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Roy Clinton's Budget Address 2022

Here’s the full text of Roy Clinton's Budget address:

Mr Speaker. Yesterday the People of Gibraltar had their collective pockets picked by this Government in order to cover the mismanagement of the 2021/22 Budget which has resulted in the need to borrow an extra £50 million.

A 2% increase in PAYE coupled with inflation raging at 8%, and likely to increase, means that the average worker and their family will see a fall in real wages of at least 10% this year.

This Government has had its head buried in the sand for too long with a capital spending programme fuelled by debt and has forgotten the basics of public finance. Its budget measures do not bear scrutiny especially if as stated they are only meant to be for a duration of two years.

In this Appropriation Bill and Estimates book Mr Speaker I see we are on a knife edge with unsustainable spending and an unbalanced budget with increased borrowing for the coming financial year 2022/23.

 

2022 Estimated Financial Outturn shows £40 million Overspend

The headline deficit for 2021/22 was estimated to be £50.7 million before Covid-19 Costs with additional borrowing of £50 million to take total gross direct borrowing to £747.7 million. This envisaged a total net cash spend through the Consolidated Fund of £ 79 million excluding the envisaged £50 million borrowing.

Mr Speaker the forecast outturn for 2021/22 is a headline deficit of £55.3 million before Covid-19 Costs with additional borrowing of £100 million to take total direct gross borrowing to £ 797.7 million. This is double the borrowing envisaged. The total net spend through the Consolidated Fund was £103 million excluding the £100 million of borrowing which gives a truer picture of our predicament than the headline deficit number of £55.3 million which does not take into account spending via the Covid-19 Fund.

Indeed Mr Speaker if that was not bad enough, there can be no doubt that there has been a significant overspend in relation to last year’s Budget. Using the cash flow of the Consolidated Fund it can be seen that keeping Revenue at the original budgeted level (which would increase the deficit by £16 million) that the over spend in cash terms was in the order of £40 million. This Mr Speaker is a number we have heard before in warnings from Sir Joe Bossano.

And yet Mr Speaker yesterday the Chief Minister stated:

Over the last few months there has been an attempt to suggest a division between comments made by the Father of the House in an interview on GBC where he projected a loss of in excess of £90m and some of the statements I have made.

The Hon Father of the House was guiding his projections for the overall loss based on the level of borrowing, without classifying the distinction between business as usual loss of £55.3m, and the additional over expenditure incurred within the COVID Response Fund.

 

Mr Speaker each pound of overspend (regardless of origin) necessarily results in an extra pound of borrowing, so what Sir Joe was saying was entirely true but obviously not the way the Chief Minister wanted it spun for public consumption.

But Mr Speaker how realistic was last year’s Budget when we also heard from Sir Joe Bossano that some £70 million had been shaved off departmental budget requests before the estimates book reached this House.

The majority of the over spend appears to be in the GHA Budget in a period when Covid-19 related expenses should not be remotely similar to the 2 years past. The Leader of the Opposition has highlighted it in his speech and my colleague Mr Phillips will examine this in more detail in his contribution to the debate.

Mr Speaker the headline deficit for next year 2022/23 is estimated to be £ 45.2 million which is a long way away from a breakeven position. In cash flow terms the total net spend through the Consolidated Fund will be £46 million, less than half compared to the year just gone by. It is expected we will need to borrow another £50 million to take our total direct gross borrowing to £ 847.7 million.

One significant difference to recent years is that there is no material contribution to the Improvement and Development Fund from the Consolidated Fund. In 2021/22 is was £ 19.5 million next year merely a notional £1,000.

It would appear Mr Speaker that the Improvement and Development Fund is expecting over £100 million of income in order to fund some £67 million of expenditure. I can only assume, and the Chief Minister can confirm, that the £90 million premium for the Eastside project is included in these numbers, in which case the funding of I&DF projects is entirely dependent on the successful negotiation of the premium.

We have yet to hear how the appointment of the new CEO of the Tourist Board at a salary of £140,000 is cost neutral as described by the Chief Minister on 17 March 2021. Especially as the salary was disclosed as being £ 51,767 in 2011/12 under the GDC.

I can also give an example Mr Speaker where decisions have been taken which flatter the outturn numbers. Specifically head 22 being Social Security has in 2021/22 given itself a ‘contribution holiday’ of £7 million by not paying anything to the Statutory Benefits Fund. This £7 million payment has been reinstated in 2022/23.

 

Mr Speaker given this analysis it can be seen that we are on a public finance knife edge which is only being balanced by increased borrowing. As at the 7 April 2022 the borrowing on the NatWest UK guaranteed facility was £350 million. The envisaged borrowing in 2022/23 will take us to £400 million of the £500 million facility assuming no overspends which would have to be met from further borrowing. This entire facility is due for repayment on 3 December 2023.

