States of Jersey: Half-Year Corporate Report – June 2013.

STATES OF JERSEY

STATES OF JERSEY: HALF-YEAR CORPORATE REPORT – JUNE 2013

Presented to the States on 18th September 2013 by the Minister for Treasury and Resources

STATES GREFFE

2013   Price code: B  R.111

REPORT

INTRODUCTION

The full year general revenue income forecast as at June 2013 is £2 million below original  budget.  Near  cash  net  revenue  expenditure  forecast  (excluding  central reserves, restructuring and depreciation) is £20.9 million better than forecast, with no departments forecasting an overspend. Further detail and explanation for the variances can be found in the report.

NET EXPENDITURE: NEAR CASH

Full Year Forecast - Variance to Total Budget

• The full year near cash net revenue expenditure forecast (excluding central reserves, restructuring and depreciation) of £638 million is £20.9 million less than budget.
• In addition to this there is £25.3 million in central reserves and restructuring provision which has not been allocated out to departments. However, of this, £20.8 million is earmarked pending the correct approval process, leaving a balance of £4.5 million available (see Appendix).

States Near Cash Net Revenue Expenditure: Full Year Forecast Variance £'000

14,000 13,030

13,000

12,000

11,000

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000 1,327  1,708  1,500  1,009  1,662

1,000 0  120  0  85  50  382

0

CMD OA EDD ESC DoE HSS HA Hou SSD TTS T&R Other

• The £20.9 million balance of underspends relating to departments comprises –

• Social Security has forecast a £13.0 million underspend. £7.6 million relates to the impact of lower Income Support claimant numbers and revised unemployment assumptions. £2.0 million relates to lower than budgeted  Residential  Care  claimant  numbers  and  an  increase  in income  per  claimant.  A  further  £1.0 million  underspend  has  been identified on Back to Work projects due to slower uptake on schemes than  anticipated.  The  balance  of  £2.4 million  is  made  up  of underspends on Employment Grants, Income Support contingencies and  other  minor  variances.  The  intention  is  to  request  this  total underspend as a carry-forward and ring-fenced to contribute to the Long-Term Care scheme, subject to States approval of P.99/2013.
• Education, Sport and Culture have forecast a £1.7 million underspend. £929,000 relates to Schools and Colleges. Schools are encouraged to manage  finances  across  years  so  as  to  respond  to  demographic changes.  A  £338,000  underspend  has  been  identified  in  Higher Education based on the September 2012 cohort. Further underspends of £516,000 were identified across the Department.
• Health and Social Services have forecast a £1.5 million underspend. £1.9 million  of  the  underspend  relates  to  delays  in  implementing White Paper projects and the allocation of contingency throughout the Autumn  review.  £995,000  of  underspend  has  resulted  from  staff vacancies  and  other  savings  across  pay-groups  reflecting  targeted savings to meet CSR targets and the impact of On- and Off-Island Care. This is offset by a £1.395 million overspend due to the high cost community  care  packages,  children's  UK  placements,  children's respite and higher assessed additional health care needs for a number of on-Island placements.
• Chief Minister's Department have forecast a £1.3 million underspend. £859,000 relates to underspends in Human Resources due to vacant posts and funding for long-term modernisation projects which will continue in 2014. The remaining £441,000 relates to net underspends to be carried forward for projects continuing beyond 2013 (Household Expenditure  Survey,  Joint  Safeguarding  Board  and  Public  Sector Reform).
• Home Affairs have forecast a £1.0 million underspend. This relates to planned underspends on staff costs and supplies and services across the  Department,  to  be  requested  for  carry-forward  to  manage  the delivery of CSR savings and Police recruitment.
• Economic Development, Housing, TTS, Non-Ministerial Departments and States Assembly have forecast underspends totalling £637,000.
• Treasury have forecast a £1.7 million underspend. £1.0 million relates to underspends in Corporate Procurement where funding was received from  the  Restructuring  Provision  in  full  for  the  Procurement

Transformation  Project  spanning  multiple  years.  This  will  be requested to carry forward into 2014. £300,000 of underspend on contingencies  relating  to  large  maintenance  projects  within  Jersey Property Holdings. Further underspends of £400,000 were identified across the Department.

