States of Jersey Financial Report and Accounts 2010.

States of Jersey

Financial Report and Accounts 2010

States of Jersey Treasury and Resources Department

FINANCIAL REPORT AND ACCOUNTS 2010

Treasury and Resources Department

P.F.C. Ozouf Senator Minister

J. Refault Conn table Assistant Minister

E. Noel Deputy Assistant Minister

L. Rowley, MBA, CPFA Treasurer of the States

CONTENTS

Contents

1. Minister s Report  . . . . . . . . . . . . . . . . . . .3

2. The Annual Report  . . . . . . . . . . . . . . . . . .5

1. Treasurer s Introduction .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .5
2. Financial Performance 2010. . . . . . . . . . . . . .6
3. Explanation of the Structure of the States of Jersey  .7
4. The States of Jersey Business and Financial Planning Cycle . . . . . . . . . . . . . . . . . . . . 12
5. Comparison of Results against Approvals  .  .  .  .  . 13
6. Detailed Financial Analysis  .  .  .  .  .  .  .  .  .  .  .  .  . 19
7. Summary of Current Position  .  .  .  .  .  .  .  .  .  .  .  . 28
8. Outline of Key Objectives and Strategies .  .  .  .  .  . 33
9. Key Challenges and Opportunities  .  .  .  .  .  .  .  .  . 33
10. Governance Structures  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
11. Corporate Social Responsibility . . . . . . . . . . . 40

3. Statement of Responsibilities for the Financial

Report and Accounts  . . . . . . . . . . . . . . . . 41

4. Remuneration Report . . . . . . . . . . . . . . . . 42

1. Remuneration Policy. . . . . . . . . . . . . . . . . 42
2. Council of Ministers  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 42
3. Accounting Officers .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 42

5. Statement on Internal Control. . . . . . . . . . . . 47

1. Scope of responsibility. . . . . . . . . . . . . . . . 47
2. The purpose of the system of internal control . . . . 47
3. Capacity to handle risk  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 48
4. The risk and control framework .  .  .  .  .  .  .  .  .  .  . 48
5. Review of effectiveness of the system of

internal control .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 50

6. Significant internal control issues .  .  .  .  .  .  .  .  .  . 52

6. Introduction to the Accounts . . . . . . . . . . . . 57

1. Changes in Accounting Standards:

The move to GAAP. . . . . . . . . . . . . . . . . . 57

2. Explanation of the contents of the Accounts  .  .  .  . 59

7. Auditor s Report . . . . . . . . . . . . . . . . . . . 61

8. Primary Statements . . . . . . . . . . . . . . . . . 63

1. Consolidated Operating Cost Statement for the year ended 31 December 2010 . . . . . . . . . . . . . . 63
2. Consolidated Statement of Total Recognised

Gains and Losses for the Year ended

31 December 2010. . . . . . . . . . . . . . . . . . 63

3. Consolidated Balance Sheet as

at 31 December 2010  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 64

4. Consolidated Cash Flow Statement for the Year ended 31 December 2010 . . . . . . . . . . . . . . 65

9. Notes to the Accounts . . . . . . . . . . . . . . . . 66

1. Note 1: Statement of Accounting Policies .  .  .  .  .  . 66
2. Note 2. Segmental Analysis .  .  .  .  .  .  .  .  .  .  .  .  . 80
3. Note 3: Revenue .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 82
4. Note 4: Expenditure .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 83
5. Note 5: Employees and States Members .  .  .  .  .  . 84
6. Note 6: Non-Cash Items and other Significant

Items included in the (Deficit)/Surplus  .  .  .  .  .  .  . 85

7. Note 7: Finance Costs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 85
8. Note 8: Tangible Fixed Assets . . . . . . . . . . . . 86
9. Note 9: Advances  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 88
10. Note 10: Strategic Investments  .  .  .  .  .  .  .  .  .  .  . 89
11. Note 11: Other Investments  .  .  .  .  .  .  .  .  .  .  .  .  . 90
12. Note 12: Stock and Work in Progress .  .  .  .  .  .  .  . 91
13. Note 13: Debtors . . . . . . . . . . . . . . . . . . . 92
14. Note 14: Cash and Other Liquid Resources. . . . . 93
15. Note 15: Creditors falling due within one year. . . . 93
16. Note 16: Currency . . . . . . . . . . . . . . . . . . 93
17. Note 17: Finance Lease Liabilities . . . . . . . . . . 94
18. Note 18: Operating Lease Expenses and Commitments  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 94
19. Note 19: Other Significant Liabilities. . . . . . . . . 95
20. Note 20: Creditors Defined Benefit Pension Schemes Net Liability . . . . . . . . . . . . . . . . 95
21. Note 21: Provisions. . . . . . . . . . . . . . . . . . 96
22. Note 22: Reserves .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 97
23. Note 23: Notes to the Cash Flow Statement. . . . . 98
24. Note 24: Guarantees. . . . . . . . . . . . . . . . . 99
25. Note 25: Third Party Assets .  .  .  .  .  .  .  .  .  .  .  .  100
26. Note 26: Capital Commitments  .  .  .  .  .  .  .  .  .  .  101
27. Note 27: Risk Profile and Financial Instruments. . 102
28. Note 28: SOJ Common Investment Fund .  .  .  .  .  106
29. Note 29: Contingent Assets and Liabilities  .  .  .  .  112
30. Note 30: Pension Scheme Disclosures  .  .  .  .  .  .  112
31. Note 31: Losses and Special Payments . . . . . . 133
32. Note 32: Gifts. . . . . . . . . . . . . . . . . . . . 134
33. Note 33: Grants  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  134

