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Statement on behalf of the Policy & Resources Committee by the Treasury Lead

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Wednesday 24 February 2021

Financial Situation

Madam, thank you for allowing me to update the Assembly this morning on the States' financial position. My main focus will be on the provisional results for 2020 but I will also outline the initial impact on the 2021 position from the latest lockdown of the economy.

As is customary at this point in the year, I am able to share with you the provisional closing position for 2020. However, I would like Members to note that these are early numbers and still subject to further year-end adjustments and audit and therefore may change, particularly given the exceptional year that was 2020.

At the end of the first quarter in 2020, financial forecasts were compiled based on the best information available at that time which estimated that the shortfall in revenue income in year could be over £70m. As the restrictions on our community were lifted and the on-island economy returned to near normal functioning, this forecast improved significantly. When I presented the 2021 Budget Report to the Assembly in December, the shortfall in revenue was being forecast at £30m.

I am delighted to now be able to report that year-end tax receipts and other revenue streams have been stronger than anticipated and that this shortfall has provisionally reduced to between £5m and £10m. I must stress the word provisional here as we must now look in detail at these numbers and ensure that any possible repayments in 2021 are properly understood and taken into account.

In terms of ETI, which is the best real-time indicator of economic performance, collections in the fourth quarter showed an increase of 2.8% on the same period in 2019. Quarter 4 remunerations in total were just under 1% higher than during the same period in 2019 and 12 of the 19 official sectors paid out more in remuneration for Q4 2020 than they did in Q4 2019. A total of 9 of those 12 saw an above-inflation increase including construction, retail and real estate. Finance remuneration grew by just under 1% for the quarter year on year. All of these indicators are hugely encouraging and a strong platform from which to enter 2021.

I do not intend to go into further detail at this stage as I appreciate that a statement full of numbers is difficult to follow. I therefore intend to follow up this statement with a summary publication of provisional numbers over the next couple of weeks, which will allow a more detailed analysis to be shared as to the attribution of the numbers.

Suffice to say for now that our customs and document duty receipts have been exceptional and that income tax receipts have held up much more strongly than anticipated, which means that we have entered the second lockdown period in a position of greater economic strength.

Turning to expenditure, Committees collectively underspent the authorised budget by over £8m. There was significant additional expenditure in certain areas as a result of COVID-19: most notably Health & Social Care services which had specific additional costs of almost £3m; and Income Support payments which exceeded budget by over £4m. However, these were more than offset by reduced expenditure elsewhere.

The cost of Business Support in 2020 was significant. In total, some £51m of taxpayers funding was expended in supporting the economy through these extraordinary times. The grants to small businesses and payroll co-funding scheme put in place supported over 2,700 entities in total and undoubtedly contributed to our unemployment levels remaining relatively low, even in the second quarter of last year.

In total then, I am now able to report that the overall deficit for 2020 was between £25m and £30m after also allowing for the likely losses of Aurigny. I should caution here that we are still working with Aurigny on that entity's year-end position which could move as year-end adjustments are made.

This much reduced deficit is undoubtedly largely the result of the majority of the economy being able to return to near normal conditions so much earlier than had been expected last year. This underlines the importance of economic activity being able to revive and support our community and public finances. I sincerely hope that we will be able to move quickly through the latest stages of release of lockdown outlined by the Civil Contingencies Authority, recognising that we must also mitigate the public health risks as far as possible.

Members will be aware that the Policy & Resources Committee has re-introduced both payroll co-funding and grants to small businesses in January 2021 to support the latest lockdown. To date the number of businesses which have submitted a claim is lower than in the equivalent period in 2020.

The claims cycle is a monthly one and therefore claims received to date only relate to the first week of lockdown. However, it is evident that the reduction in claim numbers is higher in some sectors than in others. This is encouraging as it indicates business confidence in being able to swiftly resume trading without needing to rely on business support following the experience of 2020.

Given the number of notifications received by the States following the announcement of the move to Stage 1, particularly from construction companies, it suggests that a significant percentage of businesses will have resumed some level of activity from 22 February.

Clearly this is welcome news since, although we must support companies and individuals through this ongoing crisis, there will be a need to rebuild public finances and to ensure we can return to a position where we are able to ensure sufficient long term capital investment in our infrastructure.

That is the challenge that we are faced with in this term of government and why the Tax Review remains an extremely high priority for the Policy & Resources Committee and the Committee for Employment & Social Security together with a sharp focus on prioritisation, cost effectiveness, and efficient capital and asset management. I am encouraged with the progress we have made to date and fully expect to be able to report back to the States on progress and with initial proposals in the autumn of this year.

Madam in summary, we don't know what lies around the corner but this is very positive news for the Bailiwick and is testament to the patience and resilience of the public and businesses across all sectors.  

With spring almost upon us and the weather finally showing signs of improvement, we hope that the economy will again recover strongly as we pass out of the current lockdown. 

Thank you. 

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