Falklands : Falklands Appropriation Bill 2005
Submitted by Falkland Islands News Network (Juanita Brock) 24.05.2005 (Article Archived on 07.06.2005)

Find out what the financial Secretary, the Hon. Mr. Derek Howatt, has proposed for the budget of 2005/2006.

THE APPROPRIATION BILL 2005

MR SPEAKER, HONOURABLE MEMBERS

1.                  THE PURPOSE OF THIS BILL IS TO AUTHORISE THE WITHDRAWAL OF £39,581,470 FROM THE CONSOLIDATED FUND FOR THE SERVICE OF THE FINANCIAL YEAR BEGINNING 1 JULY 2005.   THE SCHEDULE TO THE BILL SUMMARISES THE APPROPRIATION UNDER THREE HEADINGS:  £31.7 MILLION IS allocated TO THE OPERATING BUDGET, WHICH REPRESENTS ESTIMATED EXPENDITURE NET OF INTERNAL CHARGES OF £1.1 MILLION AND CAPITAL CHARGES OF £3.3 MILLION.  £4.1 MILLION IS ALLOCATED TO FUND TRANSFERS AND £3.8 MILLION IS ALLOCATED TO TRANSFER PAYMENTS.

THE DRAFT ESTIMATES FOR 2005/06 REFLECT THE BUDGET STRATEGY AND POLICY APPROVED BY EXECUTIVE COUNCIL. THIS FOLLOWED A COMPREHENSIVE BUDGET PROCESS.  HONOURABLE MEMBERS HAVE EXAMINED BUDGET SUBMISSIONS FROM MANAGERS IN DETAIL IN TWO SEPARATE MEETINGS OF THE STANDING FINANCE COMMITTEE AND AMENDMENTS HAVE BEEN INCORPORATED AT EACH STAGE.  AS A CONSEQUENCE THE BUDGET FIGURES HAVE BEEN CONDENSED INTO  SUMMARY FORMAT IN ONE DOCUMENT.  THE DOCUMENT INCLUDES EXTRACTS FROM THE ANNUAL ACCOUNTS FOR INFORMATION AND A COPY OF THE APPROPRIATION BILL AND CAPITAL EQUALISATION FUND ORDER FOR EASE OF REFERENCE.

At this stage I should draw attention to the budget strategy WHICH WAS APPROVED BY EXECUTIVE COUNCIL IN september OF LAST YEAR.  THIS INCLUDED THE FOLLOWING ELEMENTS:

·        A TARGET SURPLUS OF £1/2 MILLION

·        INFLATION, including any pay adjustments, TO BE MET FROM EFFICIENCY SAVINGS WHILST MAINTAINING SERVICES BROADLY AT EXISTING LEVELS. 

·        to scrutinise more robustly the transfer payments budget with a view to a reduction of £300,000.

·        to continue the review of charges in accordance with the approved user-pay policy.

·        the transfer to the capital equalisation fund to be confirmed as projected at £4 million.

·        net capital expenditure to be limited to £12 mILLION in any rolling 3-year perioD, that is a reduction of £3 million.

·        THE CONSOLIDATED FUND BALANCE TO BE maintained at A MINIMUM OF 2.5 TIMES ANNUAL OPERATING EXPENDITURE.

4.            following another extremely poor illex season this year, and the likelyhood of only a partial recovery next year, it was clear that the budget surplus target set in september was unrealistic.  it was reluctantly accepted that a deficit result in both this year and next year was unavoidable but it was agreed that measures should continue to be introduced in a phased approach to minimise the extent of the deficit and the negative impact on the economy.

5.                  AS USUAL, BEFORE DEALING WITH THE DETAIL OF THE 2005/2006 BUDGET, I WILL BRIEFLY REVIEW THE CURRENT FINANCIAL YEAR.  THE DRAFT ESTIMATES SHOW THAT THE OUT-TURN AT 30 JUNE 2005 IS EXPECTED TO RESULT IN A BUDGET DEFICIT OF £1.4 MILLION COMPARED TO A DEFICIT OF £3 MILLION FORECAST A YEAR AGO.  THE REASON FOR THIS £1.6  MILLION IMPROVEMENT IS DUE TO A NET INCREASE IN REVENUE OF £3.9 MILLION, MAINLY FROM TAXATION AND INVESTMENTS, PARTLY OFFSET BY A REDUCTION IN FISHERIES REVENUE, AND REDUCED BY ADDITIONAL EXPENDITURE OF £2.3 MILLION.