34. Note 34: Related Party Transactions  .  .  .  .  .  .  .  137
35. Note 35: Entities within the Group Boundary .  .  .  141
36. Note 36: Reconcillation of Operating Cost

Statement published in 2009 Accounts to GAAP Operating Cost Statement for 2009 .  .  .  .  .  .  .  .  144

37. Note 37: Publication and Distribution of the

Financial Report and Accounts .  .  .  .  .  .  .  .  .  .  146

MINISTER S REPORT

1. Minister s Report

I am pleased to present the 2010 Financial Report and Accounts of the States of Jersey, which for the first time have been prepared in line with UK Generally Accepted Accounting Principles ( GAAP ), interpreted for the public sector in Jersey. The adoption of GAAP will result in greater transparency and better information to guide our decision making.

2010 has been another challenging year, despite the economy showing signs of emerging from what has been a difficult recession. Whilst difficult decisions have been necessary, these accounts show that Jersey s public finances remain strong. We have no debt and a plan to deal with our deficits, and are strongly positioned for the economic upturn.

General Revenue Income, at £546 million was £16 million higher than forecast, but still substantially lower than in 2009. In particular, Income Tax receipts were £394 million compared to £508 million in 2009.

Lower employment numbers, lower pay increases, low interest rates and poor investment returns have all contributed to reduce our tax revenues. The drop in tax revenues associated with 0/10 was clearly identified prior to its introduction and this prospective gap was filled by GST, 20 means 20 and efficiencies.

Departments ended the year £23.9 million underspent against approved budgets, which included £8 million that was planned by the States in order to maintain a positive balance on the Consolidated Fund. Net Revenue Expenditure is up compared to 2009, as this includes both expenditure to boost the economy approved through the Fiscal Stimulus programme, and Voluntary Redundancy payments made by departments to enable savings in future years.

The Stabilisation Fund has continued to be put to use for the Island, both through the Fiscal Stimulus programme and through transfers to support the provision of services through the downturn. The Strategic Reserve has been protected and maintained, and holds a balance of £587 million.

Looking forward, there are many challenges facing the States over the coming years. To meet them, the States has approved a Business Plan which, under the Comprehensive Spending Review, sets challenging savings targets whilst maintaining essential services. The States has also made tough decisions in approving a Budget that will ensure that the needs of the Island are funded in a fair and progressive manner, ensuring that we live within our means now, and in the future.

MINISTER S REPORT

Over the last three years much has been achieved. The Treasury and Resources Department has been fundamentally restructured to consolidate and strengthen its functions. For the first time the States is accounting in line with widely accepted Accounting Standards, as embodied by the Jersey Financial Reporting Manual. Combined with improvements to the way we use our financial systems this will provide better, and more timely, information for decision making. The States has also begun a move to longer term financial planning, which will provide departments with the certainty and flexibility they need to provide services efficiently and effectively.

All that remains is for me to thank all the staff in Treasury and Resources for their hard work again this year, which has seen a major restructure within the department. In particular, I d like to welcome Laura Rowley, who was appointed Treasurer of the States on 1 January 2011, and who I am sure will drive further improvements in the finance function to strengthen financial management across the States. I also extend my thanks to Malcolm Campbell, the Comptroller of Taxes and Mike Robinson, Head of Customs and Immigration.

Senator PFC Ozouf Date: 24 May 2011

TREASURER S INTRODUCTION

2. The Annual Report

2.1.  Treasurer s Introduction

The 2010 States of Jersey accounts are the first to comply with UK Generally Accepted Accounting Principles (as interpreted for the public sector in Jersey), and the reader will notice significant changes from previous years. More details of the changes are given in Section 6.1, and the move will improve the transparency and usefulness of the accounts. In addition, this, my covering report, has been updated to conform to the best practice recommendations for an Operating and Financial review.

2010 has been a challenging year for the States of Jersey, and the States has been judicious in its efforts to address the future deficits facing the Island, both through the Comprehensive Spending Review (which sets challenging savings over the next three years) and through the Fiscal Strategy Review (which will examine how income should be increased through taxation).

2010 has seen the creation of the Common Investment Fund to make better use of the States Investments (detailed in Section 2.3.5). We have also seen more economic activity financed from the Fiscal Stimulus programme (as detailed in Section 2.6.4), as well as a significant amount of work on schemes in the Capital Programme (Sections 2.6.3) including the near-completion of the new Energy from Waste plant and significant works on the Health replacement Information and Communication Technology system (the Integrated Care Records [ICR] project).

Finally, the format and content of this covering report have been revised with a view to improving the interpretation and explanation of the financial information included in the Accounts. After a high level analysis of the year s results, the remainder of this report is presented in a number of sections:

• An explanation of the structure of the States of Jersey, and its business and financial planning cycle.

