Gov's economic advisers pooh-pooh £20m Tech Fund plans

Tuesday 09 November 2021

The Government’s economic advisers have warned that plans to set up a £20m Technology Fund and Health and Social Recovery Fund are “undesirable” and could reduce transparency in spending.

The creation of the funds is proposed in the Government Plan 2022-25, which sets out the Government's spending for the next four years and is due to be debated by States Members next month.

The money for the £20m Technology Fund will come from the recent sale of JT’s ‘internet-of-things’ business, for which the Government received a £40m windfall. 

“We will continue to prepare for Jersey’s future digital connectivity requirements and the introduction of the next generations of digital networks,” says the Government Plan. 

“This will enable Jersey to embrace the opportunities offered by new digital innovations including the Internet of Things (IoT) demonstrating our support through the establishment of a technology fund to support the development and strengthening of our digital and other technological industries.”

A Scrutiny Panel grilling the Chief Minister on Friday heard how the Tech Fund was partly to help Jersey maintain its position as the jurisdiction with the fastest broadband.

However, the Fiscal Policy Panel – made up of three UK economists – believe that the proliferation of separate funds, which are distinct from the Government’s principal pots of money, is not desirable.

Pictured: Fiscal Policy Panel chair Dame Kate Barker.

“Thorough consideration should be given towards the consolidation of funds and no further funds should be proposed without strong rationale,” the panel argued.

Giving its rationale, the panel – chaired by former UK Monetary Policy Committee member Dame Kate Barker – said: “As with recent past Government Plans, this year’s plan proposes to create new funds e.g. the Technology Fund and the Health and Social Recovery Fund. 

“Creation of funds can be problematic as they reduce transparency of public finances and the flexibility the government has to spend money in the way in which it will best deliver value for money for Jersey. 

“Taking the Technology Fund as an example, which is proposed to receive a transfer of £20m, it may be that the government are able to identify £15m very beneficial projects and £5m low value projects. 

“It would be optimal for the government to only spend the £15m and use the remaining £5m to support the balance sheet and potentially generate returns. The inverse of this example is true in that there may be £25m worthwhile projects but the government is overly constrained.”

It adds: "The panel is of the view that the fund, which could be considered day-to-day spending, would preferably have been financed from the Consolidated Fund if it was deemed a worthwhile project.

"In the panel’s letter to the Treasury Minister in August 2021, the panel recommended 'any windfalls or asset sales that occur should not be used for day-to-day spending. Using the proceeds of asset sales to fund such spending would have a negative effect on public sector net worth'".

CLICK TO READ: The States Assembly will debate the next Government Plan, which details firm spending plans for 2022 and proposed spending for 2023-2025, on 14 December. 

The Government Plan says that the Health and Social Recovery Fund will “support targeted and timely recovery projects, strengthened through the leadership of a Political Oversight Group who will champion health, social recovery and wellbeing activity across all Government departments, and building on existing programmes.”

The source of this fund will be borrowing, which is capped at £209m for total covid-related spending.

The FPP’s recommendations are included in its Annual Report for 2021, which is published today.

Its key findings include:

Tax revenue: short and medium term

“The economy is recovering but is still weakened and the outlook remains unclear. While inflation is forecast to be higher over the next year, revenue raising steps, including higher taxes, impose a burden and would not be appropriate at present. 

“Yet raising revenue over the medium-term is important and the Government should clarify how it will do so in its next Government Plan.”

Higher inflation

“The structure of Jersey’s economy and budget suggest that higher than expected inflation will tend to improve Jersey’s fiscal position. 

“However, since the current surge in inflation is expected to be temporary it is important that short term high inflation does not feed into longer term earnings growth. Higher prices do not warrant indiscriminate compensation for households or businesses. Conversely, this should not be seen as a reason for significant fiscal consolidation.”

Strategic Reserve (“the Rainy Day Fund”)

“Current forecasts suggest the Strategic Reserve will remain below the desirable range of 30-60% of GVA for the next 40 years. This does not meet the panel’s previous recommendations. A long-term plan is needed to increase the size of the Reserve and the Government should set this out.”

Use of funds and borrowing

“In the face of uncertainty, prudent uses of Jersey’s funds will be important. In the event of temporary economic distress, fiscal deficits should be financed by borrowing rather than drawing down the Strategic Reserve.

“If the economy performs better than expected, surpluses generated from better budgetary outturns should be transferred to the Stabilisation Fund.”