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Jersey should use its reserves rather than make more cuts, or bring in more taxes, if the Island's finances get worse following Brexit, according to a panel of leading UK economists.
They have also downgraded their forecasts for Jersey, and are now predicting very little economic growth for the next three years, with 0.5% in 2016 and no growth at all expected in 2017 or 2018.
The Fiscal Policy Panel is made up of a group of senior UK economists, and their role is to give the Treasury Minister independent advice on fiscal policy - their report points out that the economic forecasts are uncertain, as no one yet knows how the UK's negotiations with the EU over Brexit will affect the Island.
Their annual report is published today, and while broadly supporting the 2016-2019 finance plan which Ministers hope to get agreed by the Island's politicians next month (known as the MTFP Addition), they warn that yet further measures may be needed after that period for the States to balance the books.
The Panel is chaired by Dame Kate Barker:
“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 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."
The Panel's report has been welcomed by Treasury Minister Senator Alan Maclean:
“The FPP has made a number of useful recommendations, which the Council of Ministers will consider over the coming weeks. It is reassuring that the Panel is supportive of the broad approach taken in the MTFP Addition, and does not recommend any immediate amendments to the plan.
“The uncertainty over the nature of the UK’s relationship with the EU, and the impact this might have on Jersey, makes the need for flexibility paramount. Treasury will work with other departments to make sure government can respond appropriately to changes in the economic outlook.”
The FPP's report will be formally presented to States Members next Tuesday, ahead of their debate on the Island's financial plans for the next three years, which takes place in late September.
The FPP is chaired by Dame Kate Barker, and also includes Ms Terra Allas and Professor Francis Breedon.
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