• A detailed financial analysis, including comparison against approvals and previous years, and summary of the States current financial position.

• A brief outline of the key objectives of the States, and the opportunities and challenges we face.

• An outline of the States governance structures and policies on Corporate Social Responsibility.

The Accounts also include a separate Remuneration Report and Statement on Internal Control.

FINANCIAL PERFORMANCE 2010 AT A GLANCE FINANCIAL RESULTS

2.2.2.  Summary of Performance

Net General Revenue Income is down by £128 million to £546 million, a decrease of 19% on 2009. The main changes in comparison to the previous year are:

• A significant drop in Company Tax (£134m), due to the introduction of the 0/10 regime and the economic downturn. This planned change in Tax Policy was part of a package of measures including Twenty means Twenty and the introduction of GST that together achieved a broadly neutral position on tax revenues.

• An increase in revenues from Salary and Wage Earners (£21m), mostly due to the shareholder taxation provisions of the 0/10 regime.

• A drop in European Union Savings Tax Directive administration income (£6m) due to lower global interest rates in 2010.

In addition, Net Revenue Expenditure subject to States approval of Ministerial & Non-Ministerial Departments is up by £34 million to £599 million compared to 2009.

The main changes in comparison to the previous year are:

• More revenue expenditure on Fiscal Stimulus projects during 2010 (£14m compared to £1m in 2009).

• A one-off expenditure approval of £6m for voluntary redundancy payments to enable future, ongoing savings.

• Spend against other one-off expenditure approvals of £4m.

In total Ministerial & Non-Ministerial Departments ended the year £24m underspent against Net Revenue Expenditure approvals.

EXPLANATION OF THE STRUCTURE OF THE STATES OF JERSEY PRINCIPAL ACTIVITIES OF THE STATES OF JERSEY

An interim property revaluation was carried out.

• Upwards revaluations of £196m were recorded in the revaluation reserve;

• Downwards revaluations of £145m were recorded as impairments in the Operating Cost Statement.

 The States Reserves enjoyed good returns, and have been put to use.

• The Strategic Reserve saw net income of £35m, and now holds nearly £587m. Looking ahead, we are reviewing an investment strategy with a view to generating higher returns and maximising the value from the States investments.

• A transfer of £68m was made from the Stabilisation Fund to the Consolidated Fund to support the Island through the downturn in the economy.

The summary financial results in Table 1 can be reconciled to the States Accounts as shown in the table below:

Table 2 States of Jersey Income and Expenditure

 Ministerial &

General Non-Ministerial  Trading   Consolidation  States of Revenues  Departments  Operations Other  Adjustments  Jersey £m  £m  £m  £m  £m  £m

Income  552  117  53  57  (33)  746 Expenditure  (6)  (883)  (70)  (35)  19  (975)

Surplus / (Deficit)  546  (766)  (17)  22  (14)  (229)

3. Explanation of the Structure of the States of Jersey

1. Principal Activities of the States of Jersey

The States Assembly raises Taxes and other levies to fund the provision of a wide range of public services including Health Care, Education, Social Security and the administration of Justice. These functions are primarily carried out by Departments, both Ministerial and Non-Ministerial.

2. The States of Jersey Accounting Boundary

The entities included within the States of Jersey Accounting Boundary are shown in the following diagram. More information on specific entities is given in the next section.

Some functions of Government are carried out by entities outside of the accounting boundary including some social benefits met by the Social Security Fund and Health Insurance Fund.

EXPLANATION OF THE STRUCTURE OF THE STATES OF JERSEY DESCRIPTION OF ENTITIES AND THEIR FUNCTIONS

3. Description of Entities and their Functions Consolidated Fund

The Consolidated Fund is governed by the Public Finances (Jersey) Law 2005 and is the fund through which the majority of the States income and expenditure is managed, including General Revenue Income and departmental income and expenditure.

Planning for income to the Consolidated Fund is governed through the States Annual Budget process which sets out the taxation measures and the expected level of income, as explained further in section 2.4 .

Through the Annual Business Plan debate, the States Assembly allocates funding to departments. In the form of Net Revenue Expenditure Limits (budgets) from the Consolidated Fund. Any approved changes to expenditure limits are reported to the States Assembly.

The component parts of the Consolidated Fund are shown in the following tables. Ministerial Departments

Chief Minister s Department Provides support and advice to the Chief Minister and Council of Ministers, and co-

ordinates policies and strategies across the States. Also responsible for a range of services, including international relations, constitutional issues, States staffing and IT, statistics, and the Law Draftsman s Office.

Economic Development Responsible for all areas of economic policy and development in Jersey, including

support for the agriculture, fisheries, tourism, and finance industries. It also

maintains an overview of policies that may affect the harbours, airport, postal and telecommunications services. It also oversees consumer and regulatory services.

Education, Sport and   Provides educational, sporting and cultural opportunities for the people of Jersey, Culture supporting Jersey s commitment to encourage lifelong learning and enabling everyone

to realise their potential.

Health and Social Services Promotes health and social wellbeing for the whole community, providing prompt

services to all and protecting the interests of the frail and the vulnerable.

Home Affairs Responsible for the States of Jersey Police, the Fire and Rescue Service, the Prison

Service, Customs and Immigration, criminal justice policy, the registration of births, deaths and marriages, and the Building a Safer Society Strategy.