Yesterday the Chief Minister made in my view the most important statement in the history of our public finances, but mentioned it almost casually. It is worth repeating in full as follows:

Additionally, Mr Speaker, we will finalise this year our strategy for the repayment of the COVID debt, which will be long term, war bond style debt.

Our current discussions with HM Treasury sees us repaying the bulk of the outstanding over a 25 to 26 year period, with the benefit of the Sovereign Guarantee from the UK extending over that period for that ring fenced, crystallised debt.

We will be able to set that into legal agreement stone only once the full extent of our COVID drawdown is, itself, crystalised

Mr Speaker if the Government can stick to its Budget and if the UK Government has already given its commitment then the £400 million that would fall due on 3 December 2023 would be extended to at least 2048. This Mr Speaker is a more realistic timeframe in which to rebalance our economy, but the statement is light on details such as the type of loan and repayment schedule which I would like to hear more about. Indeed repayment is something I will discuss further later.

Our recurrent revenue is not covering recurrent expenditure such that for the last year ended 31 March 2022 our costs are 9% greater than revenues.

The Covid-19 Response Fund has re-credited the consolidated fund with £107 million in respect of lost revenue. The main areas that have lost revenue being £65 million in Import Duty, £32 million of Company Tax and £2  million of Income Tax.

For next year it is forecast that the Covid-19 response fund will only require £40 million to make up lost revenue of £30 million in Import Duty and £10 million in Company Tax. The slow recovery in Import Duty is concerning and if it does not recover to pre-pandemic levels then we will have a continuing recurrent deficit.

And if the Government does not take this year’s Budget seriously, next year’s Budget debate will be scripted by Stephen King…a true horror.

 

No Leadership from Government on Spending

I would have thought that by now Mr Speaker the Government would truly understand the financial situation. Especially Mr Speaker in having appointed Sir Joe Bossano as Minister for Financial Stability.

Mr Speaker the example has to be set from the top and yet there is no leadership on the control of unnecessary costs. In answer to my question 267/2022 last week the Chief Minister confirmed that Ministers and Government Officials had flown Club class 40 times in a space of six months. Furthermore Mr Speaker having just doubled the cost of prescription charges under the Group Practice Medical Scheme the Chief Minister then flew to see His Holiness the Pope again in Business Class at the taxpayer’s expense. A pilgrim’s progress in regal style Mr Speaker. This is not leadership by example, this is The Chief Minster’s Champagne Socialism at its worst. Do as I say but not as I do.

We also find Mr Speaker that of the nine Government Ministers the majority namely six are in private rented offices as disclosed in answer to my question 269/2022.

Indeed despite the current financial crisis the Government saw it appropriate to rent offices for the Minister for Housing and the Minster for Business at a combined annual rent of £215,000.

This Government has completely mismanaged the use of the public office space it inherited upon coming into Government. Instead of maintaining and renewing space it owned it embarked on a piecemeal disposal and move into expensive private sector accommodation. The Government sold the Haven to Gibtelecom in 2014 for £5.8 million, more or less what it cost to refurbish No 6 to the Chief Minister’s expensive tastes. The Haven has largely remained empty since then and is now up for sale by Gibtelecom to repay the £3.6 million mortgage used to buy it.

Meanwhile the DSS offices collapse into a state of disrepair causing a move to New Harbours and the rental of more private sector space in the ICC for the vacating Housing department at an annual cost of £237,000.

The least visited departments of Government namely the Audit and Statistics department have brand new offices in the World Trade centre on 21 year leases at an annual cost of £194,000.

Mr Speaker the cost of rental of office space by the Treasury department has rocketed from £ 2 million in 2011/12 to £10.5 million in 2021/22. I would welcome an analysis and justification of this number by the Chief Minister.

Mr Speaker this Government needs to make better use of its existing resources before splashing out on more lavish private sector rentals at the tax payer’s expense that inevitably increase recurrent expenditure.

Mr Speaker I see no evidence of leadership from the Chief Minister in controlling spending.

 

No Leadership from Government on Transparency

Mr Speaker for the last number of years I have complained about the inability of the Principal Auditors to complete his reports due to outstanding supplementary appropriations.

Despite three bills covering 2017 to 2019 being passed in a single day last year on the 26 July 2021 we still do not have any new reports in this House. The last report available to us Mr Speaker being that for the 31 March 2016.

If the Government cared for transparency and accountability it would have shown leadership in ensuring the required Bills were debated and passed in a timely manner. I do not accept Mr Speaker that Covid-19 was the reason for the delay in debating these Bills.

Without any recent reports from the Principal Auditor, this House cannot hold the Government to account on its spending including areas such as Value for Money.

