‘Fiscal Policy Framework is not wallpaper’

There is an important vote this week in the States on the Fiscal Policy Framework.

Unfortunately, this was subject to review by the Scrutiny Panel hearing, which to all those listening was excruciating. Richard Graham, as is so often the case, analysed the hearing accurately, insofar as he identified that the panel members and the representatives of P&R and the civil service were talking a different language.

If this had been accepted at the outset the hearing would have been much more useful with a proper debate and shorter. The approach being proposed by P&R was a proper principles-based framework covering all the issues.

It was a development of, and indeed an enhancement of, the Fiscal Policy Review papers, which were more narrowly focused.

It was not the rules-based approach that appeared to be favoured by the panel. It was apparent that those being interrogated were biting their tongues and were put in an invidious position, as trying to challenge the panel was, in the circumstances, never going to be productive.

It is increasingly accepted that rules-based approaches have not been effective not least because, in a highly volatile world, the rules suggested quickly become redundant. They are either too loose to be useful or too tight and quickly broken, often in a crisis.

One only has to look at France, the UK, Germany and similar small economies to Guernsey to see the impact of rules. The concepts of control are included in the FPF with key elements being the maximum debt target, the infrastructure target and the level to which we need to build up free reserves.

Indeed, the infrastructure model was improved on, as being determined by the specific requirements for Guernsey.

The idea, expressed by Scrutiny during the hearing, that, because there were no further rules, the civil service and the States would have carte blanche to freely spend, increase debt and have unsustainable finances is neither tenable nor correct.

They are sufficient unto themselves, as they stand. Ongoing financial discipline can be managed through a regular five-year revolving economic plan, reviewed annually, that goes across a political term, this is a much better mechanism to control current and medium-term expenditure within the more general Fiscal Policy Framework.

This would then be reviewed by a properly independent Office of Budget Responsibility, not the current Fiscal Panel.

This document is not wallpaper, it is a clear, well-presented statement of general principles, with which the management of the economy can be based for the long-term. It is particularly valuable given the background of considerable uncertainty. This is considered to be the modern approach and used in a hybrid form with success by, among others, Sweden, Ireland and New Zealand.

The framework is not perfect, can be improved upon and I am sure will be fully scrutinised within the States, the correct forum.

To throw this out in its entirety or delay it is an opportunity lost and a retrograde step if this means going back to a tightly defined rules-based approach that is recognised as out-dated, particularly given the fast-changing world Guernsey needs to confront.

Surely the time to amend it is now, as it stands, possibly provide a detailed appendix to define terms, review in a year and then move on to more pressing matters?

Michael Strachan