States of Jersey Financial Report and Accounts 2008.

States of Jersey Treasury and Resources Department

FINANCIAL REPORT AND ACCOUNTS 2008

Treasury and Resources Department

P.F.C. Ozouf Senator Minister

J. Le Fondr   Deputy Assistant Minister

E. Noel Deputy Assistant Minister

I. Black, BSc (Econ), CPFA Treasurer of the States

Contents

Financial Report and Accounts

Minister s Report 1

Treasurer s Report 3

Auditors  Report 21

Statement of Accounting Policies 22

States of Jersey Operating Cost Statement 27

States of Jersey Balance Sheet 28

States of Jersey Cash Flow Statement 29

Notes to the States of Jersey Accounts 31

Statement of Responsibilities for the Statement of Accounts 57

States of Jersey Statement of Internal Control 58

Accounting Officers in Post During 2008 61 States Funded Bodies  Revenue Expenditure and Income

Departmental Analyses 65

Chief Minister (including Grant to Overseas Aid Commission) 66

Economic Development 74

Education, Sport and Culture 80

Health and Social Services 87

Home Affairs 94

Housing 101

Planning and Environment 108

Social Security  114

Transport and Technical Services 120

Treasury and Resources 127

Non Ministerial States Funded Bodies 136

States  Assembly and its services 143 States Trading Operations

Economic Development

Jersey Airport 146

Jersey Harbours 153 Transport and Technical Services

Jersey Car Parking 158

Jersey Fleet Management 161 Reserves

Strategic Reserve 168

Stabilisation Fund 169

Consolidated Fund 170 Separately Constituted Funds

Dwelling Houses Loan Fund 176

Assisted House Purchase Scheme 177

99 Year Leases 178

Agricultural Loans Fund 180

Fishfarmer Loans Scheme 181

Currency and Coinage 183

Tourism Development Fund 188

ICT Fund 189

Channel Islands Lottery (Jersey) Fund 190

Housing Development Fund 192 Glossary of Terms 195

Minister s Report

States of Jersey Financial Report and Accounts 2008

I am pleased to present the 2008 Financial Report and Accounts of the States of Jersey.

Income rose in 2008 to £660 million, being £47 million more than the original budget and an 18% increase on 2007. The main increase compared to budget was in the yield from personal income tax which was in accordance with the revised forecast included in the 2009 Budget.

During 2008 the spending of States non-trading departments rose by 8.8% to £522 million. This increase included one- off costs associated with the Historic Child Abuse Enquiry and the cost of the income support transitional arrangements. The increase in the underlying level of expenditure was 5.5%.

Allocations to capital projects for the year amounted to £143 million, comprising an initial allocation of £40 million, detailed in the 2008 Business Plan and an additional in year allocation of £103 million for the new Energy from Waste Plant.

Increased levels of income and the decision to fund the entire capital programme from cash rather than borrowing resulted in a year end deficit of £5 million. At the end of the year our two reserves, the Strategic Reserve and Stabilisation Fund, stood at record levels with a combined value of £582 million.

In the post-war period, Jersey s economic performance has been remarkable. The island benefits from very high standards in health, education and other services and at the same time maintains some of the strongest public finances of any small state in the world. This success has been built on relatively low taxation and a prudent approach to financial management. Whilst I have every confidence in the future of our Island and we must continue out prudent and realistic approach to spending.

In 2009 the Treasurer will lead the single biggest change to financial management and accounting in the States in recent years, the introduction of GAAP accounting. We are one of the first small island jurisdictions in the world to introduce these accounting standards. The adoption of GAAP in 2009 will result in greater transparency, improved financial reporting, and most importantly, better information to guide our decision making.

I would like to thank all the staff and senior management teams at Treasury and Resources for what they have achieved during the year. In particular, the Comptroller of Income Tax, Malcolm Campbell who managed the introduction of GST in addition to running our efficient tax department.

Ian Black is now in his tenth year as Treasurer of the States. During this period he has significantly improved the States finance function. His advice has contributed enormously to the position the island enjoys today and his dedication is enormously appreciated.

Equally, I also want to recognise the achievement of my predecessor, Senator Le Sueur . During his six years at the Treasury he gained approval for necessary reform of the Fiscal Policy. His contribution to the long term prosperity of the island is significant.

Together with my Assistant Ministers, Deputies Edward Noel and John Le Fondr , who has special responsibility for Property Holdings, we face a demanding yet exhilarating year ahead. Working with my Assistant Ministers and the Treasurer I intend to follow a positive and prudent approach to financial management, building on past successes and shaping the island s finances for the future.

Senator PFC Ozouf 28 May 2009

Executive Summary

In summary, the key results for 2008 are:

• States Net General Revenue Income up by £101 million to £660 million, an increase of 18% on 2007: Income tax receipts up £70 million (16%) to £503 million

Income of £32 million from the first 8 months of operating the Goods and Services Tax

Island rates and other income of £91 million

• Net Revenue Expenditure of Non-Trading Departments up by £42 million to £522 million, an increase of 8.8% on 2007:

Net expenditure on Health and Social Services up 7.2%

Net expenditure on Social Security including housing subsidies up 13.1%

Overall increase includes one-off expenditure of £6.1m relating to the Historic Child Abuse Enquiry. Non-Trading Departments ended the year £5.5 million or 1% underspent against Net Revenue Expenditure budgets

• Allocation of £143 million to Capital Projects, the main allocation being to the Energy from Waste Plant (£103m). Other significant projects include social housing, island infrastructure, St Peter s School, and the prison cell block.

• Annual deficit after capital expenditure allocation of £5 million. Higher than planned tax receipts and an additional in year capital allocation of £103 million led to a £5 million deficit compared to a planned surplus of £58 million.