Planning and Environment Responsible for all planning and building control matters. It is also responsible for

Jersey s environment in its widest sense, including environmental policy and regulation, and water resources and waste management regulation.

Social Security Responsible for the administration of contributions and benefits, the Health and Safety

Inspectorate, and a number of employment services, including the Work Zone.

Transport and Technical  Manages the highway, public transport and traffic management network, and has the Services responsibility for all transport policy in Jersey. Also ensures drivers and vehicles are

roadworthy, manages the disposal of the Island s waste and provides cleaning and parks and gardening services.

Treasury and Resources Manages the Island s finances and assets, ensuring the protection and good use of

public funds. It is responsible for all taxation, States budgets and financial policies. It also manages States property and represents the States shareholder interests in publicly-owned companies.

EXPLANATION OF THE STRUCTURE OF THE STATES OF JERSEY DESCRIPTION OF ENTITIES AND THEIR FUNCTIONS

Non-Ministerial Departments

Some States Departments do not come under direct Ministerial control, due to the nature of the work they perform. Also included in this section are the Overseas Aid Commission, who report directly to the States, and the States Assembly itself.

Bailiff s Chambers Provides support to the Bailiff who is head of the judiciary, President of the States and

civic head of Jersey.

Judicial Greffe Provides administrative and secretarial support to ensure the effective operation of

Jersey s courts.

Official Analyst Carries out authoritative and impartial scientific analysis to support the work of other

States departments, local businesses and individuals.

Office of the Lieutenant  The Lieutenant Governor of Jersey is the representative of the Her Majesty the Queen Governor in the Bailiwick of Jersey.

Office of the Dean of Jersey The Dean of Jersey is the leader of the Church of England in Jersey.

Data Protection Commission Promotes respect for the private lives of individuals through ensuring privacy of their

personal information. The Commissioner also provides advice on data protection issues to the States, individuals and businesses.

Probation and After-care  Works with the judicial system, the courts, victims of crime and the community to help Service reduce criminal activity in Jersey.

Comptroller and Auditor  Examines how public bodies spend money, and looks at how best they can achieve General value for money, by managing their finances to the highest standards.

Overseas Aid Manages and administers the monies voted by the States of Jersey for overseas aid.

General Revenue Income

General Revenue Income policy is set via the States Annual Budget, as explained further in section 2.4 .

The main income streams are: Taxation, Imp ts (e.g. duty on alcohol, tobacco and fuel), Stamp Duty, Investment Income and Island Rates.

EXPLANATION OF THE STRUCTURE OF THE STATES OF JERSEY DESCRIPTION OF ENTITIES AND THEIR FUNCTIONS

Other Funds

States Trading Operations

Under the Public Finances (Jersey) Law 2005, the States can designate any distinct area of operation as a States Trading Operation. Estimates for Trading Operations are approved in the Annual Business Plan. At present, four such operations have been designated.

Jersey Airport Provides a wide range of facilities and services for passengers over an extensive

network of schedule and charter flight services across the UK and Europe.

Jersey Car Parking Responsible for the administration, management, financing, development and

maintenance of public parking places.

Jersey Fleet Management Responsible for the acquisition, maintenance, servicing, fuelling, garaging and

disposal of vehicles and mobile plant on behalf of the States.

Reserve Funds

The States operates two reserve Funds with specific purposes.

Strategic Reserve A permanent reserve, to be used only 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.

Stabilisation Fund Provides some protection from the adverse impact of economic cycles (by taking

money out of the economy when it is strong, and releasing it when it is weaker), creating a more stable economic environment with low inflation.

States Separately Constituted (Special) Funds

The Public Finances (Jersey) Law 2005 allows the States to establish special funds (also known as Separately Constituted Funds). These are funds with a specific purpose and are usually established by legislation or a States decision. A summary of the purpose of the various funds is given below.

Dwelling House Loan Fund Lends money to residentially qualified first-time buyers for the acquisition of housing.

Whilst it has not been formally suspended, it is not anticipated that further loans will be approved.

Assisted House Purchase  Aided the recruitment of staff from the UK, by facilitating the purchase of suitable Scheme properties by the States on behalf of the employee. It is no longer making new loans.

99 Year Leaseholders Fund Allowed the former Housing Committee to lend to individuals offering leasehold

property as security (at a time when there was no share transfer or flying freehold legislation). It is no longer making new loans.

Agricultural Loans Fund Makes loans to individuals engaged in work of an agricultural nature in Jersey for the

purpose of furthering their agricultural business. Approval of new loans to farmers has been suspended.

EXPLANATION OF THE STRUCTURE OF THE STATES OF JERSEY PUBLIC SECTOR BODIES OUTSIDE OF THE ACCOUNTING BOUNDARY

SPECIAL FUND FUNCTION

Jersey Currency Notes Established under the Public Finances (Jersey) Law 2005, and the Currency Notes

(Jersey) Law 1959, the fund holds assets that match the value of Jersey currency notes in circulation. It also produces and issues currency notes, and administers the notes in issue.

Tourism Development Fund Makes grants to stimulate investment in the tourism industry and infrastructure in order

to improve Jersey s competitiveness and sustain the industry as a second pillar of the economy.

