Economists warn Jersey's government to save more money

Jersey won't be protected from economic shocks if the government doesn't start saving money, independent advisors have warned.

The Fiscal Policy Panel has published its annual report on public finances ahead of the budget debate in December.

The panel has concluded that the government 'needs to save more'. 

Since COVID-19, the government has been spending more than its income.

The FPP warns:

"The trajectory of day-to-day spending is 'unsustainable' given Jersey’s revenues, and will 'need to be curtailed in future Budgets."

It says high levels of public spending in an economy like Jersey's is likely to 'add to existing inflationary pressures' - pushing up prices for everybody.

The growing gap between spending and revenue is currently being filled by a mix of borrowing and dipping into savings pots.

Total public debt is forecast to peak at a new high of £1.3 billion in 2026, around 18% of GDP. 

Debt-interest payments will approach £48 million in 2028, which is more than the total funding for some departments.

Meanwhile, the so-called Rainy Day Fund (Strategic Reserve) and the Stabilisation Fund that was set up to cushion the island from the impacts of economic shocks, have been depleted.

The FPP says:

"The Strategic Reserve is underfunded, and the Stabilisation Fund is empty."

"Without adequately funded reserves the risks to Jersey and its economy are greater."

"A  weaker balance sheet makes Jersey susceptible to fiscal and economic shocks that  would damage public services and employment."

Sir Jon Cunliffe, Chair of the Fiscal Policy Panel, told Channel 103:

"The gap between spending and income grew last year, and it's grown again this year.

"The government did make efficiency savings last year, and those have been successful, but generally speaking the reserve funds have not increased - there has not been an increased contribution into them - so there needs to be more action to save, in our view."

"Now is the time to stand back and think, in the medium-term, about what choices Jersey wants to make."

The Treasury Minister says the FPP's report did not contain any surprises.

Deputy Elaine Millar says the actions the government has taken reflect its commitment to the Panel's recommendation to prioritise medium-term sustainability and resilience:

"This government recognises the difficult trade-offs between delivering essential public services, investing in infrastructure, and rebuilding reserves.

"Since taking office, we have taken decisive action through a series of measures to manage cost pressures and strengthen fiscal discipline. This includes a recruitment and consultancy freeze, which has already delivered significant savings.

"Actuarial advice has helped to inform our decision to prioritise immediate investment needs in this Budget, while the Social Security Fund and Social Security (Reserve) Fund remains in good health over the longer-term.

She added that the reduction of the States grant to the Social Security Fund (to £184m) is temporary, pending the outcome of a review that will determine longer-term decisions.