• Funds of £582 million held in the Strategic Reserve and Stabilisation Fund.

This summary considers the three key areas of States income and expenditure as reported in the Consolidated Fund: General Revenue Income raised through measures included in the 2008 Budget; Departmental Net Revenue Expenditure; and Capital Expenditure Allocation as planned for in the 2008 Business Plan.

On a basis consistent with, and allowing comparison to, the 2008 budget, the States recorded a deficit of £5 million in 2008. This compares with a surplus of £58 million originally estimated in the 2008 Budget. The movement from a planned surplus of £58 million to an actual deficit of £5 million was principally the result of the States decision to allocate £103 million to the Energy from Waste Plant capital project in 2008. Against this, higher than expected taxation income resulted in a smaller deficit than would otherwise have been recorded.

Departments Net Revenue Expenditure at £522 million was £7 million more than originally budgeted in the 2008 Business Plan. This additional expenditure was authorised through increases to Departmental budgets, including the carry forward of unspent 2007 budgets, transfers between capital and revenue budgets and additional funds voted by the States for the Historic Child Abuse Enquiry. Net Expenditure in 2008 totalled £522 million compared to a final authorised budget of £528 million, an underspend of £5.5 million or 1% of budget. The following table summarises the 2008 Out-Turn compared to the original budget.

Table 1 Summary Out-Turn

2008  2008 2007 Budget Actual Actual

£ million £  million £  million

58 Surplus / (Deficit) after Capital Expenditure Allocation (5) 37

The figures in this table are shown to allow direct comparison to the Budget and Business Plan. Tables 4 and 7 of this report reconcile these figures to the Consolidated Fund accounts.

Setting these results in the context of recent history, the following graph presents the annual percentage increase in General Revenue Income over the past ten years compared to annual RPI increases. This shows that the increase in 2008 (17.9 %) is at its highest level for ten years reflecting both the strong performance of the island s economy over recent years and the introduction of a new Goods and Services Tax in 2008.

Graph 1 - Annual Increases in General Revenue Income and RPI

Annual Percentage Increase in General Revenue Income and RPI

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year

General Revenue Income RPI

A similar analysis of Net Revenue Expenditure in the following graph shows that Net Revenue Expenditure has increased by 8.8% compared to a RPI increase of 3.3%. This increase includes one-off expenditure relating to the Historic Child Abuse Enquiry and the cost of the income support transitional arrangements.

Graph 2 - Annual Increases in Net Revenue Expenditure and RPI

Annual Percentage Increase in Net Revenue Expenditure and RPI

12% 10% 8% 6% 4% 2% 0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year

Net Revenue Expenditure RPI

As at 31 December 2008, the States  net assets totalled nearly £1.5 billion approximately a third of which (£582 million) is held in the form of its key reserves. The Strategic Reserve balance was £507 million, whilst the balance in the Stabilisation Fund totalled £75 million. The balance sheet indicates that the States  assets are sufficient to meet all its financial liabilities.

The Composition of the States of Jersey Accounts

The aggregated accounts for the States of Jersey report on the financial results of the States during 2008, and the financial position at the end of 2008. The annex to the accounts includes details of the financial results of individual departments and funds. The non-financial performance of States  departments is published separately in the Annual Performance Report. The key components of the States of Jersey accounts are summarised in the following diagram.

Figure 1 The Component Parts of the States of Jersey Accounts

There are specific governance arrangements in place for the different funds identified above; these are described in this report and in some specific cases in the annex to the accounts. In addition there are also funds administered by officers of the States of Jersey that are not included in these accounts, which are described in the notes to the accounts.

2006 saw the introduction of an improved approach to financial control within the States of Jersey with the implementation of the Public Finances (Jersey) Law 2005. Amongst other measures (such as the establishment of the function of Comptroller and Auditor General and the ability of the Treasurer of the States to issue financial directions) the new law designated the Chief Officer of each States funded body as its Accounting Officer. Each Accounting Officer is responsible for ensuring that expenditure does not exceed the amount allocated to their department and is used for the purpose for which it was appropriated, that records and proper accounts of all financial transactions are maintained, that the resources of the department are used economically and effectively and that the provisions of the law in their application to the department are otherwise complied with. In discharging these overall responsibilities, the Accounting Officer is also responsible for ensuring that there is a sound system of internal control which facilitates the effective exercise of the functions of the Accounting Officer and which includes arrangements for the management of risk. A list of Departments and the Accounting Officers in post during 2008 is included in the report and accounts.

The Consolidated Fund

The Consolidated Fund is governed by the Public Finances (Jersey) Law 2005. This is the fund through which the majority of the States income and expenditure is managed. General Revenue Income and Departments expenditure on public services is all accounted for through this fund.

Planning for income to the Consolidated Fund is governed through the States Annual Budget which sets out the taxation measures and the expected level of income. Further details of this process can be found in the States Annual Budget.

Through the Annual Business Plan debate, the States Assembly allocates funding to Departments Net Expenditure Cash Limits (budgets) from the Consolidated Fund. Departmental Cash Limits may change during the year, subject to the approval of the Minister for Treasury and Resources or the States Assembly. Cash Limits may be changed for one of the following reasons; all such changes are reported to the States.

• Unspent Cash Limit voted by the States in 2007 may be approved for carry forward to 2008

• Amounts may be transferred between approved capital projects and revenue budgets

• Additional amounts may be approved by the States during the year

Comparing Out-Turn to Budget

The States main sources of income are planned for and forecast in the States Annual Budget and the States Annual Business Plan. The States main control on expenditure is through Net Revenue Expenditure cash limits voted by the States to departments in the Annual Business Plan.

