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Speech by Deputy Gavin St Pier, President of the Policy and Resources Committee

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Monday 20 March 2017

Deputy St Pier gave a speech today at The Chamber of Commerce lunch.

Thank you for inviting me to speak today - it is always a pleasure to have the opportunity to do so.

We are nearly eleven months into a new States' term with a new system of government; and yet the world looks and feels very different to that which existed 11 months ago.  We are all adjusting to the new resident in the White House - and all that goes with him; and we are all adjusting to the consequences for ourselves, our businesses and our community of the United Kingdom's referendum decision to the leave the European Union. So today, I am going to speak about 'the state we are in' - a phrase I have taken from Richard Hemans' recent article in Business Brief magazine - and speak about some of the challenges we face.

A number of people in this room have told me, anecdotally, that recently Jersey has 'felt more buoyant' than Guernsey.  So that is a good place to start. 

Much of that may be because we had a shallower single year of recession in 2009 - and have experienced below average rates of growth since; whilst Jersey experienced a longer, deeper recession, from which in the last couple of years they appear to have bounced.  But let's look at the stats.  Guernsey's economy in 2015 was 10% larger that it was in 2007; Jersey's economy was 10% smaller in 2015 than it was in 2007.  Guernsey's GDP per person in 2015 was 10% higher in 2015 than in 2007; Jersey's was 18% lower in 2016 than in 2017; as a consequence of our growth and Jersey's contraction, GDP per person in both islands has for the first time now converged.  Note too that Jersey's contraction in GDP per head is greater than its contraction in GDP overall, no doubt in part because they have experienced an increase in population - in other words, a large number of people over which to share a smaller pie.  Unemployment in January this year in Guernsey was 1.2%; in Jersey it is about 4%.  When it comes to the public finances, while net revenue expenditure in both islands was 17% of GDP in 2013, as we have continued to grip public spending, the forecast for 2016 is 16% in Guernsey and 18.4% in Jersey. 

In consequence, as you know, we recorded a surplus of £15m in 2016 whilst Jersey's last deficit was around £50m - and that was after the benefit of £80m of GST receipts.

Let's just take a moment also to compare ourselves to our largest trading partner, the United Kingdom.  Government spending there averages 44% of GDP; but they consistently spend more than they receive; in this coming financial year, that deficit is estimated to be 2.6% of GDP - and remember, if we ran a deficit at that level, it would be running at about £61m a year.  That annual borrowing requirement has now produced a debt mountain - there is no other appropriate description - totalling 90% of GDP - for us, the equivalent sum would be £2.2billion.  And things aren't set to improve any time soon for them, with a balanced budget put off by the Chancellor or the Exchequer until at least 2021/22.  

So when people comment to you that income tax allowances in the UK are now higher than in Guernsey or fuel costs about the same per litre, please just take a moment to remind them of those facts; because it is a whole lot easier to give money away when you don't have to fund it out of taxes.

What other indicators do we have the island's good economic health?  The island's population grew by 0.4% in 2015; median earnings grew by 2.2% in real terms in the year to June 2016, confirmed by a 2.1% real terms' increase in ETI receipts for 2016 as a whole; local market property transactions increased by 11% in 2016; and a phenomenal 80.4% of those aged 16-64 are either in education or are economically active. 

Taking all those statistics as whole, we are in pretty good shape and have good reason to be confident - which is just as well: firstly because our financial stability will become an increasingly important issue in enabling access to markets in a post-Brexit world;

but also because we do face a number challenges coming at us from different directions: local, national, European and global.

Let's start with the socio-economic forces that have given succour to populism and nationalism.  Since the global financial crisis in 2008, in the developed economies the slow pace of recovery and low productivity growth have meant real earnings have contracted, stagnated or experienced very slow growth, including here.  When combined with government-led austerity, raising taxes and cutting services, the majority of the population - working families - have been squeezed.  Meanwhile, they have looked on as the monetary transmission mechanism of quantitative easing has stoked real asset prices, increasing the net worth of a few - the elite - exposing the myth that 'we are all in this together.'  It is that which has created the sense of disaffection and disenchantment - understandably. Simultaneously, the rise of social media has given people a sense of empowerment and an echo chamber into which they can voice and reinforce their discontent with governments everywhere. 

