The update sets the boundaries for decisions made during the next four years of the next Medium Term Financial Plan, from 2016 to 2019, which is due to be debated in the States next week.
Notably, the Fiscal Policy Panel of four senior economists from the UK will continue to play an important advisory role and keep a close eye on progress made towards balancing the budget and maintaining States funds and assets. To strengthen the panel’s independence and make the process more transparent, it will be led by the chairman, without input from the Treasury officers or minister.
The document states that the States Strategic Reserve – or ‘rainy day fund’, totalling £786.5m at the end of 2014 – should keep an equivalent capital value to that of 31 December 2012, with the exception of ‘severe structural decline such as the sudden collapse of a major Island industry or from major natural disaster’. The fund can also be used for the new hospital, as agreed in 2012, and to fund the Bank Depositors Compensation Scheme for up to £100 million.
The Stabilisation Fund set up in 2006 in advance of the financial crisis has been close to zero since 2011, after withdrawals of more than £150 million.
The Consolidated Fund (the States ‘current account’) must not be in deficit at the end of the financial year, although because of concerns that rules and borrowing limits could be counter-productive, this will be monitored. Last year the total borrowings the States could make was increased from 15 per cent to 60 per cent of the estimated income from tax during the previous financial year.
The update also states that according to the panel of economists, last year’s States Budget report lacked ‘basic and important information’ and that in future, presentations of States finances should be ‘clear and concise’. The next Budget is due towards the end of the year.
Treasury Minister Alan Maclean said: ‘I hope this updated fiscal framework will inform the forthcoming MTFP debate. It is important that States Members take the time to look in detail at the direction set out in the framework.’
‘I am wholly committed to balancing the budget and to modernising the public sector, and this framework gives us the tools to realise these ambitions,’ added the minister.