The following table shows that Net General Revenue Income was £660 million, £47 million more than originally forecast and that Net Revenue Expenditure was £522 million, £7 million more than originally planned. This additional expenditure was appropriately authorised through approved changes to departments cash limits. The final net revenue expenditure out-turn of £522 million compares to a final authorised budget of £528 million, an underspend of £5.5 million. The following table summarises this out-turn.

Table 2 The Consolidated Fund Net General Revenue Income and Net Revenue Expenditure

2008  2008 2007 Budget Actual Actual

£ million £  million £  million

Net General Revenue Income

613 Net General Revenue Income 660 559

515 Net Revenue Expenditure 522 480

During 2008, the total Net Revenue Expenditure Cash Limit increased by £13 million from £515 million to £528 million. The following table details these changes; further detail is provided in the annex to the accounts.

Table 3 - Net Revenue Expenditure Cash Limit Changes

Net Revenue Expenditure

Cash Limit

£ million

Final Approved Budget  528 Consolidated Fund Income

Consolidated Fund income for the year was £773 million, including income tax of £503 million before provision for bad and doubtful debts. The following graph and table show all the main areas of income to the Consolidated Fund and how they compare with estimate and the prior year.

Graph 3 Consolidated Fund Income

2008 Consolidated Fund Income

Departmental

Income Tax Income

65% 14%

Salary and Wage Earners

30%

Other Income 6%

Self Employed and Investment Holders 5%

Island Rate 1%

Companies 30%

Stamp duty 3%

Impots

7%

GST 4%

Table 4 Consolidated Fund Income

2008  2008 2007 Budget Actual Actual

£ million £  million £  million

Gross Consolidated Fund Income 773 666

1 Gross Income tax receipts amount to £503 million.

Income Tax

The standard rate of Income Tax remained at 20 pence in the pound in 2008. International business companies are charged at lower rates than this on income and profits arising from international activities whilst the Exempt Company charge is a flat fee of £600. Total income tax revenues were as follows:

Table 5 2008 Income Tax Revenues

2008  2008 Actual 2007 Actual Increase Budget £  million £  million %

£ million

460 Net Income Tax 1 499 430 16%

1 Gross Income tax receipts before provision for bad and doubtful debts amount to £503 million.

Tax raised in 2008 arises from trading profits in 2006 and other income sources in 2007. The 16% increase in tax yield in 2008 compares to an 8% increase in 2007. The 15% increase in income from personal tax reflects the introduction of proportional personal tax allowances, the impact of ITIS collection and growth in employment and pay. The tax raised from self employed and investment holders has continued to increase, increasing from £38 million in 2007 to £41 million in 2008.

Tax raised from Companies includes one-off receipts of approximately £10 million which are not expected to be repeated. In addition, a number of long outstanding appeals have been settled in 2008 resulting in additional income of approximately £12 million being recognised in the period.

Goods and Services Tax

The Goods and Services Tax (GST) was introduced at 3% with effect from 6 May 2008. Income from GST during May to December 2008 was £32 million, slightly ahead of the original forecast in the 2008 Budget and broadly in line with the revised forecast income of £33 million detailed in the 2009 Budget.

Imp ts and Customs Duties

Imp ts and customs duties yielded £49.8 million in 2008, £4.1 million down on 2007 and £2.2 million less than originally budgeted.

Table 6 Imp ts and Customs Duties

Duty Increase 2008 2008 2007 Increase/ applied in

Budget Actual Actual (Decrease) 2008 Budget

£ million £  million £  million % %

52.0 Total Imp ts and Customs duties 49.8 53.9 (8)% -

Stamp Duty

The yield from Stamp Duty fell by 17% to £24 million, reflecting the slow-down in house sales during the later part of the year. Vehicle Registration Duty ceased from 6 May 2008. This is reflected in the recorded level of income in the year.

Other Income

Other income of £45 million is analysed in the table below.

Increase / 2008  2008 Actual 2007 Actual (Decrease)

Budget £  million £  million %

£ million

32.9 Total Other General Revenue Income 45.0 36.9 22%

Consolidated Fund Expenditure

The vast majority of expenditure from the Consolidated Fund relates to States  Gross Revenue Expenditure, i.e. Ministerial and Non-Ministerial Departments providing core public services to the island. The capital repayment charge represents an approximation of a depreciation charge that would be applicable under UK GAAP. The following table summarises consolidated fund revenue expenditure.

Table 7 Consolidated Fund Expenditure

2008  2008 2007 Budget Actual Actual

£ million £  million £  million

606 Total Expenditure 674 626

The following paragraphs consider the main element of revenue expenditure from the Consolidated Fund. This is Departmental Net Revenue Expenditure of £522 million, being the net of gross departmental expenditure (£631 million) and departmental income (£109 million).

Departments  performance against budget is assessed on the basis of net revenue expenditure. The total net revenue expenditure (excluding capital repayment) of Departments totalled £522 million (£480 million in 2007), 71% of which related to expenditure on Health and Social Services, Education, Sport and Culture and Social Security. All Departments ended the year underspent or in line with their final budgets.

The following graph shows the distribution of expenditure across the key public services. Further details can be found in the annex to the accounts.