AT THIS TIME LAST YEAR IT WAS FORECAST THAT THE BALANCE OF THE CONSOLIDATED FUND AT 30 JUNE 2004 WOULD AMOUNT TO £80.5 MILLION. THE ACTUAL BALANCE OF THE CONSOLIDATED FUND AS AT 30 JUNE 2004 AMOUNTED TO £81.6 MILLION,  A SLIGHT IMPROVEMENT OF £1.1 MILLION.

AT 30 JUNE 2005 IT IS ESTIMATED THAT THE BALANCE OF THE CONSOLIDATED FUND WILL AMOUNT TO £80.2 MILLION.  THIS REMAINS CLOSE TO THE BUDGET STRATEGY TARGET OF 2 ½ YEARS WORTH OF OPERATING EXPENDITURE, AND IS AN APPROPRIATE POINT TO START THE REPORT ON THE 2005/2006 BUDGET.

FOLLOWING THE RECENT BUDGET MEETINGS OF THE STANDING FINANCE COMMITTEE, OPERATING REVENUE FOR 2005/2006 IS FORECAST AT £43.5 MILLION AND THE SUBMISSIONS FOR TOTAL EXPENDITURE ARE INSERTED AT £44 MILLION. THIS RESULTS IN AN ESTIMATED BUDGET DEFICIT OF £1/2 MILLION.  CLEARLY THE MAIN AIM OF THE BUDGET STRATEGY, TO PRODUCE SURPLUS OF £1/2 million, HAS NOT BEEN ACHIEVED.  THIS IS MAINLY THE RESULT OF An estimated £2 MILLION REDUCTION IN ILLEX LICENCE FEE REVENUES.  HAD THIS REDUCTION NOT BEEN NECESSARY, A SUBSTANTIAL BUDGET SURPLUS WOULD HAVE BEEN ESTIMATED.  HOWEVER, IT SHOULD BE NOTED THAT THE ESTIMATED DEFICIT AT THIS STAGE OF £1/2 MILLION IS AN

IMPROVEMENT ON THE DEFICIT ORIGINALLY PROJECTED THIS TIME LAST YEAR OF £847,000.

AS JUST MENTIONED, OPERATING REVENUE IS INSERTED IN THE DRAFT ESTIMATES AT £43.5 MILLION WHICH  SHOWS AN INCREASE OF £3.1 MILLION ON THE ORIGINAL ESTIMATE FOR THE CURRENT YEAR.  THE MAIN VARIANCE RELATES TO ADDITIONAL TAXATION REVENUE.  THIS REVENUE FORECAST INCLUDES FISHERIES LICENCE FEE INCOME INSERTED AT £16 MILLION.  THIS FIGURE, WHICH IS THE BEST ESTIMATE AT THIS TIME, IS £4.5 MILLION MORE THAN THE REVISED ESTIMATE FOR THE CURRENT YEAR BUT £2 MILLION LESS THAN THE LONGER TERM FORECAST.  AFTER THE POOR RESULTS OF THE LAST TWO ILLEX SEASONS THERE IS A VIEW THAT SUCH FORECASTS ARE OVER AMBITIOUS.  SUCH A VIEW MIGHT PROVE TO BE CORRECT BUT IT WAS AGREED TO PLAN AHEAD ON THE BASIS OF A CONTINUING ILLEX FISHERY WITH PHASED BUT MODEST RECOVERY AND TAKING DUE ACCOUNT OF HISTORIC TRENDS.  ACHIEVING THE FORECAST INCOME NEXT YEAR AND THUS LIMITING THE DEFICIT POSITION TO £1/2 MILLION VERY MUCH DEPENDS ON WHAT THE FISHERY PRODUCES AND IN PARTICULAR THE ILLEX FISHERY. ONCE AGAIN WE ARE REMINDED OF THE FRAGILE NATURE OF THE FISHERY AND THE NEED TO CONTINUE TO ADJUST OUR ASPIRATIONS AND PLANS DOWNWARDS.