The Government’s record on filing its corporate accounts has barely improved despite being repeatedly being brought to their attention. As at 31 March 2022, 26 Companies were overdue in their filings at Companies House and a further 12 have not even been audited since incorporation. This is an unsatisfactory situation Mr Speaker and one that should have been resolved.

The reason that this is so important Mr Speaker is that significant amounts of public money are being channelled into some of these companies. One in particular Mr Speaker stands out above others and that is Economic Development and Employment Company Ltd. A company I brought to the attention of this House on 19 June 2019.

This entity which is owned by the Gibraltar Development Corporation annually receives some £11.8 million from the GDC. In the six year period from 2014/2015 to 2019/21 the amount contributed to this company was £82.5 million.

This company has only filed one balance sheet since it was incorporated on 11 June 2012 by this Government. We know from answers to my question 161/2022 that this Company owns shares in a further 9 companies of which we know 6 are behind on their filings at Companies House. We do not know how that £82.5 million has been spent or how much remains.

Mr Speaker I fail to understand how this House can continue to approve contributions in the order of £11 million to an entity that has failed to disclose how that public money is being used. The Government cannot expect the public to suffer the consequences of this financial crisis in silence while hiding what it is doing with millions of pounds.

Again Mr Speaker a failure of leadership on transparency which speaks volumes.

 

No Leadership on Eliminating Waste and Abuse

Mr Speaker in his 2021 May Day message the Chief Minister said the following:

I can guarantee you that we will ensure that we will stop all waste and abuse we detect in government spending.

Well what has he managed to do over the past year I ask myself? Business travel continues unabated and the report on GJBS only resulted in a ‘series of changes in the structure of the management and operation of GJBS’.

We are still deprived of the latest reviews from the Principal Auditor and despite repeated promises of an Anti-Corruption Authority this has still to materialise.

Mr Speaker there is still no appetite for a Public Accounts Committee by this Government to follow up audit reports and other matters. Again I remind the House that Gibraltar is the only UK Overseas Territory that has no such committee and this goes against what is deemed to be best practice in the oversight of public finance.

Again Mr Speaker no leadership on eliminating waste and abuse.

 

No Leadership on Repayment of Borrowing

Mr Speaker our direct gross borrowing as I set out earlier is projected to reach £ 847.7 million by the end of the next financial year. The last information I have on the sinking fund is that it has only £25.4 million in it. This needs to be funded regularly from the consolidated fund to that we have a clear path to repayment. This needs leadership which again is absent.

The Analysis of the gross direct borrowing as at 31 March 2022 is as follows:

 

By the 31 March 2023 the guaranteed facility will be £400 million given the £150 million borrowed from the Gibraltar International Bank was repaid on 7 April 2022.

Given the Chief Minister’s expectation to convert this £400 million debt into a 25 year loan it begs the question how would we fund its repayment?  Assuming a bullet repayment at the end of the term we would have to set aside into the sinking fund £16 million every year for the next 25 years.

We have heard nothing as yet on this important question which again shows a complete lack of leadership.

 

The Hidden Indirect Debt

 

To this direct gross borrowing we need to consider the indirect gross borrowing

Each year I try to quantify indirect gross debt being monies borrowed through companies and this year I have the following list:

Credit Finance - £400 million

GCP Investments Ltd - £9 million

ES Ltd      - £ 95 million

Gibraltar Car Parks Ltd - £21 million

Gibraltar Capital Assets Limited - £300 million – Loan notes secured on 6 Housing estates.

Eurca Investments Limited - £165 million – Structured finance on 50:50 Affordable housing

Mr Speaker that adds to a gross amount of £990 million in addition to the official gross debt of £797.7 million would take us to a gross debt of £1,787.7 million at 31 March 2021 as compared to £ 1,656.7million at 31 March 2021.

Mr Speaker of this amount of £1,787.7 million only £350 million can be said to be attributable to the Covid-19 response at best. This Government has truly buried Gibraltar in a mountain of debt and it should be ashamed of itself.

Budget Measures Announced

Mr Speaker we on this side of the House have long warned of the excessive spending by this Government and that ultimately it would be the taxpayer who would foot their bill.

Sadly Mr Speaker yesterday this warning came true.

The Chief Minister said that it was:

, incumbent on  (him) and (his) Government to seek to find a way to lead this community out of the deficit period, with the certainty that we can address the debt that has built up during the COVID period and its aftermath.

And yet Mr Speaker without so much as a blush he stated that the much talked about Rainy Day Funds were

once again healthy, even at this time

This is insane, before seeking to tax workers by 2% at a very difficult time, shouldn’t the Rainy Day funds be used first? I mentioned in last years debate that Sir Joe refuses to transfer the accumulated profits of the Gibraltar Savings Bank to the Consolidated Fund.

Mr Speaker as at 31 March 2022 the Estimates book on page 254 shows this has a Reserve Account with a balance of £56 million. Should this not be used first Mr Speaker before taxing workers?  This money belongs to the people Mr Speaker not to Sir Joe Bossano.