Housing Development Fund Established under P74/99 and P84/99, the fund assists in meeting the requirements for

the development of social rented and first-time buyer homes by providing development and interest subsidies.

Criminal Offences  These funds are established under the Proceeds of Crime (Jersey) Law 1999, Drug

Confiscation Fund Trafficking Offences (Jersey) Law 1988, and Civil Asset Recovery (International Co-operation) (Jersey) Law 2007 respectively.

Drug Trafficking Confiscation

These funds hold amounts confiscated under law. Funds are then distributed in Fund

accordance with the relevant legislation.

Civil Asset Recovery Fund

Wholly Owned Company

The Waterfront Enterprise Board Limited (WEB) is a wholly owned subsidiary company of the States. This was incorporated in 1996 and vested with responsibility for the co-ordination and promotion of development in the St Helier Waterfront Area on behalf of the States of Jersey.

On 13 October 2010, the States approved proposition P73/2010, which set out proposals for the restructure of WEB into The States of Jersey Development Company Limited. These changes will be implemented during 2011.

4. Public Sector Bodies Outside of the Accounting Boundary

Major Public Sector Bodies that are outside of the Accounting Boundary include: Parishes

The Parishes perform various Government Functions, including Refuse Collection, Provision of Parks and Gardens and issue of Driving Licences. Details of the functions of individual parishes can be found on the Parishes Website: http://www.parish.gov.je/

Social Security Funds

FUND PURPOSE

Social Security Fund These funds collect Social Security Contributions, and pay related benefits and

any associated expenses. The Reserve fund provides a buffer for these payments Health Insurance Fund in the future.

Social Security (Reserve) Fund

THE STATES OF JERSEY BUSINESS AND FINANCIAL PLANNING CYCLE COMMON INVESTMENT FUND

Strategic Investments

INVESTMENT PURPOSE

Jersey Electricity plc The States owns controlling investments in these utility companies, but

as it does not exert direct control these are accounted for as Strategic Jersey New Waterworks Company Investments in the Accounts.

Jersey Telecom Group Limited

Jersey Post International Limited

Independent Bodies

BODY PURPOSE

Including, for example These bodies mainly provide supervisory and regulatory functions,

and are established by legislation to be independent from the States Jersey Competition Regulation Authority of Jersey.

Jersey Financial Services Commission

5. Common Investment Fund

The States of Jersey Common Investment Fund (CIF) was established by proposition P35/2010, lodged by the Minister for Treasury and Resources. The purpose of the proposition was to amend several existing regulations to enable the pooling of States Funds assets for Investment Purposes. It is only open to States Funds (including Reserves, Separately Constituted (Special) Funds, Trust Funds and Bequest Funds), and allows them to benefit from greater investment opportunities and economies of scale. The proposition was approved by the States of Jersey on 12th May 2010.

The CIF began operation on 1st July 2010 and as at 31 December 2010 was made up of 10 pools covering a range of asset classes (including equities, bonds, gilts and cash instruments). These allow participant funds to invest in accordance with their own agreed investment strategies.

4. The States of Jersey Business and Financial Planning Cycle

The States Strategic Plan sets out the States vision for the next five years including the broad financial framework. The Annual Business Plan allocates funds to individual departments and capital projects so as to deliver Jersey s Strategic Aims. The Business Plan, debated in September, approves both expenditure  for the following year and indicative expenditure totals for a further three or four years.

The States then considers the Annual Budget report that proposes taxation changes and other revenue raising measures.

Departments then prepare their individual Business Plans which set out their objectives for the year, and how these help deliver the strategic priorities agreed in the Strategic Plan. The plans also keep Islanders informed about how political decisions are carried out day-to-day. The States two main controls on expenditure are through Net Revenue Expenditure limits, and Capital Project budgets voted by the States to departments.

COMPARISON OF RESULTS AGAINST APPROVALS COMMON INVESTMENT FUND

During the year, these expenditure limits can be varied for the following main reasons:

• Carry forward of unspent revenue expenditure budget voted in the previous year s Business Plan, approved by the Minister for Treasury and Resources.

• Amounts transferred between capital and revenue budgets, approved by the Minister for Treasury and Resources.

• Additional amounts voted by the States Assembly during the year.

There is a clear linkage between the high-level priorities set in the Strategic Plan and the detailed departmental business plans that are published annually. Within the year in question, regular reporting occurs on performance against financial targets and Departmental Business Plans, including quarterly reporting to the Council of Ministers. These processes are part of a year round financial planning and monitoring cycle. The performance reports and financial accounts are co-ordinated to be produced in time to inform the latter stages of the business planning process. The financial and performance reporting and monitoring will thus inform future resource allocation.

