guernsey Post, Guernsey Water and the new solid waste business, when it is established, will have to produce the major part of returns to P&R, totalling about £6m. a year. To put that in context, I remind you that Guernsey Electricity and Guernsey Post paid dividends last year of only £1.2m.’

Last week it was confirmed that in 2017 Guernsey Post paid a £560,000 normal dividend, and a £1m. ‘special contribution’, and Guernsey Electricity £750,000.

So if you steadfastly accept the £30m. target should be more than just one-off accounting moves, it should be repeatable. The States needs to make a decision that allows these entities to make more revenue by increasing their charges to the consumer.

Guernsey Water, under the current law, can charge only for the cost of supplying water, it cannot increase charges to pay a dividend to general revenue.

In situations when the States has a monopoly, such as milk supply or electricity, it may well not be legally defensible to increase the profits, in effect abusing that position.

Changing the legal position would be a very, very uncomfortable debate – one that so far is being avoided for obvious reasons – and Deputy Parkinson has said it would, in effect, be proposing a consumption tax on several of life’s basic necessities.

In some cases, even making efficiency savings would not contribute because they have to be passed back to the consumer.

STSB not only has to manage these operations through its shareholder role, the lack of regulation in some of these monopoly areas means it also has to protect the consumer too.

The medium-term financial plan is not something you will find being discussed in cafes, pubs and on the streets, because much of it is currently a paperwork exercise, just numbers on a spreadsheet.

When it was publicised, much was made about striking a balance between taxpayers doing their bit and the States making savings.

Not much at all was said about those drinking water, lighting their homes, flying, having a glass of milk or sending a letter having to pay to balance the books.

The public pays, just in ways that perhaps appear at a casual glance to be removed from the States, but they are not.

There are only so many share buy-backs and redistribution of surpluses that have been built up and raids on the bond money that can be performed, after all.

Perhaps the improving economic situation outlined recently will come to the rescue and the £30m. will not all be needed. Perhaps P&R, after its discussions with STSB, will realise that the money is not there and go hunting elsewhere instead. Perhaps some brutal decisions will be made on Aurigny to turn it into a profit-making enterprise flying fewer routes.

At the moment, though, this remains a £30m. problem.