News and Insights

Jersey's Fiscal Policy Panel - Annual report 2024

The Fiscal Policy Panel (the Panel) recently released its annual report for 2024 (the Report). The Panel is a statutory body which reports annually on the strengths and weaknesses of Jersey’s economy and its economic outlook.

Sure, such a report may not sound particularly interesting and is sometimes dismissed as just another expensive government paper put together by policy experts to waste public money.

However, that assessment is almost entirely wrong (with the true part being that it is put together by economic policy experts in the form of a knight, a CBE and two professors).

Understanding the findings in the Report is helpful in many ways:

• It shows the areas where the government of Jersey’s handling of the economy has been skilful and prudent but also where its management has – to put it mildly - left something to be desired.
• It makes clear which sectors are driving economic growth and why we, the public, should do everything we can to support those money-makers.
• It highlights that one of the Island’s biggest problems with its economy is a lack of productivity (which is a problem for the UK also). Perhaps workers are spending too much time on social platforms like LinkedIn.

Takeaway menu

The Report is 43 pages long, so to bolster your own productivity and save you from reading it yourself, I have put together a takeaway menu of eight items I think are both important but not widely known or understood:

1. Jersey is classed as a high-income country which has experienced unusually strong economic growth in recent years compared to other economically developed countries.
   
   This might sound like something to put in the government's ‘plus’ column, but actually, Jersey’s strong economic performance is mostly driven by factors that our politicians do not control, such as higher interest rates, meaning the Island’s banks’ profits are up.
   
   
2. The financial sector contributes 50% of the DIRECT economic output and much more through INDIRECT output.
   
   So clearly Islanders should not knock the finance industry so much.
   
   Banking, in particular, was almost entirely responsible for Jersey’s improved economic outlook in 2023, with banking growth well above historical norms.
   
   
3. To manage shocks to Jersey’s economy due to matters outside its control, Jersey has established two reserve funds (a.k.a. Rainy-Day Funds): The Strategic Fund [approx. current balance = £1,206 million] and the Stabilisation Fund [approx. current balance = £1 million].
   
   The Stabilisation Fund, which is supposed to provide stability in times of economic uncertainty (think the Covid-19 crisis or the 2008 Credit Crunch), has an effective balance of almost nothing.
   
   And the Strategic Reserve Fund, seemingly awash with cash, is also significantly below the level that the Panel thinks is needed to provide Jersey with an appropriate level of economic resilience and so protect Islanders.
   
   This means that Jersey is not really in a position to weather major economic headwinds at the moment. The Panel has recommended paying increased tax revenues into this fund, but their advice was not heeded.
   
   
4. Seasonal workers, vital to Jersey’s economy, are being recruited from further afield (anecdotally, many of the Boathouse’s staff are from the Caribbean), which has increased hiring times and planning, which in turn makes it harder for local businesses to match demand with supply.
   
   
5. There are below 700 people registered as actively seeking work, a comparatively low historical figure.
   
   
6. Housing prices only dropped by 3% in 2023. This is surprising to me, having spent much of 2023 looking to buy a new home.  Higher interest rates and mortgage costs mean housing is no more affordable than before.
   
   
7. Even though Jersey’s government has recently received strong tax revenues, the Island is still expected to be in a budget deficit for at least the next two years. Unfortunately, the Government’s spending is not going to deliver results that would increase Islanders’ productivity; instead, it's going into day-to-day (i.e. current) spending.
   
   None of the additional tax revenue is seemingly being allocated to making the economy more resilient, say, by increasing the Rainy Day Funds. The panel thinks £60m to £250m should have been invested into these funds since 2021. Instead, the actual investment has been close to £0.
   
   So, even while tax receipts have been strong, the money flowing into the coffers is less than the money flowing out of them. The additional expenditure is likely causing inflationary pressure also.  That is definitely in the ‘minus’ column for the government.
   
   
8. Spending on health and community services is 27% of the Jersey government’s spending – far higher than other developed countries (for example, the NHS accounts for 10.9% of UK government spending). Future spending on healthcare is expected to outpace incomes.
   
   Rising healthcare costs have eroded the Island’s Health Fund and strained the Long-Term Care Fund.

Final thoughts

Although the Panel's findings look bleak, it should be said that the government in Jersey has faced some pretty difficult challenges these last few years (Covid-19 and the Cost of Living Crisis stand out). It is not particularly easy for politicians to find the sweet spot between providing for day-to-day problems and ensuring the long-term financial security for the Island.

That said, the government seemingly ignores many of the Panel's recommendations and prioritises the short-term over the medium and long-term.

Let us hope the bankers can keep powering the economy in 2024 and beyond.