THIS BRINGS ME TO THE DRAFT ESTIMATES OF OPERATING EXPENDITURE WHERE A TOTAL £36.2 MILLION IS INSERTED.  FOLLOWING ADJUSTMENTS MADE AT THE RECENT BUDGET MEETINGS OF THE STANDING FINANCE COMMITTEE THIS FIGURE IS £1.2 MILLION MORE THAN THE ORIGINAL ESTIMATE FOR THE CURRENT YEAR. THIS IS THE NET RESULT OF A LONG PROCESS OF DISCUSSIONS BETWEEN TREASURY AND MANAGERS, MANAGEMENT MEETINGS AND SEVERAL DAYS OF DEBATE BY honourable members at THE STANDING FINANCE COMMITTEE.  DURING THIS PROCESS EFFICIENCY SAVINGS AMOUNTING TO £1.5 MILLION IN TOTAL WERE ACCEPTED AND ADDITIONAL SPENDING PROPOSALS OF £1.6 MILLION WERE APPROVED SUBJECT TO CONFIRMATION BY BUDGET SELECT COMMITTEE. it will be recalled that no cost of living award was approved for Government employees last year. The Retail Price Index increased by 2% in 2003 and by 5.6% in 2004.  It is apparent that the recent fuel increases have, to an extent, distorted the Retail Price Index calculations. The increase in 2004 excluding fuel was 2%. IN VIEW OF THESE FACTORS, THE ADDITIONAL SPENDING PROPOSALS INCLUDE A PROVISION OF £200,000 TO ALLOW A SMALL COST OF LIVING AWARD OF 1.5% TO BE PAID TO GOVERNMENT EMPLOYEES FROM 1 JULY 2005.  THE ONGOING NEED FOR MAKING EFFICIENCY SAVINGS TO MINIMISE UNAVOIDABLE GROWTH IN EXPENDITURE CAUSED BY IMPORTED INFLATION WILL CONTINUE TO BE A CHALLENGE TO THE MANAGERS INVOLVED AS THE YEAR PROGRESSES.

FUND TRANSFERS OF £4 MILLION ARE INCLUDED IN THE DRAFT ESTIMATES.   THIS IS £300,000 LESS THAN THE ORIGINAL ESTIMATE FOR THE CURRENT YEAR AND IS THE RESULT OF A REDUCTION IN THE CONTRIBUTION TO THE CAPITAL EQUALISATION FUND FOLLOWING REDUCTIONS MADE TO THE CAPITAL PROGRAMME.  IT WILL BE RECALLED THAT THE CAPITAL EQUALISATION FUND WAS ESTABLISHED LAST YEAR BY A REDESIGNATION OF THE FORMER SINKING FUND. THE PURPOSE OF THE REDESIGNATED FUND IS TO SMOOTH OUT THE PEAKS AND TROUGHS OF CAPITAL EXPENDITURE OVER THE LONGER TERM.  ALTHOUGH THERE IS A STRATEGY TO LIMIT CAPITAL SPENDING TO £12 MILLION NET OF CAPITAL RECEIPTS IN ANY ROLLING 3 – YEAR PERIOD, CURRENTLY THE NET CAPITAL PROGRAMME FOR THE NEXT 3 YEARS TOTALS £11.4 MILLION.  AS A CONSEQUENCE THE CONTRIBUTION TO THE CAPITAL EQUALISATION FUND HAS BEEN REDUCED ACCORDINGLY.