Near Cash Net Revenue Expenditure

Full Year Budget vs Forecast

Full Year Forecast Variance as a % of Total Budget

SSD CMD T&R HA NMD ESC HSS EDD HSG TTS SA OA DoE

0.0% 2.0% 4.0% 6.0% 8.0%

£'000

GENERAL REVENUES

• The full year forecast of £644 million is £2 million less than the Budget for 2013.
• Income Tax is forecast to be £6 million better than the budget position. This is made  up  of  £10.0 million  adverse  variance  in  Personal  Tax  and  a £16.0 million  favourable  variance  in  Company  Tax  which  includes  a £10 million one-off settlement.
• GST is forecast to be £920,000 lower than the budget.
• Impôts is forecast to be £1.5 million lower than budget.
• Stamp Duty is forecast to be £8.6 million lower than budget.
• Other  income  is  forecast to  be  £2.99 million  above  budget  with  dividend income £3.1 million higher offset by minor adverse variances of £0.2 million. This  variance  excludes  £4.5 million  of  dividend  which  is  forecast  in  the MTFP.
• Income year to date variance is £17.9 million adverse, primarily due to a net decrease in Income Tax of £11.4 million comprising an overachievement in Company Tax (£6.8 million) offset by an underachievement in Personal Tax (£18.2 million). This is in part due to the order of tax returns being processed as tax returns can be submitted at varying times. This timing difference impact is expected to be eliminated by year end. Other Income is up on budget by £575,000 primarily due to Investment Income overachievement and GST by £47,000. This is offset by Stamp Duty (£5.1 million), Impôts (£0.9 million) and Island Rate income (£1.1 million).

States General Revenue Income – Budget vs Forecast by Source

General Revenue Income

Full Year Budget vs Forecast

Tax Revenue

• £6 million favourable variance for 2013 Revenues made up of £10 million adverse Personal Tax and £16 million favourable Business Tax. A reforecast of  Personal  Tax  was  performed  in  June  as  a  result  of  the  year  to  date performance together with an expectation of reduced income due to the impact of the withdrawal of distribution rules and the economic situation. This was based on a sub-set of assessments in 2013 that can be compared to a 2012 equivalent assessment to extrapolate a full year position. The result is higher than 2012 but lower than the 2013 budget.

A reforecast of Business Tax was performed as at the end of February as returns were received. This was adjusted down based on appeals received in April. An additional adjustment of £10 million was made for one-off income from a taxpayer in June.

GST

• £920,000 adverse variance based on a reforecast performed in May on March quarter end data. The variance is principally due to a decline in revenue from the construction industry. This was offset by £500,000 of additional one off revenue from a single taxpayer.

Impôts

• £1.5 million adverse variance with the most significant elements being Fuel at £970,000 adverse and Alcohol at £397,000 adverse. There are a number of factors currently impacting fuel consumption including: improved vehicle fuel efficiency, increased use of electric vehicles, increased use of public transport and economic conditions affecting vehicle use. Issues potentially affecting alcohol revenues are: increased stock purchases late in 2012 before the duty increased, discussion with traders indicates business is down in pubs with individuals prioritising spending more carefully.

Stamp Duty

• £8.6 million adverse variance. The actuals for the first half of 2013 are down on forecast and down on the same period for 2012. Taking account of the lower out-turn in 2012, actuals for the first half of 2013 and the revised economic assumptions, a significant reduction in the 2013 forecast compared to  Budget/MTFP  has  been  made.  The  2013  actuals  will  continue  to  be monitored  closely  to  assess  whether  there  is  any  indication  of  an  earlier recovery in the market.

Other

• £2.99 million favourable variance. Dividend income from Jersey Post and Jersey Telecom are forecast to be £1.7 million and £1.4 million respectively better  than  budget.  These  are  one-off  special  dividends  agreed  after  the budgets were set and are expected to be in line with expectations. This is offset by £0.2 million of minor adverse variances.

STATES OF JERSEY SERVICE ANALYSIS

The table below includes non-cash expenditure, meaning depreciation, impairment and amortisation of assets and grants are reflected.

