Press Release - FPP Annual Report

Friday 2 September 11:02

The Fiscal Policy Panel (FPP) has published its 2016 Annual Report commenting on the draft Medium Term Financial Plan (MTFP) Addition. The report sets out the Panel’s conclusions on the appropriateness of States fiscal policy in the context of the current economic outlook, including the impact of the UK’s Brexit vote.

Dame Kate Barker, the Panel’s Chair, commented “The FPP considers that the overall profile of fiscal
policy and the significant stimulus it adds to the economy over the MTFP period is appropriate.”
“Whilst the economic outlook is affected by the UK referendum result the Panel does not think it
desirable at this time to change the broad approach.

“It remains important that the States supports the economy in the short-term, and that progress is
made in achieving a more sustainable position in the medium-term, irrespective of the exact future
relationship between the UK and the EU.”

The Panel have lowered their forecasts for Jersey, with the economy now expected to grow by less than
½% in 2016 and no growth expected in 2017 or 2018. However, the report emphasises that there is a
significant band of uncertainty around these forecasts, in light of the uncertainty regarding how the UK’s
negotiations around exit from the EU develop.

Dame Kate commented “While recent data have been positive, the UK referendum result marks the
start of a period of uncertainty for Jersey. Given that negotiations for a UK exit from the EU have yet to
begin, the impact on Jersey is not at all easy to predict.
“The Panel judges that the most likely outcome is that the economy will return to capacity in 2019,
though at a lower level of output than previously anticipated. This would mean that further budgetary
tightening could be required in the medium term, in order to bring States finances back to balance.
However, the Panel do not recommend that this adjustment is carried out over the course of the current
MTFP.

“The time to address any structural impacts of the UK’s decision to leave the EU on the local economy
and States finances is the next MTFP period. This is contingent on the expectation that the current
package of measures is delivered as planned.”

The Panel has also stated that there may be some cyclical / short-term impacts from the UK referendum
result; which may put pressure on public finances in the short term. Should this be the case, the Panel
believes that the States should draw more from its reserves over the 2016-19 rather than implementing
additional fiscal tightening (above what is already planned) during what will be a period of continued
external economic instability.

Against this uncertain background, it is vital that flexibility is considered relative to the plan in both
directions:

1. To allow further support to be provided to the economy in the short term (in line with the 3Ts:
timely, targeted and temporary).

2. To develop plans to balance the budget in the next MTFP if necessary.

  • The Panel made a number of other important recommendations, including:
  • The Council of Ministers should embed a permanent programme for securing efficiency savings in all future States financial planning.
  • The States should take a whole-of-government approach to further develop work already underway to consider the impact of the ageing society.
  • Recent events make it even more important to tackle the productivity challenge and the Economic and Productivity Growth Drawdown Provision (EPGDP) should be used to address this by focussing on medium-term policies that help raise productivity and increase the underlying rate of economic growth.

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