THE DRAFT ESTIMATES FOR TRANSFER PAYMENTS AMOUNT TO £3.8 MILLION. AS APPROVED AS PART OF THE BUDGET STRATEGY, THIS IS £300,000 LESS THAN THE ORIGINAL ESTIMATE FOR THE CURRENT YEAR. THIS IS MAINLY THE RESULT OF AGREED CHANGES IN CAMP ASSISTANCE AND SUBSIDIES, THE IMPACT OF THE REDUCTION AGREED LAST YEAR IN THE HOLIDAY CREDIT SCHEME, PARTLY OFFSET BY THE INCLUSION OF AN OPERATING SUBSIDY FOR FALKLAND LANDHOLDINGS.

THE PROPOSED CAPITAL EXPENDITURE FOR 2005/06 TO BE MET FROM THE NEW CAPITAL EQUALISATION FUND IS £4.7 MILLION.  THIS IS £1.1 MILLION LESS THAN THE ORIGINAL ESTIMATE FOR THE CURRENT YEAR AND IS THE RESULT OF SUBSTANTIAL ADJUSTMENTS MADE AT THE RECENT BUDGET MEETINGS OF THE STANDING FINANCE COMMITTEE  TAKING INTO ACCOUNT PROPOSALS FROM THE PUBLIC WORKS COMMITTEE.   IN ADDITION TO THIS £4.7 MILLION ALLOCATION IT IS ANTICIPATED THAT UNDERSPENDS OF £800,000 FROM THE CURRENT YEAR WILL NEED TO BE CARRIED OVER TO KEEP THE CAPITAL PROGRAMME ON TRACK.  AS MENTIONED EARLIER, THE PROJECTED CAPITAL PROGRAMME OVER THE NEXT THREE YEARS, NET OF CAPITAL RECEIPTS, IS  WITHIN THE MAXIMUM OF £12 MILLION APPROVED AS PART OF THE BUDGET STRATEGY.  IT SHOULD BE NOTED THAT GREATER EFFORT HAS BEEN DEDICATED TO ESTABLISHING THE 2005/06 ESTIMATE THAN TO SUBSEQUENT YEARS.  THE PROJECTIONS ARE SHOWN FOR FINANCIAL PLANNING PURPOSES ONLY.  THEY ARE NOT APPROVALS TO SPEND AT THIS STAGE AND FURTHER WORK WILL BE REQUIRED TO FIRM UP THE PROJECTIONS.

WHEN I REPORT BACK FROM SELECT COMMITTEE I WILL PROVIDE AN OVERVIEW ON WHAT THE CAPITAL PROGRAMME FOR NEXT YEAR CONTAINS.

TURNING NOW TO REVENUE MEASURES:

15.1     The tax system was extensively reviewed RECENTLY and a simplified, new tax regime was introduced FROM 1 January 2004. It is therefore not considered to be appropriate at this time for structural changes to be made, nor to amend the tax rates currently in operation. 

15.2     A principle adopted by the approval of the taxation policy framework was to keep user pay charges under review and to expand that concept in preference to adjusting existing taxes or introducing new taxes. Although it may prove necessary to increase revenue from taxation AT SOME POINT IN THE FUTURE, for the forthcoming year the budget proposals are focussed mainly on the user pay principle.

15.3     IT IS PROPOSED TO INCREASE CUSTOMS IMPORT DUTY ON CIGARETTES BY 15%, AND ON ALCOHOLIC BEVERAGES BY 5%. IN LINE WITH THE HEALTH OF THE NATION STRATEGY.   THESE INCREASES WOULD, FOR EXAMPLE, ADD AN EXTRA 30P ON A PACKET OF 20 CIGARETTES AND AN EXTRA 33P ON A 75CL BOTTLE OF SPIRITS.  THIS WOULD RAISE ADDITIONAL REVENUE OF £76,000.  NO INCREASE IN DUTY IS PROPOSED ON OTHER TOBACCO PRODUCTS, AS IT IS CONSIDERED THAT IT IS ALREADY AT AN APPROPRIATE LEVEL.

15.4           EMBARKATION TAX was originally introduced at a rate of £10 per passenger with effect from 1 January 2000. The rate was increased to £20 with effect from 1 March 2002 to recover the additional costs of airport security. The TAX has been the subject of criticism from visitors and efforts continue to include the TAX in

the cost of LanChile air tickets. It is recommended that this charge remains unaltered.