Those same forces are present in our community too - and we ignore them at our peril.  That doesn't mean we abandon our values and principles; on the contrary, we need to restate and reinforce them. But it does mean we need to deliver.  Fortunately, the Policy & Resource Plan, Future Guernsey, provides a clear long-term vision, an ambition, for our community: to be among the healthiest and happiest places in the world; but more importantly, it also provides a disciplined framework by which this States can prioritise its work in this term of government.  Phase 2 of the Plan which is - and always was - due to be debated in June this year, remains a work in progress - and we remain on track.  Planning in this way is new to all of us; it is a significant change and test.  A number of you participated in the workshops which took place earlier this year to help identify our order of priorities.  And those that did, acknowledged how difficult a task it is. 

Our priorities will include the challenge of how we can deliver social welfare reform to some of the poorest in our community, following the work in the last term of the Social Welfare Benefits Investigation Committee. 

It will also include how we can reform our personal tax system to ease the burden for those on low and middle incomes.  It will include the challenge of deciding realistically how much in this term we can deliver on previous promises, in relation to the disability and inclusion strategy, the supported living and aging well strategy, the children and young people's plan and the mental health and wellbeing strategy - among others.  It will include how we ensure our procurement policies aren't protectionist, but are fair and recognise the desirability of using local suppliers and contractors, whilst ensuring taxpayers get value for money.  It will need to recognise how we address recent relatively low productivity growth and how government can increase the productive capacity of the economy, particularly by improving our connectivity - digital, sea and air.  It will need to consider how we unlock - and having identified what the community want, how quickly we unlock - the development opportunities in the harbour action areas - which I know is of interest to a number of members of Chamber. 

Through the medium term fiscal strategy, it will need to acknowledge the pressures on our tax base: as the population ages, the numbers of economically active will continue to fall, along with the tax take from their smaller incomes; as artificial intelligence changes the nature of our jobs' market, we will need to consider that impact on our tax base; as the population becomes healthier, it is consuming less alcohol and tobacco and generating less excise duty as a result; and, as we - along with the rest of the world - reduce our reliance on carbon fuels, we consume less taxable fuel - 2% less in 2016; and all the while, we will need to keep in mind, plan for and react to international corporate tax developments, including falling corporate tax rates in the UK (and probably the US) and the ongoing work under the EU's Code of Conduct on Business Taxation.  This is against the backdrop of the community's increasing health and social care needs; and also a requirement to increase our investment in prevention strategies to reduce tomorrow's costs from a range of health and social problems, whilst still funding today's acute or crisis response to those issues. 

As if that weren't enough, we then need to overlay Brexit.  We are very clear in our objectives; we are already outside the EU and already have third country equivalence in a number of areas; and we have positioned ourselves well with the key players.  But there is obviously much uncertainty as to the final outcome - and the next phase will, I am sure, be fast moving.  We will find and devote the additional resources needed to ensure that we achieve the best possible outcome for the island. 

And all of that is of course precisely why the transformation in the delivery of services, through Public Service Reform is so critical and must continue with increased momentum - to help free up resources doing what we do today, to enable us to do what we need to do tomorrow.  We will deliver on some key property moves this year - and more must follow.  The pace is also picking up in the transformation of health and social care services - and the new secondary health contract is a further enabler.

I have given you a huge list of challenges we face - all the more so as it is merely a fraction of those requiring attention.  Don't forget the preservation of our environment, our capital programme, a new secondary education system, the EU's General Data Protection Regulations, the funding for our long-term care system and the development of a secondary pension scheme - to name just a few more. 

Am I daunted? No. Not at all.  On the contrary, I am confident.  And so should you be.  As I said at the outset, our economy and public finances are relatively strong.  We know what challenges we face, which has enabled us to plan and against which we can and will now deliver.

I want to address two other matters.  Population management and the reform of the electoral system.  I must stress that on both these topics, I am speaking now as an individual deputy and not on behalf of the Policy & Resources Committee. 

I say that only because we haven't in fact had an opportunity to discuss either of these matters as a Committee - not because my colleagues may agree or disagree with me on these topics.