Year to date Full Year Change in Variance to  Variance to  Variance to  F'cast to

Actual Budget Forecast

Budget Prior Year Budget Last Qtr £'000 £'000 £'000 £'000 £'000 £'000 £'000

INCOME - ANALYSIS OF GENERAL

REVENUES

Income Tax (259,656) (11,425) 187 (454,965) (460,965) 6,000 0 GST (42,773) 47 54 (79,761) (78,841) (920) (78) Impots (24,091) (944) (1,831) (54,534) (53,042) (1,492) (1,533) Stamp Duty (7,146) (5,071) (4,248) (24,529) (15,898) (8,631) (1,591) Island Rate (4,784) (1,051) (956) (11,670) (11,670) 0 0 Other* (12,703) 575 379 (20,545) (23,536) 2,991 460 Total Income from

(351,153) (17,869) (6,415) (646,004) (643,952) (2,052) (2,742) General Revenues

NET REVENUE EXPENDITURE BY

DEPARTMENT

Chief Minister's Department 10,583 1,196 (1,496) 25,511 24,100 1,411 (1,182) Economic Development 7,867 47 (472) 18,175 18,055 120 1,082 Education Sport & Culture 54,038 1,055 (1,426) 110,155 108,450 1,705 981 Health & Social Services 92,008 (431) (5,022) 190,730 189,230 1,500 1,500 Home Affairs 24,439 1,271 (695) 49,895 48,886 1,009 (21) Housing (7,382) (1,861) (2,290) (15,830) (11,591) (4,239) (117) Department of the Environment 3,139 (169) (45) 6,485 6,464 21 3 Social Security 83,201 5,712 (1,556) 185,693 172,663 13,030 976 Transport & Technical Services 18,229 (396) (1,230) 43,890 46,548 (2,658) 874 Treasury and Resources 23,116 (3,642) (4,989) 47,839 55,199 (7,360) (530) Other* 19,595 2,523 379 37,850 37,462 388 (279)

328,833 5,305 (18,842) 700,393 695,466 4,927 3,287

NET REVENUE EXPENDITURE BY

TRADING OPERATION

Jersey Airport (945) 217 681 (532) (1,167) 635 2,399 Jersey Harbours 128 17 (1,031) 251 1,212 (961) (1,376) Jersey Car Parks (122) 549 263 689 (370) 1,059 14 Jersey Fleet Management (124) (21) (71) (291) (249) (42) (19)

(1,063) 762 (158) 117 (574) 691 1,018

* Other Income includes Consolidated Fund investments and other statutory income. It excludes revenue relating to the Common Investment Fund (which is reported separately) and Non-voted Consolidated Fund Revenue.

Other departmental expenditure aggregates States Assembly, Overseas Aid and Non Ministerial States Funded cash

limits.

The following tables separate the significant Near Cash and Non-Cash elements that make up the year to date and full year variances explained in this summary. The aim is to  show  how  Non-Cash  net  revenue  expenditure,  such  as  depreciation  and impairments, affects the overall variances. Accounting Officers are responsible for their Near Cash position.

Year to Date Reconciliation Full Year Reconciliation

Variance actual expenditure v  Variance forecast expenditure budget v budget

Departments Near Cash Non Cash Total Near Cash Non Cash Total

Variance Variance Variance Variance Variance Variance Entity Fav/(Adv) Fav/(Adv) Fav/(Adv) Fav/(Adv) Fav/(Adv) Fav/(Adv) £'000 £'000 £'000 £'000 £'000 £'000

Chief Minister's Department 1,146 50 1,196 1,327 84 1,411 Economic Development 47 0 47 120 0 120 Education Sport & Culture 1,016 39 1,055 1,708 (3) 1,705 Health & Social Services (432) 1 (431) 1,500 0 1,500 Home Affairs 1,297 (26) 1,271 1,009 0 1,009 Housing 173 (2,034) (1,861) 85 (4,324) (4,239) Department of the Environment (180) 11 (169) 0 21 21 Social Security 5,712 0 5,712 13,030 0 13,030 Transport & Technical Services 854 (1,250) (396) 50 (2,708) (2,658) Treasury and Resources 810 (4,452) (3,642) 1,662 (9,022) (7,360) Other 2,509 14 2,523 382 6 388 Departmental Cash Limits 12,952 (7,647) 5,305 20,873 (15,946) 4,927

STATES OF JERSEY ASSET POSITION

As at 30th June 2013 the Strategic Reserve was valued at £706,540,653.

