The Importance of Balancing the Budget

“Balancing the budget is a fundamental responsibility. It protects essential public services, strengthens Jersey’s economic resilience, and upholds fairness for future generations.  The Government will continue to take a responsible, evidence-based approach to managing public finances. By restoring balance, rebuilding reserves, and investing wisely in Jersey’s future, we will keep our Island strong, stable, and self-reliant for many years to come.”

By Deputy Lyndon Farnham, Chief Minister of Jersey

As Chief Minister, I am committed to ensuring Jersey’s long-term financial sustainability and economic resilience. The recent Fiscal Policy Panel (FPP) Annual Report for 2025 provides a timely and constructive reminder of why maintaining a balanced budget and rebuilding our reserves is essential to the Island’s future.

We welcome the Panel’s assessment of the current economic and fiscal outlook. The Government notes the Panel’s view that, while difficult trade-offs exist between service delivery, investment, and rebuilding reserves, the pace of day-to-day spending growth has outstripped income growth in recent years.

The Panel’s recommendation to focus more on medium-term sustainability and resilience is both timely and helpful. It aligns closely with the Government’s ongoing work to manage expenditure responsibly and ensure a secure financial future for Jersey.

Jersey’s economy has performed well in recent years, supported by strong banking profits and continued growth in financial services. However, this success has also masked some underlying vulnerabilities.

The FPP has warned that day-to-day public spending has grown faster than income, creating structural deficits funded through reserve drawdowns and borrowing. This trend is not sustainable.

Without corrective action, Jersey risks weakening its financial position and reducing its ability to respond to future economic shocks. As a small island economy without independent monetary policy, our ability to manage volatility depends on prudent fiscal management and strong reserves.

This current Government has already taken decisive steps to curb public sector growth and restore fiscal discipline:

• Efficiency Savings: Budget 2026 – 2029 includes £9 million in annual savings from 2026 through reducing management layers, continuing to reduce reliance on consultants, and consolidating office space.
• Public Sector Headcount Control: After years of expansion, the Government has successfully slowed public sector growth, focusing resources on frontline service delivery mainly in Health, Education and Children’s Services.
• Three-Year Budget Planning: Multi-year budgeting is being introduced to improve forecasting, control expenditure, and reduce overspending.
• Healthcare Spending Review: A comprehensive review of healthcare funding is underway to ensure the sustainability of essential health services and prevent recurring overspends.
• Capital Investment Reform: The creation of the Jersey Capital Investment Fund (Investing in Jersey) will protect vital infrastructure investment from short-term pressures and support long-term planning.

Responding to the Panel’s Recommendations

1. Day-to-day spending is unsustainable and must be curtailed.
   The Government acknowledges the Panel’s assessment of day-to-day spending growth. We are committed to improving financial discipline and will continue to explore measures to contain recurrent expenditure. The move to three-year budgeting will support better planning and control and is consistent with the Panel’s advice.
2. More savings need to be found for the Strategic Reserve and Stabilisation Fund.
   We agree that rebuilding our fiscal buffers is essential. These funds are critical tools for economic resilience. The Government remains committed to restoring them and, where possible, will use excess Pillar Two revenues to support this objective, in line with the Panel’s recommendation.
3. Changes to the amount paid into the Social Security Reserve Fund should only follow a comprehensive actuarial assessment.
   Actuarial advice has informed our decision to prioritise immediate investment needs in this Budget. Both the Social Security Fund and Social Security Reserve Fund remain in good health over the long term. The States grant to the Fund has been reduced on a temporary basis, and we will await the outcome of the 2025 actuarial review before making any longer-term decisions.
4. The States of Jersey needs to improve its overall saving position.
   Government finances are recovering in the aftermath of the Covid-19 pandemic. Covid-related debt has been repaid, and we have prioritised spending on health to maintain vital services. While reserves have fallen as a share of GDP, this must be viewed in the context of a higher GDP driven by stronger banking sector performance. Our balance sheet remains robust, with Standard & Poor’s reaffirming Jersey’s AA- credit rating, and our reserves are continuing to grow.
5. Pillar Two income should be used prudently, prioritising saving over day-to-day spending.
   The Government supports the Panel’s recommendation to use these revenues to rebuild the Stabilisation Fund and strengthen the Strategic Reserve. We will also consider investing in productivity-enhancing capital projects where appropriate.

Both the Strategic Reserve and Stabilisation Fund are below the levels recommended by the FPP. The Government is committed to rebuilding these reserves using sustainable revenues, including future Pillar Two receipts.

We are also limiting new borrowing to important capital projects and ensuring that debt servicing costs do not impact upon funding for essential services.