Population management is very topical right now because of course the legislation is coming before the States on 29th March, including the commencement of the new regime on 3rd April.  One premise behind the new regime is sound; that is the desire to manage the size of our population given the island's changing demography - and this isn't possible under the current Housing Law.  The second premise - that we will in fact be able to successfully manage the size of our population using a legislative regime which requires an administrative system to operate it - is unproven.  60 or more years of Housing Control have created a bogeyman, a myth that thousands of people want to move to our island.  I don't believe it.  Personally, I think the interaction between the supply and demand for jobs and the supply and demand (in other words, the price) of housing is principally what regulates population numbers. 

And therefore if we want to control population numbers, it is to policies which influence those markets to which we should turn.  Let's be clear, I don't think there is anyone who likes every jot and tittle of the new regime.  I certainly don't.  But that doesn't mean I support the retention of the current regime by the deferment of the new regime.  On the contrary, I think we need to get on and implement the new regime which has one very significant advantage over the current regime: flexibility. 

In December 2015, the previous population policy based on a simple cap on absolute population numbers, was replaced by one with a focus on a working population of a size and make-up which will enable us to achieve our objectives.  That was an intentional change made by the States to reinforce our message that we are open for business.  But also it should now give us the tools to enable us to respond quickly, if we find that the population management regime is impeding us.  So for all those in the room who do have concerns - and I know there are some - my advice to you is to make sure you engage actively with government in the weeks and months ahead.  Let us know as you encounter any snags or teething problems.  But also let us know and provide us with supporting evidence where you feel the regime is impeding the island's objectives.

At this point, it is perhaps worth once again briefly returning to Jersey, which of course has had its Regulation of Undertakings regime for many years.  That has been as unpopular at times as the Housing Law regime.  Since their last election in 2014, they have had an interim policy.  But early this year, the government announced a tightening of an existing policy to claw back unused permissions to employ people from outside Jersey from large businesses employing more than 30 staff.  As Chamber reported in your magazine recently, the IoD in Jersey have described it as damaging to the island, both socially and economically, sending out the signal that the island is closed for business.  In short, Jersey haven't yet found the panacea for this particular problem either.

Finally, electoral reform.  The last States voted to introduce island wide voting in a single election of all deputies, subject to approval in a referendum.  The referendum is likely to take place next year.  I think such an election would be a disaster.  I think it inevitable that the vast majority of the electorate would struggle to use all 38 votes, from what could be a list of 100 or more names; this would benefit well known individuals and would risk the 38th successful candidate being elected with a very small number of votes.  Such outcomes would not serve democracy well.  And yet I supported the move.  Why?  Because I believe that such a system could force candidates to ally themselves around policy positions in order to help the electorate make their choices - and I believe that such a development would be a positive one, because it would enable the electorate to start choosing policies rather than personalities.  The unique system that we have is wonderfully pure, leaving us as individual elected representatives completely unfettered to vote on each issue as we see fit. 

But it pretty well guarantees that every elected member will disappoint all those who voted for them at some point during their term, as they adopt a position on a given topic with which any given voter disagrees.  That may be one of the reasons for voter apathy and disenchantment with government.  And in 2017, I think it is also a self-indulgence we cannot afford; it cannot be the best way to choose a national government - for that is what we are.  I suggest that it is for this reason that it is unique and other jurisdictions don't operate our system. 

But political movements should not emerge just from within the serving political class. They should emerge from civic society.  So I finish with this call to arms.  If you want an island wide voting system and want it to work, now is your time.  If you are interested in politics and the future direction of our community - which I suggest many of you will be, otherwise you wouldn't be here today - but you aren't interested in being in politics, now is the time for you to step forward and offer up your ideas, your passion and vision for your island;

and your time and commitment to help organise a new form of politics in our island in the next couple of years, ready for the 2020 general election.  Whether through apathy or otherwise, if civic society in Guernsey does not wish to organise itself in that way, it cannot fairly criticise 38 independent politicians as they struggle to provide cohesive leadership; if civic society wont organise itself to present its own alternative manifestos for government before an election, it cannot fairly criticise 38 independents for taking a year to develop a programme for government through the Policy & Resource Plan after an election.  If anyone is interested, please get in touch with me; and if no-one is interested, you will now better understand why I wouldn't recommend that you support an island wide election for all deputies on the same day.

Thank you.

Deputy Gavin St. Pier - President, Policy & Resources Committee, 20th March 2017

 

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