Figure 1 Diagram of Planning Cycle

STRATEGIC

Translates what people want into what we must deliver

TACTICAL

Translates what we must deliver into how we will deliver it and with

what resources

OPERATIONAL

Identifies the individual tasks and monitors performance

States Strategic Plan

Fiscal Strategy and Financial Planning

Annual Business Plan

Department Business Plans

Department Action Plans

Performance Reporting

5. Comparison of Results against Approvals

The tables below present the information in the Accounts in a format consistent with the Business Plan and Budget, to allow a comparison against amounts approved by the States to be more easily shown. The income and expenditure included in the Accounts is broken down into the following:

COMPARISON OF RESULTS AGAINST APPROVALS COMMON INVESTMENT FUND

ITEM APPROVAL

Table 3 Net General Revenue Income Budget Summary Table A

Table 5 Adjustments made to departments to achieve GAAP compliance Business Plan Summary Table A

Table 7 Other Income and Expenditure Not Approved by the States

This analysis complies with the recommendations of International Public Sector Accounting Standard 24 (Presentation of Budget Information in Financial Statements).

Table 3 Net General Revenue Income Outcome compared to Budget Summary Table A

Updated  Difference 2010  Forecast  Actual  from Budget  Oct 2010  Amount  Forecast

£ 000  £ 000  £ 000  £ 000

Net Income Tax  391,000 Goods and Services Tax  51,250 Impots Duty  50,180 Stamp Duty  22,000 Island Rate  10,850 Other Income  28,760

Net General Revenue Income  554,040

379,000  394,353  15,353

47,000  44,200  (2,800) 50,000  49,412  (588) 20,000  20,139  139 11,000  10,510  (490) 23,000  27,672  4,672

530,000  546,286  16,286

The forecast for Net Income Tax was reduced in the 2011 Budget (in October 2010) to reflect the impact of a larger than expected fall in financial services profits, and other economic factors. By the year end, Net Income Tax was £15m higher than the updated forecast. This is primarily a consequence of greater revenue from Personal Tax. Approximately £9m of the variance came from higher shareholder income than was forecast (at the time of the forecast in early September, a significant proportion of personal tax assessments had not yet been completed), while the remainder was due to a number of smaller influences, none of which were significant on their own.

Goods and Services Tax revenue was £3m lower than forecast. The principal reasons for this were: an increase in bad debt provisions at the year end; return values for the period after the forecast that were lower than expected and the impact of a small over-recognition of income in the prior year on current year revenues.

The forecast for Other Income was reduced to reflect lower than expected interest rates, which affects both investment income and European Union Savings Tax Directive (EUSD) Administration Income. These areas did see marked drops from budget (£3m), but this was offset by better a than expected surplus in the currency fund (£1m) and receipt of more dividends than forecast (£1m), meaning that actual income was close to the original budget.

A more detailed breakdown and analysis of Next General Revenue Income is given in the Annex to the Accounts.

COMPARISON OF RESULTS AGAINST APPROVALS COMMON INVESTMENT FUND

Table 4 Net Revenue Expenditure Outcome compared to Business Plan Summary Table A

Difference 2010  Final  from Final Business  Approved  Actual  Approved Plan  Budget  Amount  Budget

£ 000  £ 000  £ 000  £ 000

Ministerial Departments

Chief Minister

- Grant to the Overseas Aid Commission

Economic Development

Education, Sport and Culture

Health and Social Services

Home Affairs

Housing

Planning and Environment

Social Security

Transport and Technical Services Treasury and Resources

Non Ministerial States Funded Bodies

- Bailiff s Chambers

- Law Officers Department

- Judicial Greffe

- Viscount s Department

- Official Analyst

- Office of the Lieutenant Governor

- Office of the Dean of Jersey

- Data Protection Commission

- Probation Department

- Comptroller and Auditor General States Assembly and its services

20,397  27,321  25,786  (1,535) 8,055  8,132  8,127  (5) 15,880  19,308  17,799  (1,509) 99,517  104,582  101,954  (2,628) 168,878  172,849  169,101  (3,748) 46,067  49,398  48,633  (765) (23,287)  (17,034)  (18,742)  (1,708) 6,824  7,552  7,261  (291) 171,599  171,323  162,967  (8,356) 27,610  26,819  26,698  (121) 22,914  24,033  22,804  (1,229)

1,260  1,659  1,582  (77) 6,190  8,955  7,761  (1,194) 3,982  7,532  7,532

1,422  1,409  1,080  (329) 600  553  530  (23) 743  830  823  (7) 25  25  24  (1) 223  223  214  (9) 1,604  1,582  1,550  (32) 739  850  649  (201) 5,126  5,126  4,996  (130)

Net Revenue Expenditure Business Plan Basis  586,368  623,027  599,129  (23,898) The 2010 Annual Business Plan authorised net revenue expenditure of £586,367,800. Table 5 reconciles

approvals in the Business Plan to the Final Approved Budget, which includes amounts carried forwarded from previous year s approvals (as set out in Ministerial Decision TR 2010 0067), Additional Approvals by the States, and Capital to Revenue transfers. More information on these additional approvals is included in the Annex to the Accounts.