So we have a Rainy Day fund that cannot be touched even today at the height of Monsoon Season!

Other than the announced increase in water and electricity charges of 8% which will continue to increase annually by inflation together with all Government Fees there were two main revenue raising measures that I would like to discuss and try to quantify.

The first is the two year company levy which was announced as follows:

We propose that every company pay a COVID recovery charge of £ 25 per week over the next two years.

Mr Speaker, whenever the Chief Minister describes a cost as per day or per week you can be sure there is a bigger number he is hiding.

The charge amounts to £1,300 per annum and I am reliably informed that the number of companies on our register is in the region of 14,000.  If all companies pay then that would raise a large number in the order of £18.2 million or £36.4 million over the two year period.

This measure however takes no account of the activities of the company, nor of the ability nor indeed the willingness to pay. The Chief Minister has strayed into the field of Trust and Companies Managers and their clients may not feel so altruistic when there are plenty of other jurisdictions to choose from.

The next measure I will try to quantify is the 2% increase in PAYE across the board regardless of earnings.

Using the information on page 56 of the 2011 Employment Survey which shows the distribution of average earnings I estimate that this could generate £16 million though this is only a rough guesstimate.

It would of course be helpful if the Chief Minister in his reply would state how much he has been advised he would raise by each of these two measures.

Assuming my numbers are accurate this would mean the measures could raise around £ 34.2 million per annum.

This is significantly less than the Rainy Day Reserves of the Savings Bank.

What is not clear from the measures is the use to which the money will be put. Is this money to be credited to the sinking fund to start to help repay debt or is it to reduce the annual deficit in recurrent expenditure in anticipation that revenues might recover in the next two years? A two year period will certainly not be any help in addressing the debt levels.

The 2% PAYE increase also shows a lack of targeting of income bands such that the burden should fairly be weighted to higher earners rather than to all. This displays a lack of empathy by the Government to those middle wage earners who will suffer.

Furthermore it has to be asked that given that the property market seems to be generating higher than expected stamp duty receipts why has this not been taxed further. Indeed some may ask that the profits that property developers make should perhaps be subject to closer scrutiny or indeed a windfall Covid levy as well.

The Government seems to have gone for the easiest tax target namely the PAYE worker who is already suffering financially.

AquaGib Ltd

I was surprised to hear Mr Speaker that the Government were proposing to nationalise AquaGib at precisely the lowest point in our public finances.

The Government own one third of the shares in this joint-venture which employs 100 people as per its 31 March 2020 financial statements.

Based purely on a net asset value price it would cost the Government at least £6 million and if on a multiple of earns maybe more. I will be interested to hear who will be paying for the shares as last time the Government it announced it was buying Gibtelecom it was in fact the Gibraltar Savings Bank that was the ultimate owner.

HM Treasury UK

Mr Speaker I was interested to hear that the Government had secured a secondment from HMT in the UK to assist in reviewing tax declarations. I am not sure if this is the first time this have happened but I would welcome further information from the Chief Minister and indeed whether the loan restructuring is in any way connected to HMT’s interest in assisting the Tax Office?

 

 

 

Inwards Investment

TNG’s major expected investment in the Eastside project of course is to be welcomed if it materialises. It is however evident that the majority of the Improvement and Development Fund’s expenditure appears to be dependent on the receipt of the £90 million premium.

As I said last year we have seen little in the way of the Government’s post-Brexit economic plan. We have seen nothing in respect of the 150,000 m2 reclamation project which was central to the Government’s plan.

Again we hear that the Rooke site is still being negotiated, and we have heard nothing of the Queen’s Cinema and Queen’s Hotel site.

FATF

Mr Speaker turning to the topic of FATF and Gibraltar’s ‘grey listing’. I note what the Minister for Financial Services has now said to the House in his Budget address.

It would of course in my view be more appropriate if he had made a Ministerial Statement to the House that would have allowed us to ask questions of clarification. Especially Mr Speaker as he was prepared to give his analysis to a private Seminar ahead of this place.

He has already heard the official Opposition’s views on the matter and trust on this issue we can reach cross-party consensus that the priority is to be removed from the list ASAP.

Conclusion

Mr Speaker we have seen that Government cannot keep to its own Budget. The People deserve better than to have their pockets picked because of the failures of this Government.

We will not vote for a Budget that lacks leadership, transparency, and accountability.

We see no leadership from this Chief Minister on curbing unnecessary spending.

We see no leadership from this Chief Minister on transparency

We see no leadership from this Chief Minister on eliminating waste and abuse

We see no leadership from this Chief Minister on repaying borrowing.

We see no future for this Chief Minister who lacks the leadership and financial skills to get Gibraltar through this crisis.

Thank you Mr Speaker