15.5           AN INCREASE IN THE PASSENGER LEVY OF £5 per passenger to £15 was agreed last year to fund additional PORT security measures, together with an introductory fee of £5 for vessels previously exempt. Bearing in mind the ongoing increases in fuel prices and the weak dollar, no increase is recommended for the forthcoming year.

15.6 Harbour dues were increased by 3% from 1 January 2004. Executive Council agreed to a review of charging arrangements in respect of customs fees and harbour dues as part of the 2003/04 budget process. HOWEVER, it was recognised that The issue could be clouded by the potential creation of a port authority. AS The review should concentrate on making charges fairer, It is proposed that no changes be made to harbour dues until thAT review has been carried out.

15.7            Vehicle Licence Fees were last increased by 12% with effect from 1 July 2004. A FURTHER 3% increase is proposed from 1 July 2005 AS FOLLOWS:

  This proposed increase would raise additional income of around £5,000.

15.8         THE INTRODUCTION OF A FEE of £25 IS PROPOSED for carrying out police checks on individuals for EMPLOYMENT vetting. The charge would not be applied to FALKLAND ISLANDS GOVERNMENT personnel since this would be an administrative burden only. This FEE will raise an additional £5,000.

15.9            In view of the fact that HOUSE rents are lower in the public than in the private sector, the policy in recent years has been to increase rents by more than the rate of inflation.          A review was carried out in 2002 and all properties were assessed, using a points-based system, to determine their relative rental values. Overall rents were increased by a maximum of 10% but the increases were staggered, depending upon current rent levels compared with assessed relative rental values. Utilisation of this staggered approach has caused rents to gradually migrate to the points-based level other than for two properties. it is therefore recommended that the rent for these properties be increased to the full level on 1 July 2005. It is further recommended that a general rent increase of 3.5% be applied to THE Government housING STOCK. This will raise an additional £24,000.     It should be noted that this increase will not immediately apply to sheltered housing, which is already subject to a staged increase.         TO ENSURE THAT TENANTS ON LOW INCOMES ARE AFFORDED CONSISTENT PROTECTION, THE ALLOWANCES AND THRESHOLDS UNDER THE RENT REBATE SCHEME WILL BE ADJUSTED BY THE SAME PERCENTAGE AS THE RENT INCREASE.

15.10   The principle adopted when determining electricity charges is that the service should break even. The draft estimates for 2005/06 indicate a significant deficit on the power station MAINLY as a result of increasing fuel prices.    It is therefore recommended that the current charge of 13.5p per unit be increased to 15p FROM 1 JULY 2005. This will result in a small deficit of £7,850. An increase to £15.5p per unit would produce a surplus of £55,000.

15.11      It is also proposed that a standard £50 fee should be introduced for making ELECTRICITY connections to new properties or for disconnecting/reconnecting existing supplies. There is an average of 80 requests of this nature per year and additional revenue of £4,000 would result. For reasons of simplicity a standard fee is preferred rather than the recovery of individual costs. This mirrors the practice of other service providers.

15.12          In the absence of a private sector initiative, due to the small economies of scale, the undertaking service continues to be performed by the PWD. The cost per funeral is estimated at £850. The charge per funeral was last increased from £550 to £600 with effect from 1 July 2004. To continue the move to full cost recovery the Director of Public Works has proposed that the charge be increased to £660 with effect from 1 July 2005. This would generate an additional £950. However, it could be argued that, since the funeral charge is a one-off rather than a recurring charge, there is no need for an incremental approach to increases. It is therefore recommended that funeral charges be increased to recover the full cost OF £850 in line with the user pays principle.  IT SHOULD BE NOTED THAT THIS FINAL CONTRIBUTION TO THE PUBLIC PURSE HAS NO AFFECT ON THE COST OF LIVING.