Table 5 Reconciliation of Final Approved Budget to the Business Plan

£ 000

Business Plan Approval  586,368 2009 approvals carried forward to 2010  5,812 Additional amounts voted by the States of Jersey  32,265 Capital to Revenue Transfers  (1,418)

Final Approved Budget  623,027

The underspend position against Final Approved Budget of £23.9m is a result of many factors. The States had planned for at least £8m underspend to be achieved in 2010 in order to maintain a positive balance in

COMPARISON OF RESULTS AGAINST APPROVALS COMMON INVESTMENT FUND

the Consolidated Fund. Each Department gives an explanation of differences between actual amounts and approvals as part of their departmental pages, included in the Annex to the Accounts. Some of the larger underspends include:

• £6.5m lower income support and GST benefit claims (Social Security)

• £3.1m delays in the development of Children s Services, Endoscopy and legal costs (Health and Social Services)

• £1.5m due to the system of delegated financial management (Education Sport and Culture)

• £1.1m extra rentals due to lower than expected sales of social housing (Housing)

• £1.0m delays in policy reviews and census work (Chief Minister s)

• £0.8m relating to a Court Order awarding costs to the States (Law Officers )

• £0.7m unbudgeted income from Ofcom (Economic Development)

This level of underspending in 2010 is in part due to Departments preparing for cuts in funding agreed in the Comprehensive Spending Review.

Table 6 Adjustments made to departments to achieve GAAP compliance

Difference 2010  GAAP  from Business  Compliant  Actual  GAAP

Plan  Budget  Amount  Budget

£ 000  £ 000  £ 000  £ 000

Depreciation  34,500 Impairments

Asset Gain/Loss

Other GAAP adjustments

Total GAAP Adjustments  34,500 Net Revenue Expenditure Business Plan Basis b/f  586,368

Net Revenue Expenditure GAAP Basis  620,868

39,876  37,211  (2,665)

130,151  130,151

(81)  (81)

(35)  (35)

39,876  167,246  127,370 623,027  599,129  (23,898)

662,903  766,375  103,472

The 2010 Business Plan did not allocate depreciation budgets to individual departments, instead a single figure was approved within the Treasury and Resources department (based on Capital Servicing calculations in previous years). Budgets for profits or losses on disposal of fixed assets are also excluded from the Business Plan, as these should be rare. An estimate of proceeds from the sale of property assets is included as part

of the Capital Programme, but this is not comparable with profit or loss on disposal. A GAAP compliant depreciation budget was prepared internally at a departmental level, and full details are available in the Annex to the Accounts.

During the year an interim revaluation of property assets was carried out, in line with the States accounting policies and the requirements of the Jersey Financial Reporting Manual (JFReM). As part of this process, the value of some assets was increased and others decreased, primarily due to changes in market conditions.

In accordance with GAAP, upward revaluations are credited to the revaluation reserve which is included on

the Balance Sheet. Downwards revaluations are taken first to any existing revaluation reserve, and then to the Operating Cost Statement (OCS). This led to a charge of £130m being recorded in the OCS during 2010, which could not be budgeted for as the figure is dependant on market conditions. These are accounting adjustments relating to movements in asset values and represent unrealised losses/gains to the States.

COMPARISON OF RESULTS AGAINST APPROVALS COMMON INVESTMENT FUND

Table 7 Net Revenue Expenditure Outcome compared to Business Plan Summary Table B

Difference 2010  Final  from Final Business  Approved  Actual  Approved Plan  Budget[1]  Amount  Budget

£ 000  £ 000  £ 000  £ 000

Trading Operations

Jersey Airport  (236)  3,185  4,327  1,142 Jersey Harbours  549  949  11,952  11,003 Jersey Car Parks  (216)  254  1,343  1,089 Jersey Fleet Management  (159)  (159)  (570)  (411)

Net Revenue (Income)/Expenditure  (62)  4,229  17,052  12,823

The Trading Operations were affected by the interim valuation, with total impairments of £1.3m, £12.5m and £1.2m being recorded in Jersey Airport, Jersey Harbours and Jersey Car Parks respectively.

Jersey Harbours also achieved more income through growth in volumes of passengers and vehicles (£0.6m) and a reduction in staff costs (£0.5m). Similarly Jersey Airport achieved higher income than budget for both Channel Island Control Zone Income (£0.9m) and Aircraft/Passenger Charges (£0.8m). This was, however, offset by a reduction in grant income recognised due to a States decision to remove funding for the Below Ground Works from 2012.

For further information on the Trading Operations, including an explanation of differences between actual amounts and approvals refer to the Annex to the Accounts.

Table 8 Other Income / (Expenditure) Outside of the Budgeting Boundary

  Actual Amount

£ 000

WEB Net Revenue Income  2,076 Reserves and Separately Constituted Funds NRI  41,464 Movement in pension liability  (40,817) Other Expenditure  19,089

Other Income  21,812

Entities and Expenditure outside the Budgeting Boundary

Income/expenditure approvals for Separately Constituted Funds and Reserves are not included in the Business Plan, and so results for these entities cannot be compared to budget. Similarly, WEB is outside of the Budgeting Boundary.

The Reserves and Separately Constituted Funds Net Revenue Income (NRI) figure is due to returns on the Strategic Reserve (£34.7m), net income in the Criminal Offences Confiscation Fund (£6.6m) and smaller amounts in other funds.

COMPARISON OF RESULTS AGAINST APPROVALS COMMON INVESTMENT FUND

There are also some items of expenditure that are outside of the scope of the budget approval process. One example is actuarial movements in pension liabilities, which is a non-cash accounting adjustment. Other Expenditure includes the reversal of grant expenditure relating to Airport Below Ground works (BGW) due to the decision to withdraw funding (£16m). This has been fully eliminated on preparation of the consolidated accounts.