Graph 4 Distribution of Net Revenue Expenditure

Net Revenue Expenditure

Non Ministerial Economic  Treasury and Other Services Services Development Resources

1% 5% 3% 4 %

Transport and Health and Technical

Social Services Services

28% 4%

Home Affairs Social Security Education, 9%

28% Sport and

Culture

18%

The following graph shows how expenditure on these key public services has changed compared to 2007. Graph 5 Net Revenue Expenditure Changes Compared to 2007

Net Revenue Expenditure Compared to 2007

Health and Social Services 7.2% Social Security 38.9%

Education, Sport and Culture 1.7%

Home Affairs 20.2%

Housing* (1,897)%

Other Services 7.3%

Transport and Technical Services 1.0%

Treasury and Resources 4.0%

Chief Minister's Department 7.4%

2008 2007

Economic Development 2.4%

Non Ministerial Departments 15.5%

(40,000) (20,000) 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

£'000 Expenditure

* In 2008 the Housing department ceased paying Rental Subsidies as these became part of the new Income Support system. As a result, the department now has a net revenue income budget and outturn (as shown above).

The following paragraphs consider the most significant of these changes; further detailed analysis is contained in the annex to the accounts.

1. Health and Social Services Department

Net revenue expenditure increased by £10 million (7.2%) in 2008 compared with 2007. The 2008 budget and spend reflects increased funding of £3.4 million and efficiency savings of £0.6 million agreed in the 2008 Business Plan.

2. Social Security Department

Net revenue expenditure increased over that of 2007 by £40.8 million (38.9%) to £145.5 million. A new Income Support system was introduced in January 2008, which now includes the rent subsidy budget from the Housing Department. A like for like comparison of expenditure including rent subsidies shows a 13.1% increase in social security expenditure. This increase includes the cost of income support transitional relief, protecting those households affected by the introduction of the new system.

3. Education, Sport and Culture Department

Net revenue expenditure increased over that of 2007 by £1.5 million (1.7%) to £94 million. This relatively low increase in spend reflects a number of factors, and principally a reduction in demand for higher education from the one-off peak in 2007.

4. Home Affairs Department

Net revenue expenditure increased over that of 2007 by £8.2 million (20.2%) to £48.9 million. This was mainly due to the policing costs associated with the Historical Child Abuse Enquiry (HCAE), increases in staff costs due to pay awards and additional posts at the Prison.

5. Transport and Technical Services Department

Net revenue expenditure increased over that of 2007 by £218,000 (1.0%) to £21.5 million. Expenditure rose by £4 million (11%) but was offset by an increase in income of £3.8 million (27%). The significant increase in expenditure and income arose as a result of the transfer of the Jersey Harbours Engineering Section and Housing Cleaning Section in 2008 from the relevant departments to the Transport and Technical Services Department.

6. Economic Development Department

Net revenue expenditure by the Department increased by £379,000 (2.4%) compared to 2007. This included increased expenditure on Enterprise and Business Development and support for the Finance Industry. These increases were offset by a reduction in expenditure on other services.

7. Treasury and Resources Department

Net revenue expenditure decreased by £711,000 (4.0%) compared to 2007. This reflects £658,000 of efficiency savings, largely relating to property maintenance, that were allocated to the Department in the 2008 Business Plan.

viii. Chief Minister s Department

Net revenue expenditure increased by £1.3 million (7%) compared to 2007. The majority of the increase relates to transfers between capital and revenue budgets and additional expenditure relating to the Historic Child Abuse Enquiry.

More detailed narrative of each department s performance can be found in the Annex accompanying these accounts.

Capital Expenditure

The States capital expenditure allocation from the Consolidated Fund for 2008 was £143 million (including £103m allocated to the Energy from Waste plant). During 2008, capital expenditure from the Consolidated Fund amounted to £45.4 million (£42.2 million in 2007).

The major projects funded from the Consolidated Fund with a spend of more than £1 million in 2008 are listed below. Table 8 Spend on Major Capital Projects

Spend in 2008 Spend to Date Project £  million £  million Le Rocquier School  1.0  22.1

Le Marais  4.8  5.8 The Cedars  3.0  3.5 Clos du Fort  1.0  1.4 Energy from Waste Plant*  22.1  25.3 GST implementation  1.2  1.4 Highlands College  1.4  1.7

St Peter s School  3.5  4.6 Prison Cell Block Reconstruction  4.6  7.1

*Expenditure on the Energy from Waste Plant in the table above includes all amounts paid to contractors by the end of 2008. Of this, £19.5m is included in prepayments in the balance sheet.

At 31 December 2008 £183.5 million of capital funding allocated in 2008 and previous years had yet to be incurred. The significant approved but unspent funds included £83 million on the Energy from Waste Plant, £13 million for three other T&TS projects, £13 million for the relocation of the Police Station Headquarters, £6 million for Housing renovation projects, £5 million for the Health Integrated Care Record Programme, £4 million relating to the Prison Cell Block Reconstruction Phase 3, £4 million on Highlands College, and £3 million for the extension of the A&E and Radiology departments.

The aggregated accounts also include capital expenditure from other States  funds; total States capital expenditure in 2008 is summarised in the table below.

Table 9 Capital Expenditure Summary

Capital Expenditure Financed from 2008 2007

£ million £  million

Consolidated Fund 45.4 42.2 Trading Funds 23.3 12.6 Housing Development Fund 0.2 - Waterfront Enterprise Board 2.3 0.2 Total Capital Expenditure 71.2 55.0

The States  Trading Operations

Use of Trading Funds is governed by the Public Finances (Jersey) Law 2005. Trading Funds are designated by the States as a distinct or disparate trading operation of the States. Planning for income and expenditure of Trading Funds is governed through the States  Annual Business Plan.

The following table summarises the performance of each fund against budget and the Trading Fund balance at 31 December. The Trading Fund balance recorded against each fund is held to meet future expenditure from the fund. Financial statements for each fund can be found in the annex to these accounts.