15.13   At this stage, no adjustments to WATER CHARGES FOR NON-DOMESTIC users are proposed since the section is showing a near break-even position.    Water charges for residential properties are covered by the service charge, which was introduced last year.

15.14   A separate refuse collection charge for non-domestic properties was introduced last year. A charge of £90 per year is currently payable for each domestic wheelie bin or £270 per annum for each large bin.  AS THESE CHARGES RECOVER THE FULL COST OF THE SERVICE THERE IS NO PROPOSAL FOR ADJUSTMENT AT THIS STAGE.

15.15   The domestic property service charge of £250 per annum (£125 for pensioners) was introduced with effect from 1 July 2004. In the first instance, the aim was to amalgamate the former water charge and a new refuse collection charge. Unlike the former water charges, the service charge is also payable by tenants of Government housing. It should be noted that the charge was not intended to relate only to these areas in perpetuity. The potential for including other ‘community’ services received by domestic residents in the future was realised from the outset.  it is proposed therefore that the costs associated with electricity FOR street lighting and the costs of street cleaning should be RECOVERED BY the charge.   as there has been a saving in refuse collection costs and a near breakeven position reached for water supply, there is no proposal to adjust the level of the charge at this stage.  however, this would set the principle for COST RECOVERY of these services in the event of overall cost increases in future years.

15.16     POSTAL CHARGES have been reviewed ONCE EVERY TWO YEARS since 2000 with the last changes implemented in July 2004. However, UPU regulations have altered the way in which mail charges are levied between postal administrations and these have increased charges for Falklands mail despatches. This is because Falklands mail contains a far greater number of items per kilo than the world average due mainly to the fact that large numbers of postcards and letters are involved. The Postmaster considers that it would be appropriate to raise charges for these items in isolation from the NORMAL review with the user pays policy in mind. It is therefore recommended that charges for first stage airmail letters are increased by 5p to 55p and charges for postcards are increased by 3p to 45p FROM 1 JULY 2005. This would generate an additional £3,000.

15.17       The post office currently provides a mail forwarding service for persons permanently leaving the Islands free of charge. On average 15 such redirections occur annually. It is recommended that a fee of £50 per surname for 6 months redirection of mail be introduced from 1 july 2005. This is in line with the user pays policy and will generate no additional administrative costs since the service is currently provided anyway.

15.18           A full review of HEALTH SERVICE fees and charges was carried out last year as part of the move towards the user pays principle. At this stage no further proposals have been received from the Health and Social Services Department. However, IT IS PLANNED THAT the Health and Medical Services Committee will discuss where revisions may be appropriate and make recommendations accordingly.

15.19   In line with the agreed policy of moving towards ‘user pays’ for services, the Director of Education has proposed an increase in the accommodation fees at Stanley House. Last year it was proposed that the fee be increased from £1 per day to £2 per day. In the event, IT WAS agreed to implement this in two phases; an increase of 50p per day from 1 September 2004 and a further 50p per day increase from 1 September 2005 PER FIRST AND SECOND CHILD OF A RESIDENT FAMILY.  BOARDING WOULD REMAIN FREE OF CHARGE FOR THIRD AND SUBSEQUENT CHILDREN OF THE SAME FAMILY.   It should be noted that the level of tuition fees for non-resident families was not reviewed last year when the accommodation fees wERE increased. The Director of Education intends to submit a proposal on tuition fees to the next MEETING OF THE Education Board. 

15.20   The current passenger and freight charges FOR FIGAS were set several years ago and it is evident that they are in need of revision. However, since there is currently a COMPREHENSIVE Transport Review underway, it would be inappropriate to review charges generally on a unilateral basis. It is therefore suggested that, whilst the principle for a need to revise CHARGES is accepted, the Transport Review should accommodate any relevant changes in these areas.    Notwithstanding the FOREGOING, a number of proposals were put forward by the General Manger OF FIGAS to address specific anomalies in the current charging structure. These are recommended for approval with immediate effect AS FOLLOWS:

A)    AN Increase IN charges for engineering services on private  aircraft to a realistic level. This will require a 50% increase to £30 per hour and will raise an additional £2,600.

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