Consolidation adjustments

Table 9 Consolidation Adjustments

  Actual Amount

£ 000

Consolidation Adjustments  (13,820)

Under the previous accounting policies, transactions between States entities, and within a Department, were not eliminated in the preparation of the accounts, meaning that income, expenditure and balance sheet items were shown in aggregate. GAAP requires transactions and balances between entities within the group boundary to be eliminated in the consolidated accounts. As well as eliminations between income and expenditure, the figure above also includes an elimination of the adjustment to the Below Grounds Works grant (£16m mentioned above) and consolidation adjustments to correctly state Common Investment Fund income for the States as a whole (£2m), both of which span the balance sheet and operating cost statement.

Table 10 Summary of Expenditure

  Actual Amount Table  £ 000

Net General Revenue Income  3  546,286 Net Revenue Expenditure Ministerial and Non-Ministerial Departments  4, 6  (766,375) Net Revenue Expenditure Trading Operations  7  (17,052) Other Income  8  21,812 Consolidation Adjustments  9  (13,820)

Deficit for the Year in the States Accounts  (229,149)

INCOME

6. Detailed Financial Analysis

1. Income

In 2010, Total Gross Income (before consolidation adjustments see Note 2) for the States of Jersey Group was £778m, compared to £863m for 2009. Figure 2 shows the split of income for 2010.

Figure 2 Breakdown of States Income

Non Departmental Income 1%

Separately Constituted Funds

7% Income Tax

Trading Funds 7%

Salary and Wage Earners 35%

Departmental  Income 15%

Self Employed and Investment Holders 5%

Other General Revenues 4%

Island Rate 1%

Companies 11%

Stamp duty 2%

Imp ts 6%

GST 6%

General Revenue Income makes up 71% of Income in 2010, totalling £552m (2009 79%, £679m).

In the Budget Statement General Revenue Income is voted net of directly related expenditure, such as Irrecoverable Debts or Investment Management fees. These expenses totalled £6.1m in 2010 (2009 £5.4m), giving Net General Revenue Income of £546m . Table 11 shows a summary of General Revenue Income net of these expenses:

Table 11 Net General Revenue Income

2010  2010  2009  Increase/ Budget  Actual  Actual  (Decrease)

£ 000  £ 000  £ 000  %

  391,000  Net Income tax  394,353  507,661  (22%) 51,250  Goods and Services Tax (GST)  44,200  47,142  (6%) 50,180  Imp ts  49,412  51,372  (4%) 22,000  Stamp Duty  20,139  23,576  (15%) 10,850  Island Rate  10,510  10,306  2% 28,760  Other General Revenue income  27,672  33,756  (18%)

  554,040  Net General Revenue Income  546,286  673,813  (19%)

INCOME

The main change from 2009 was the significant drop in Company Tax (£134m) in the main due to the introduction of the 0/10 regime and the economic downturn. This was partly offset by higher yields from individuals. Stamp Duty was also lower due to the continuing fragility of the housing market. Lower interest rates than forecast meant that Investment Income and Union Savings Tax Directive (EUSD) Administration Income have been significantly lower (£8m), although this was partially offset by other items within Other Income. More detail on these variances is given in the Annex to the Accounts.

Figure 3 shows how Net General Revenue Income has changed since 2002, and how it is projected to change in the coming years. Amounts have been restated to 2010 prices using the RPI(X), to take into account the effects of inflation. Budgets for 2002 2005 have been adjusted for accounting restatements made in the 2006 Accounts to improve comparability.

Figure 3 Net General Revenue Income at 2010 Price s

750.00

700.00

650.00

Actual Budget

600.00

550.00

500.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

The graph shows a large drop in Net General Revenue Income between 2009 and 2010, which was anticipated in the budget.

Further details on the individual streams of Net General Revenue Income are included in the Annex to the Accounts.

Individual Departments and Trading Operations include an analysis of their income as part of the departmental pages in the Annex to the accounts.

EXPENDITURE

2. Expenditure

In 2010, Total Gross Expenditure (before consolidation adjustments see Note 2) for the States of Jersey Group was £994m, compared to £820m for 2009. As mentioned previously, an interim revaluation of property assets was carried out during 2010 which resulted in a total charge to the States of £145m. There was no comparable amount in 2009 (and will not be in 2011), and so to allow comparability Figure 4 shows how expenditure excluding impairments was made up.

Figure 4 - Breakdown of Expenditure (excluding impairments)

Other Expenditure 3%

SCF 1%

Trading Operations 7% Health and Social Services

22%

Non-Ministerial Departments 4%

Other Ministerial Departments 8%

Housing 3%

Treasury and Resources 5%

Social Security 20%

Home Affairs 6%

Transport and Technical

Services 7%

Education Sport and Culture 14%

Expenditure by Ministerial & Non-Ministerial departments makes up 89% of total expenditure in 2010 (2009 86%).

The Business Plan approves Net Revenue Expenditure (NRE) limits for departments, which take into account departmental income. Departmental income totalled £117m in 2010 (2009: £116m), giving Net Revenue Expenditure of £766m, (2009: £599m) as shown in Table 12.

EXPENDITURE