Table 10 Trading Funds Summary

2008  2008 Out-Turn 2007 Fund Budget Income Expenditure Surplus Surplus Balance at Surplus  31/12/08

£ million Trading Operation £  million £  million £  million £  million £  million

6.3 Total 52.9 43.4 9.5 10.2 52

This analysis includes depreciation, not shown in the Trading Funds Operating Accounts, and excludes changes in pension liability provisions in respect of trading operations which amounts to a total of £7.2 million.

Separately Constituted Funds

The Public Finances (Jersey) Law 2005 allows the States to establish special funds. These are funds with a specific purpose and are usually established by legislation or a States  decision. The governance arrangements are therefore specific to each individual fund; these are detailed in the annex to these accounts.

The following table summarises the financial out-turn and position of each fund. Further details can be found in the Annex accompanying these accounts.

Reserves 33 (2) 31 582

Strategic Reserve

The Strategic Reserve is the States  long-term reserve, set up in the mid 1980s to safeguard against a major downturn in the economy. The purpose of the reserve was clarified by the States in December 2006 when they agreed that the Strategic  Reserve  should  be  a  permanent  reserve, where  the  capital  value  is  only  to  be  used  in  exceptional circumstances to insulate the Island s economy from severe structural decline such as the sudden collapse of a major island industry or from major natural disaster. The total value of the reserve at year end was £507 million (£510 million in 2007). Overall the Reserve has weathered recent turmoil in the financial markets well, and performed considerably better than the FTSE. The States did not have any significant exposure to any of the high profile financial institutions that have recently faced difficulties. Expenditure relates to investment fees and the appropriation of investment returns to the Currency Fund.

The following graph shows the market value of the Strategic Reserve over recent years. Graph 6 Strategic Reserve Net Assets

Strategic Reserve - Net Assets

600 510 507

456 477

500 382 397 418

400

300 200 100 0

2002 2003 2004 2005 2006 2007 2008

Year

Stabilisation Fund

In December 2006 the States agreed to establish a Stabilisation Fund, the purpose of the fund being to make fiscal policy more countercyclical, providing some protection from the adverse impact of economic cycles, and creating in the Island a more stable economic environment with low inflation. This will involve taking money out of the economy and paying it into the Fund when it is growing strongly and drawing money down from the Fund to support the economy when it is performing more weakly.

Following the agreement of the States, the fund was established with a transfer of £32 million of surplus funds previously held in the Dwelling House Loans Fund. In 2008 a further £38 million was transferred to the Fund. During 2008 the fund has achieved a return of 5.8%. The following graph shows the Net assets of the Stabilisation fund since inception.

Stablisation Fund – Net Assets

75

80

70

60

50 32 34 40

30

20

10

0

2006 2007 2008

Year

The Minister for Treasury and Resources is responsible for proposing to the States transfers between the Consolidated Fund and Stabilisation Fund having regard to the advice of a new independent Fiscal Policy Panel (FPP). The FPP has been appointed by the States on the recommendation of the Minister. Towards the end of 2008 the FPP recommended that a further £63 million should be transferred to the Stabilisation Fund. This was effected in January 2009.

The States of Jersey Aggregated Accounts

This report and accounts reflect the financial out-turn of the States of Jersey for 2008; they have been prepared as directed by a Ministerial Order issued under the Public Finances (Jersey) law 2005. To set them in context it will be helpful to have an appreciation of the States  aims and objectives and the financial regime in which we operate.

The States Strategic Plan, which was approved by the States in June 2006, describes six main themes, or commitments:

¥ Maintain a strong, successful and environmentally sustainable economy;

¥ Create the environment in which everyone in Jersey has the opportunity to enjoy a good quality of life;

¥ Promote a safe, just and equitable society;

¥ Maintain and enhance the natural and built environment;

¥ Create a strong, recognised identity for Jersey and promote a real sense of belonging;

¥ Ensure that States services are necessary, of high quality and efficiently run.

The detail of the plan is kept under review to ensure that the overarching commitments and objectives are achieved. Accordingly, the Council of Ministers reviews the Strategic Plan as a matter of course during the annual business planning process, and in particular, reviews and continually updates the impact of changes in policy, or other unforeseen expenditure, on the financial framework.

This is the framework within which the Executive develops policy, allocates resources and delivers services. To deliver the Strategic Plan, an Annual Business Plan is prepared. This plan outlines the delivery of public services, our key objectives and the resources required to deliver these services. The Annual Business Plan is debated by the States Assembly which approves each Department s resource allocation (budget), key objectives/priorities and success criteria as well as an allocation to fund capital projects. States members also have an opportunity to reconfirm, or amend, the priorities originally set out in the Strategic Plan.

To fund proposals contained within the Annual Business Plan the Minister for Treasury and Resources prepares an Annual Budget. The States Assembly considers this Budget and approves measures to raise revenue through taxation each year. This is done within the context of the States Fiscal Strategy.

This report and accounts present the financial out-turn compared to both the planned expenditure approved in the Annual Business Plan and the estimated income reported in the Budget. In addition, the States holds a number of special funds, such as the Channel Island Lottery, which are included within these aggregated accounts.

The States of Jersey is committed to implementing modern generally accepted accounting principles. We are in the midst of a transition to these new standards; these accounts reflect the third year of the ministerial system of government.

The accounts fairly reflect the financial position of the States of Jersey for the financial year ended 31 December 2008. Our accounting policies are outlined in the accounts and have been fairly and consistently applied. We keep proper and up to date accounting records and take all reasonable steps to prevent and detect fraud and other irregularities.

The main statements included in the accounts are detailed below along with an explanation of their purpose.