The Strategic Reserve has shown consistent growth over the last 2 years. Performance is examined below.

31st December 2012 valuation: £651.3 million  (Growth to 30th June 2013: £55.2 million) 31st December 2011 valuation: £594.4 million  (Growth to 30th June 2013: £112.1 million)

At 30th June 2013 the Strategic Reserve was within its strategic range:

Over the last 2 years, the Strategic Reserve has seen consistent growth.

Since inception of the Common Investment Fund (June 2010), performance of the Strategic Reserve has been in excess of benchmark.

As at 30th June 2013 the Common Investment Fund was valued at £1,791,137,041.

The Common Investment Fund has shown consistent growth over the last 2 years. Performance is examined below.

31st December 2011 valuation: £1,268.1 million* 31st December 2012 valuation: £1,549.7 million*

*Please  note  some  of  the  increase  in  value  is  attributable  to  additional  capital contribution as well as performance.

APPENDIX CENTRAL RESERVES AND RESTRUCTURING COSTS

Balance of Budget Not

Allocated from Total Budget Forecast Earmarked Central Funding

Date £ £ £ £ Central Contingency

01/01/2013 Opening Balance (Pay Provision) 5,900,300

Carry Forward - AME 2,000,000

Carry Forward - Emerging Items 4,000,000

Carry Forward - Smoothing Reserve 2,859,917

Carry Forward - Smoothing Reserve from Depts 536,602

Carry Forward - One Off (Insurance) 4,502,509

Carry Forward - One Off (AME) 4,000,000

Carry Forward - One Off 5,600,214

Carry Forward - One Off (MTFP Commitments) 530,000

Carry Forward - One Off (Dept Unrequested) 535,887

Carry Forward - One Off 200,000

States Training Needs - CMD (360,000)

Project Omega (653,958)

Pay Award 1% Non Consolidated + 1% Consolidated (5,846,895)

Project Omega 0

McKinsey - Financial Services Sector Review - EDD (250,000)

Band of the Island of Jersey (20,000)

Cadet and Military Officer (26,000)

Island Plan/Masterplanning (100,000)

Environmental Protection (200,000)

Countryside Infrastructure (50,000)

ESC Infrastructure Contingency to JHT (315,000)

Doctors Pay 2013 (140,000)

Third Sector Forum (35,000)

Freedom of Information 2013 - 2015 (797,000)

Nurses Pay Award 2013 (1,800,000)

Hospice Building (500,000)

Committee of Inquiry (800,000)

Project Omega Balance Forecast (3,848,551)

London Office - International Division (463,000)

Smoothing Reserve (3,396,519)

AME - Balance (6,000,000)

Emerging Items (2,403,000)

Central Reserves 23,508,576 (805,000) (20,043,070) 2,660,506 Restructuring Costs

01/01/2013 Opening Balance - Restructuring  5,098,000

Opening Balance - Procurement Savings (3,451,300)

Carry Forward - From Restructuring 2,137,050

Carry Forward - From Central Reserves 3,083,000

HSS - Support for Lean Projects (82,000)

HSS - CSR Support (117,000)

CMD - HR System Replacement PM Costs (144,000)

CMD - Data Centre Migration (105,000)

T&R - Procurement Transformation Programme (800,000)

T&R - Taxes Transformation Programme (19,900)

CMD - CSR Delivery Team (410,000)

CMD - Organisational Development/Change Leader (200,000)

CMD - Employee Relation Support  (100,000)

ESC - FCJ Funding (306,300)

CMD - Law Drafting (29,000)

Public Sector Reform (2,685,000)

Restructuring Costs 1,868,550 0 0 1,868,550 Central Reserves and Restructuring Costs 25,377,126 (805,000) (20,043,070) 4,529,056