Operating Cost Statement

This statement, introduced this year for the first time, reflects the move towards GAAP and the format of the States accounts moving forward. It replaces the Income and Expenditure Account previously shown in the accounts. It provides a more informative analysis of the States income and expenditure, highlighting income levied by the States of Jersey, such as taxation, other income, and States expenditure on social benefits, staff costs, grants and subsidies and other expenditure. It encompasses all the entities that comprise the States of Jersey; a segmental analysis is included in the notes to the accounts providing further analysis of the States income and expenditure.

Aggregating the component parts of the States of Jersey Accounts, the Operating Cost Statement for 2008 shows an aggregated surplus of income over expenditure of £57m. It is important to emphasise that this reflects all the income and expenditure of the States of Jersey. The following table breaks this down into the main areas.

Surplus 21 3 31 2 57

The Consolidated fund comprises General Revenue Income, Net Revenue Expenditure, surpluses on the disposal of assets and capital servicing. Pension provisions relate to the movement in the potential costs of the States pension schemes. These figures reflect the restructuring of the Jersey Teachers Superannuation Fund to generally mirror the Public Employees  Contributory Retirement Scheme arrangements, whereby the States  liability is limited and it is not responsible for meeting any ongoing deficiency in the schemes beyond agreed responsibility for existing past service liabilities. Further details of the States  pension schemes can be found in note 4 to the accounts.

Statement of Total Recognised Gains and Losses

The Statement of Total Recognised Gains and Losses provides a summary of the States  financial gains and losses regardless of whether or not they were shown in the Operating Cost Statement or the Balance Sheet. This includes the surplus for the year from the Operating Cost Statement as well as other unrealised gains and losses.

Balance Sheet

The Balance Sheet provides a snapshot of our financial position as at 31 December. It sets out what we own, what we owe and what is owed to us at that point in time.

The Balance Sheet includes the valuation of the PECRS pre-87 liability. This is valued annually by an independent actuary in accordance with the agreement made between the States and the PECRS in 2005. Due to changes in assumptions and market conditions the value of the debt at 31 December 2008 is £226 million compared to £123 million in 2007. The basis of the amount payable to the PECRS by the States each year remains the same.

Cash Flow Statement

This statement summarises the total cash movements during the year for both capital and revenue purposes.

The accounts also include a set of notes that provide further analysis of the figures contained within the main statements. In addition, the annex to the accounts provides financial summaries and reports for the entities included within the States of Jersey Accounts. A glossary is included at the end of the annex to the accounts providing an explanation of the terminology used in this report and accounts.

Ian Black, BSc (Econ), CPFA Treasurer of the States

28 May 2009

Auditors  Report

INDEPENDENT  AUDITORS  REPORT  TO  THE  MINISTER  FOR  TREASURY  AND  RESOURCES  OF  THE  STATES  OF  JERSEY  AND  THE COMPTROLLER AND AUDITOR GENERAL OF THE STATES OF JERSEY

We have audited the Financial Report and Accounts of the States of Jersey for the year ended 31 December 2008 in accordance with the Public Finances (Jersey) Law 2005. They comprise the Aggregated Operating Cost Statement, the Aggregated Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses and the related notes. The Financial Report and Accounts have been prepared under the accounting policies set out therein.

Respective responsibilities of the Treasurer of the States, the Comptroller and Auditor General of the States and auditors

The Treasurer s responsibilities for preparing the annual Financial Report and Accounts are set out in the Public Finances (Jersey) Law 2005 and summarised in the Statement of Responsibilities for Preparing the Accounts.

The Comptroller and Auditor General s responsibilities are to ensure that the Financial Report and Accounts is audited within 5 months of the end of the financial year.

We have been appointed by the Comptroller and Auditor General to audit the Financial Report and Accounts in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Minister for Treasury and Resources of the States of Jersey and the Comptroller and Auditor General of the States of Jersey in accordance with the Public Finances (Jersey) Law 2005 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the Financial Report and Accounts give a true and fair view in accordance with the Public Finances (Jersey) Law 2005. We also report to you whether in our opinion the information given in the Minister s Report and Treasurer s Report are consistent with the Financial Report and Accounts.

In addition we report to you if, in our opinion, the States has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by the Public Finances (Jersey) Law is not disclosed.

We review whether the Statement on Internal Control reflects the States of Jersey s compliance with the relevant guidance issued by the Financial Advisory Board of the States of Jersey on 14 November 2006 and we report to you if it does not. We are not required to consider whether the statement covers all risks and controls. We are also not required to form an opinion on the effectiveness of the States  corporate governance procedures or its risk and control procedures.

We read other information contained in the Financial Report and Accounts, and consider whether it is consistent with the audited Financial Report and Accounts. This other information comprises only Departmental Revenue Expenditure Statements, the Reserves Statements and Separately Constituted Funds Statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Financial Report and Accounts. Our responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Financial Report and Accounts. It also includes an assessment of the significant estimates and judgments made by the Treasurer in the preparation of the Financial Report and Accounts, and of whether the accounting policies are appropriate to the organisation s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Financial Report and Accounts are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Financial Report and Accounts.

Opinions

In our opinion:

• the Financial Report and Accounts give a true and fair view, in accordance with the Public Finances (Jersey) Law 2005, of the stat e of the States affairs as at 31 December 2008 and of the income and expenditure and cash flows for the year then ended;

• the financial statements have been properly prepared in accordance with the Public Finances (Jersey) Law 2005; and

• the information given in the Minister s Report and the Treasurer s Report is consistent with the Financial Report and Accounts.

Price waterhouseCoopers LLP 29 May 2009 80 Strand

London

WC2R 0AF

1. Basis of Accounts

The Annual Financial Statements are prepared to meet the requirements of the Public Finances (Jersey) Law, 2005. It is planned over this and coming years that the accounts will increasingly reflect recognised accounting standards and principles, including United Kingdom Generally Accepted Accounting Principles (UK GAAP). The following paragraphs outline the accounting basis on which the 2008 accounts have been prepared. As part of the move to GAAP, the GAAP accounts presentation has been adopted for the preparation of the 2008 accounts. Full GAAP compliant accounts will be prepared for 2009.

2. Aggregation and Consolidation

The accounts reflect the aggregated income and expenditure accounts and the balance sheet of the States of Jersey including the results of separately constituted funds but not Jersey Telecom Group Limited, Jersey Post Limited, Jersey Electricity Company Limited and Jersey New Waterworks Company Ltd.

As the Waterfront Enterprise Board Limited, a wholly-owned subsidiary, is a developer and agent of the States of Jersey, its results and financial position are aggregated within the States of Jersey accounts.

The accounts do not include Special Funds, such as legacies and bequests, which are administered by the States of Jersey. The Social Security Fund, Social Security (Reserve) Fund, and Health Insurance Fund will be published separately to the States accounts. The Criminal Offences Confiscation Fund and Drug Trafficking Confiscation Fund are not aggregated into the States accounts but financial information will be published separately.

3. Inter-Department Transactions

Transactions and balances between Departments, including interest on capital servicing incurred by States Trading Operations, are not eliminated in the preparation of the accounts.

4. Related Party Transactions

The accounts do not contain any disclosures with respect to related party transactions.

5. Foreign Currencies

Assets and liabilities denominated in foreign currencies are translated to sterling at rates current at the balance sheet date. Transactions are translated into sterling at the rate current at the date of the transaction. All foreign exchange differences are included in income and expenditure for the year.

6. Income and Expenditure

Income and expenditure is accounted for using the accruals concept, i.e. income and expenditure are accounted for when goods and services are provided and received, unles specified otherwise.

7. Income Tax and Imp ts

Income Tax is recognised when an assessment is raised with provisions made for doubtful debts and adjustments following appeals. In addition, an estimate is made of repayments due under the Income Tax Instalment Scheme and a further provision is made. Tax collected in the year under the Income Tax Instalment Scheme which is due for assessment in the following year (tax collected on a current year basis) is recognised as receipts in advance.

Goods and services Tax (GST) is recognised on an accruals basis. GST is deemed to be receivable by the States of Jersey at the point of sale of goods or services which are liable to GST. GST is deemed to be payable by the States of Jersey at the point of payment by a registered business for goods or services which are liable to GST. Fees payable by International Service Entities are recognised on an accruals basis and are included in total GST receipts in the Operating Cost Statement.

Imp ts duties are recognised when the goods are landed in Jersey. viii. Provisions for Liabilities and Charges

A provision is made in the accounts in respect of obligations arising from past events where the predicted outcome of the event is considered probable and there is a reliable estimate of the amount of the liability.

9. Fixed Assets

Fixed Assets are categorised according to their source of funding as opposed to being classified according to their nature, function or use in business.

A capital repayment charge is made as an approximation to any depreciation charge that would be applicable under UK GAAP, including an element in respect of land, which would not be depreciated under UK GAAP. The capital repayment charge is calculated as cost at the end of the year divided by the estimated remaining life of the asset. Assets in the course of construction are held at cost. Completed fixed assets are held at cost less capital repayments.

Useful economic lives (by category) over which assets are depreciated or over which capital servicing is allocated are as follows:

Buildings 50 years Infrastructure 10-30 years Plant and Equipment 5-10 years Fixtures and Fittings 5-10 years Vehicles 5 years Computer hardware and software 3-5 years

For expenditure where the source of funding has been designated as capital, but where the whole or majority of the spend is deemed to be revenue in nature, a capital repayment charge equivalent to the whole cost incurred in the year is made.

10. Leased assets

Assets held under finance leases or sale and lease-back arrangements are capitalised as fixed assets and depreciated over the shorter of the lease term or their estimated useful economic lives. Rentals paid are apportioned between reductions in the capital obligations included in creditors, and finance charges charged to the Operating Cost Statement. Expenditure under operating leases is charged to the Operating Cost Statement in equal instalments over the period of the lease.

11. Capital Grants

Capital grants received in respect of the construction of tangible fixed assets are carried forward in the balance sheet until such time as the related asset is constructed and are then deducted from the construction costs.

12. Strategic Investments

Although the States of Jersey holds a majority of the ordinary voting shares in the Jersey Telecom Group Limited, the Jersey Post Limited, the Jersey Electricity Company Limited and the Jersey New Waterworks Company Ltd, the accounts of these are not consolidated as they are strategic investments and information on these companies is better provided by reference to the separate accounts. These investments are stated at cost less provision for any permanent diminution in value.

xiii. Other Investments

Investments held other than for strategic purposes, principally for investment returns, are carried at market value.

Profits or losses on disposal or redemption of investments are included in the Operating Cost Statement when realised.

Unrealised gains and losses on investments are included in the Statement of Total Recognised Gains and Losses.

Income on interest-bearing investments is recognised on an accruals basis. Income on other investments is recognised when receivable.

14. Stock and Work in Progress

Stock and work in progress includes site developments held for resale by the Waterfront Enterprise Board Limited and other general stocks.

All stocks are held at the lower of cost and net realisable value.

15. Debtors, Prepayments and Advances

Debtors are recognised on an accruals basis reflecting goods and services provided for which income is due as at 31 December 2008.

Prepayments are recognised on an accruals basis reflecting goods and services that have been paid for but no benefit received as at 31 December 2008.

Advances are recognised on an accruals basis reflecting the amounts advanced less any capital repayments received.

Debtors, prepayments and advances are recognised at amortised cost less provision for any permanent diminution in value.

16. Creditors

Revenue creditors are recognised on an accruals basis reflecting goods and services received in the year ending 31 December 2008, which have not been paid for as at 31 December 2008.

Capital creditors include the cost of all work certified as complete up to the 31 December 2008. Creditors are recognised at amortised cost less provision for any permanent diminution in value.

xvii. Cash and Liquid Resources

Cash and Liquid Resources are cash in hand and deposits repayable on demand, less overdrafts repayable on demand. Cash includes cash in hand and deposits denominated in foreign currencies.

xviii. Contingent Liabilities

A contingent liability is disclosed where:

a possible obligation that arises from a past event and whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the States of Jersey s control; or

a present obligation arises from past events but has not been recognised because:

it is not probable that a transfer of economic benefits will be required to settle the obligation; or

the amount of the obligation cannot be measured with sufficient reliability.

xix. Pension Schemes

The States of Jersey operates two principal pension schemes for certain of its employees; Public Employees Contributory Retirement Scheme (PECRS) and Jersey Teachers Superannuation Fund (JTSF). In addition one further pension scheme exists, the Jersey Post Office Pension Fund (JPOPF). This scheme, which relates to Jersey Post International Limited (a wholly owned strategic investment), is closed to new members. The assets of each scheme are held in separate funds.

The Jersey Post Office Pension Fund is accounted for as a conventional defined benefit scheme in accordance with Financial Reporting Standard (FRS) 17.

The Public Employees Contributory Retirement Scheme and Teachers Superannuation Fund, whilst final salary schemes, are not conventional defined benefit schemes as the employer is not responsible for meeting any ongoing deficiency in the schemes.

Employer contributions to the schemes are charged to revenue expenditure in the year they are incurred.

In agreeing P190/2005 the States confirmed responsibility for the past service liability which arose from restructuring of the PECRS arrangements with effect from 1 January 1988. This liability is recognised in the accounts.

The Jersey Teachers Superannuation Fund was restructured in April 2007. The restructured scheme mirrors the Public Employees Contributory Retirement Scheme. A provision for past service liability, similar to the PECRS pre-87 past service liability, has been recognised, although this has not yet been agreed with the Fund s board of management.

Apart from the liabilities detailed above, the employer is not responsible for meeting any ongoing deficiency in the schemes.

Information on the schemes is presented in the accounts reflecting the cost of the schemes to the States as the employer. In particular, information specified in FRS 17 is disclosed in a note to the accounts. As both these schemes limit the liability of the States as the employer, scheme surpluses or deficits are only recorded within the States accounts to the extent that they belong to the States.

Where appropriate, as detailed in the preceding paragraphs, actuarial gains and losses arising in the year from the difference between the actual and expected returns on pension scheme assets, experience gains and losses on pension scheme liabilities and the effects of changes in demographics and financial assumptions are included in the Statement of Total Recognised Gains and Losses only in so far as they belong to the States.

Pension scheme assets are measured using market values and scheme liabilities are measured using the projected unit credit method, discounted at the current rate of return on a high quality bond of equivalent term and currency to the liability.

Aggregated Operating Cost Statement for the Year ended 31 December 2008

2008 2007 Notes £  000 £  000

Surplus for the Year 57,385  87,033

The Aggregated Operating Cost Statement includes all the income and revenue expenditure of the States of Jersey and therefore includes income and expenditure of the Strategic Reserve and other Separately Constituted Funds as well as that of the Consolidated Fund which, in accordance with the Law, is subject to the annual budget process. In addition it includes the income and expenditure of the Waterfront Enterprise Board Limited.

Statement of Total Recognised Gains and Losses for the Year ended 31 December 2008

2008 2007 Notes £  000 £  000

Surplus for the Year 57,385 87,033 Unrealised Loss on Revaluation of Investments (30,197) (4,404) Actuarial Gain in respect of Defined Benefit Pension Schemes 4 467 478

Total Recognised Gain Relating to the Year 27,655 83,107

Aggregated Balance Sheet as at 31 December 2008

2008 2007 Notes £  000 £  000

Signed: Date: 28/5/09 Signed: Date: 28/5/09 (Treasurer of the States) (Minister for Treasury and Resources)

Cash Flow Statement

for the Year ended 31 December 2008

2008 2007

£ 000 £  000

Increase in Cash 9,097 1,551

Reconciliation of Net Cash Flow to Movement in Net Funds

2008 2007

£ 000 £  000

Net Funds at 31 December 37,415 12,134

Notes to the Cash Flow Statement

1. Reconciliation of Surplus for the Year to Net Cash Flow from Operating Activities

2008 2007

£ 000 £  000

Net Cash Inflow from Operating Activities 86,061  60,296

2. Analysis of Net Funds

At 1 January  At 31 December

2008 Cash Flows 2008

£ 000 £  000 £  000

Cash in Hand and at Bank (1,501) 9,097 7,596 Bank Deposit Accounts 38,233 13,649 51,882

Total Cash 36,732 22,746 59,478 Finance Leases (24,598) 2,535 (22,063)

Net Funds 12,134 25,281 37,415

1. Revenue

2008 2007

£ 000 £  000

Total Revenue 872,075 758,922

*Other income includes: European Union Savings Tax Directive Income; transfers from the Drug Trafficking Confiscation Fund and Criminal Offences Confiscation Fund to cover court and case costs; and grants, recharges and transfers between departments.

2. Expenditure

2008 2007

£ 000 £  000

Total Expenditure 814,690  671,889

3. Employees and States  Members

1. Department Employees

Departmental employee costs and the number of full time equivalent (FTE) staff at 31 December 2008 are analysed below: