States of Jersey Financial Report and Accounts 2012.

FINANCIAL REPORT AND ACCOUNTS 2012 | CONTENTS

1. Minister's Report Managing the Budget

The States' finances performed well in 2012, despite a This has been a busy year for the States, a year in which,  challenging  economic  climate.  Income  of  £628  million as a new Council of Ministers, we have been grappling  exceeded the Budget by more than £15 million. Departments with major issues for the Island. The publication of White  underspent by almost £28 million, most of which will be Papers on the future direction of Health and Social Care  carried forward to ease funding pressures in 2013 and services and Housing demonstrate our preparedness to  beyond.

tackle difficult issues which will make a positive difference

to the long term health and well being of Islanders in the  On  top  of  this  over  £28  million  of  contingency  and future. In so doing we have been balancing competing  restructuring expenditure remained at the end of the year. priorities, managing a growing demand for services whilst  This will also be carried forward into 2013. Almost £2 million at the same time responding to these demands within  was made available from contingencies to Health and constrained resources. Social Services to accelerate much needed improvements

in services. Over £3 million was spent in Social Security During the year Treasury has been supporting the delivery  and Education to assist unemployed people to obtain work. of the Council of Ministers' service priorities in the areas of

health, housing and job creation. In some cases we have

been able to meet several priorities in one initiative. For  Managing the Balance Sheet

example, providing funding for new social and affordable

housing will improve housing provision and at the same time  The States' Property, Plant and Equipment assets were provide a fiscal stimulus to the local economy. Protecting  fully revalued in 2012 for the first time since 2009 and are and retaining jobs in the construction industry has been a  now worth nearly £3.2 billion. The revaluation increased particular focus for us this year. We are also working with  the book value of assets by £277 million. The value of our Jersey Finance and Jersey Financial Services Commission  Strategic Investments (JT, Jersey Water, Jersey Post and on major pieces of research work that will help shape the  Jersey Electricity) decreased by £38 million in the year to future direction of our finance industry. Continuing with the  £289 million. The value of the Common Investment Fund theme of developing new business for the Island during  (CIF) increased by £133 million in 2012. The CIF manages the year I have visited Abu Dhabi, Dubai and Tokyo, visits  investments for States funds, including those outside of which promoted new business for the Island and helped  these Accounts such as the Social Security Funds, and the build productive relationships. portion relating to funds in the Accounts (like the Strategic

Reserve) saw returns of £63 million during the year, now All our services have to be paid for and local people and  standing at £922 million for all funds. The Strategic Reserve businesses do not want to see increases in taxation. We  itself stood at £651 million at the end of 2012. Pension fund have continued with our approach to tax policy: low taxes,  past service liabilities reduced during the year, due to the broadly based and certain for the future. This means we  application of a surplus in Jersey Teachers Superannuation have also been very busy in 2012 making savings and  Fund  (JTSF).  I  am  pleased  that  the  Public  Accounts delivering against our savings targets in the Comprehensive  Committee in their report on the 2011 Accounts recognised Spending Review. Ongoing savings of £20 million were  the difference in emphasis between the valuation used in delivered in 2012 alone, and £31 million to date. This way  the Accounts and the Actuarial valuation, which provides the we can keep taxes low and target available resources at  most appropriate assessment of the long term sustainability our priority service areas where need is greatest. of the scheme, and paints a healthier and more realistic

picture.  Notwithstanding  that,  we  must  make  changes These accounts present an Island which has a robust  to the States Pension Schemes to ensure that they are financial position against a backdrop of significant global  sustainable for the future.

turbulence. Our balance sheet represents value net assets

exceeding 100% of GVA together with plans for balanced  We are underspending, and the value of our assets is rising. budgets. Jersey is ahead of most other jurisdictions in  This does not happen by accident and I am grateful to many ways, including in economic fundamentals. The job  the Treasurer, her staff and my fellow Ministers and their of Treasury continues to be focused on maximising this  departments. We must not be complacent. If we continue commonwealth and securing a positive, fair and optimistic  to manage our finances carefully we can continue to direct Island for the future.  taxpayers' money to where it is most needed and where

it will benefit most Islanders, particularly those who are in need of support in challenging times.

Managing the Budget: Income Managing the Budget:

Revenue Expenditure

I will now turn in more detail to some of the above matters,

beginning with States income.  Turning now to revenue expenditure, Departments spent

just under £601 million in 2012. This was almost £28 million The forecast for general revenue income set out in the 2012  less than the amount available to them once unspent funds Budget was £612 million. Actual receipts were £628 million.  from 2011 had been added to their budgets, as approved The main reason for the improvement was an increase  in the 2012 Annual Business Plan. Most of the underspend in income tax receipts above forecast, mostly personal  will be carried forward to 2013 including over £22 million income tax. This may seem unusual when the economy  within Departments and £5.5 million to boost contingencies. is going through a difficult time, but perhaps reflects the

fact that whilst the number of Islanders unemployed is at  At the same time as spending less than their available its highest known level, the number in work is also at its  budgets, Departments have achieved over £20 million of highest level. We will continue to investigate the reasons for  CSR savings in 2012, year two of the three-year programme the buoyant receipts so that we can continue to understand  targeted to achieve £65 million savings. Whilst the time the economy better and forecast more accurately.  frame to achieve the savings has now been extended

to 2016, and there is currently a projected £3.6 million Income Tax receipts in 2012 were £431 million. Our healthy  shortfall due to the States' decision not to agree a reduction income  tax  receipts  show  that  our  zero/ten  approach,  in subsidies to fee paying schools. This is a tremendous confirmed as acceptable to the EU Code Group in 2011,  achievement and I would like to thank all Departments for combined with the introduction of GST, was the right one.  their efforts. A £20 million reduction, which permanently Whilst general revenue income is still not back to 2008  comes out of budgets, is the equivalent of, for example, a levels we have managed the transition and are returning  1% rise in GST.

to balanced budgets – indeed we showed a surplus of £27

million in 2012, compared with a forecast deficit of £3.5  Contingency and restructuring funding of £28 million were million.  carried forward into 2013. Much of it is already earmarked

for specific purposes. I have said previously that I would The tax collection rate achieved by the Taxes Office is  not expect contingency funding to be spent each year that enviable, being at an all time high and exceeding that  it is available, but that it should be carefully managed. It is achieved by the UK government. GST (£80 million) and  pleasing that so much funding remains at the end of 2012 Impôts, such as duties on cigarettes and alcohol (£54  and it is sensible that we retain the balance as a buffer million), brought in receipts very close to those forecast in  against unforeseen circumstances without needing to go the 2012 Budget. Stamp Duty was almost £3 million below  back to the States for additional funding.

the Budget forecast of £24 million, reflecting the economic

situation and the sluggish housing market. Other income

(largely  dividends  from  the  States-owned  utilities  and

returns on cash balances) was over £4 million higher than

forecast at almost £31 million due to an additional dividend

of over £4 million from Jersey Post. I will continue to work

with the Boards of the utilities to deliver the best returns

possible to the States to supplement our income, whilst at

the same time allowing them to retain sufficient working

capital to be able to grow their businesses.

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Managing the Budget:  Managing the Balance Sheet Capital Expenditure

2012 has seen a continued focus on managing the States' Capital expenditure is essential in order to maintain and  balance sheet. This is an area that has, perhaps, been improve our asset base. It is also one of the key tools at  overshadowed in the past by the emphasis on controlling our disposal to support and stimulate the economy at this  expenditure  and  raising  enough  income  to  pay  for  it. time. For this reason I took a proposition to the States which  Management of our assets and liabilities provides another was approved in May 2012 to allocate an additional £27  means of safeguarding us against future economic shocks million to the Housing Department to fund or bring forward  and providing sources of significant levels of funding

six social housing schemes. This was welcomed by the

construction industry.  The value of the States' Property, Plant and Equipment increased by £263 million in 2012 to nearly £3.2 billion. This

In 2012 Departments spent £33 million on capital projects.  is almost entirely due to the full revaluation exercise which The three biggest spenders were Transport and Technical  is required to be carried out by external valuers every 5 Services (almost £11 million) Jersey Property Holdings  years. The revaluation increased the book value of property (within Treasury and Resources – over £9 million) and  by £254 million and the Social Housing stock by £70 million Housing (over £9 million). Significant projects during the  offset by a decrease in the value of infrastructure of £45.6 year included: million. This does not, of course, mean that our assets can simply be sold off to provide additional funding. They

• refurbishment  projects  at  Clos  Gosset,  Jardin  Des  are needed to provide essential services to Islanders. We Carreaux, Pomme D'Or Farm and Le Squez; can, however, look at managing those assets better. This approach has the potential tp release assets for disposal

• the Phillips Street shaft, which will alleviate the flooding  or alternative use. For example relocation of the Police risk to the North of Town; and Headquarters to Green Street will free the Summerland site for Social Housing, and Jersey Property Holdings is

• the creation of new visitor and staff facilities at the Prison. shortly to begin the first step towards rationalising and modernising office accommodation by relocating its staff In addition to this £33 million, Jersey Harbours spent almost  from three different sites into one at Maritime House.

£2 million on various capital schemes.

The value of the States' Strategic Investments decreased One of the seven priorities in the Strategic Plan is sustainable  by £38 million in 2012. These are:

long term planning. A significant piece of work was started

in 2012 to look at the Island's longer term requirements for  • Jersey Water – increased in value by over £5 million. capital expenditure. High value issues under consideration

include  replacing  the  General  Hospital,  improving  the  • JT – which fell in value by £27 million - although the States Island's housing stock and financing a new Liquid Waste  now also has a £10 million infrastructure investment in the Strategy. The cost of these significant projects is likely to be  company.

beyond that which can be financed from tax income and the

other usual sources. The Treasury is currently researching  • Jersey Electricity – which decreased in value by £14 alternative funding mechanisms so that we can plan ahead  million – largely due to its falling share price at the year in good time. end, which has recovered in subsequent months.

• Jersey Post – which stayed broadly the same.

The Treasury operates as an active shareholder of these investments, with regular meetings throughout the year. Together,  the  four  utilities  contributed  £18  million  in dividends to the States in 2012, which obviates the need for that funding to be raised by taxes.

I must make particular mention of the Gigabit project,  • £28 million of contingency and restructuring funding which  started  in  2012  and  has  been  attracting  carried  forward  to  2013  to  protect  against  the much attention. Jersey's investment in optical fibre  unexpected and deliver more savings. infrastructure is one that I am confident will prove in the

future to have been far-sighted and pivotal to Jersey's  The first Medium Term Financial Plan was approved economic recovery and resilience. We should not  by the States.

let  short-term  timing  issues  overshadow  what  an

innovative and exciting decision this investment is. • There has been significant investment in health,

housing and jobs.

The balance on the Strategic Reserve (the "rainy

day fund") amounts to £651 million at the end of  • The  value  of  the  States'  Property,  Plant  and 2012. This increased by £57 million during the year  Equipment increased by £262 million in 2012 to through sound investment management contributing  nearly £3.2 billion.

to the strong performance of the Common Investment

Fund (CIF). The CIF was established in 2010 and  • The value of the States' Strategic Investments in pools investments, from both the States and other  Utility Companies decreased by £38 million to £289 participants such as the Social Security Funds, to  million.

achieve better returns.

• The value of the Strategic Reserve increased by £57

In 2012 the value of the CIF increased by £133 million,  million to £651 million.

with £63 million of this attributable to the States, and

£68 million to the Social Security Funds. This increase  • The value of the CIF increased by £133 million to in value is not income to the States in the same way  £1.5 billion.

as taxes or dividends: the increases in value remain

within the Funds. • A major review of PECRS is nearing completion.

Pension liabilities reduced by £39 million in 2012. This  I  am  fortunate,  as  Minister  for  Treasury  and was mostly due to a reduction of £37 million in the  Resources, to have the benefit of inheriting wise and provision for the Jersey Teachers' Superannuation  far sighted decisions by my predecessors as well as Fund  pre-2007  liability.  This  was  based  on  a  to have an innovative and bold Treasurer and staff, Management Board proposal to the States on the  who are delivering real change without ever losing treatment of the pension increase debt, based on the  sight of the prudence needed when dealing with 2010 Actuarial valuation of the scheme. A Technical  taxpayers' money. Together they have provided me Working Group was established comprising the Chair  with the tools I need to make decisions, some of which of the Public Employees' Contributory Retirement  are difficult, some of which are unpopular, but which Scheme (PECRS) Committee of Management, the  are necessary if Jersey's economy is to survive and Treasurer of the States and other colleagues and  prosper. I have described how Jersey States' finances PECRS committee members. The Working Group  are the envy of much of the world. This has been spent considerable time in 2012 leading a project  achieved  through  vigilance,  decisiveness,  and  by to review and propose revisions to the PECRS to  not squandering taxes when times are better. I am ensure that it is sustainable, affordable and fair. The  proud to present the Financial Report and Accounts proposals were launched on 21st March and are  for 2012 and look forward to continuing to prepare available on the States website. Jersey  to  take  advantage  of  economic  recovery.

Particular emphasis has been placed in 2012 on  All that remains is for me to thank all the staff in the building  on  our  relationships  with  the  Corporate  Treasury  and  Resources  Department  and  across Services Scrutiny Panel and the Public Accounts  the States for their hard work this year. In particular Committee. I hope that this approach continues in  I want to thank Laura Rowley, the Treasurer, for her 2013: an effective and informed scrutiny and review  leadership of the department. I also extend my thanks function can only add value to our work.  to David Le Cuirot, the Acting Comptroller of Taxes,

Mike Robinson, Head of Customs and Immigration, In summary, 2012 has seen bold and progressive  and my Assistant Minster, Eddie Noel, for his help steps forward in the health of the States' finances: and support.

• Income exceeded Budget by over £15 million.

• Departments underspent by almost £28 million.

• Ongoing savings of over £20 million were achieved  

in the second year of the Comprehensive Spending  

Review, and proposals for total CSR savings of £56.5  

million have been delivered in the 2013 budget. Senator Philip Ozouf

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2. The Treasurer's Report

1. Introduction

1. Summary of Performance

The original Budget for 2012 was set to end the year with a net operating deficit of £3.5 million. We have in fact ended the year with a net operating surplus of £27.1 million.

States Net General Revenue Income was £15.4 million better than originally budgeted, at £627.7 million

• Net Income Tax was £14.5 million (3.5%) higher than the 2012 budget, primarily due to an increased tax yield relating to individuals.

• Other  Income  was  £4.3  million  (16.3%)  higher  than budgeted, primarily as a result of an additional Jersey Post dividend of £4.2 million, agreed after the Budget Statement.

• Stamp Duty was £2.8 million less than budgeted, due mostly to a slower than expected economic recovery, leading to fewer, lower value, transactions.

• Other lines of General Revenue saw smaller shortfalls in income totalling £0.6 million.

Departmental  Near  Cash  Net  Revenue  Expenditure (the amount spent on day-to-day activities) was £15.2 million less than the Business Plan, and £27.6 million less than the approved amount after carry forwards and other allocations, at £600.6 million

• Social Security was £6.9 million less than approval due to lower than expected Social Benefit payments.

• Education was £3.6 million under budget as a result of the delegated financial management scheme which allows underspent schools' budgets to be carried forward.

• £6.3 million relates to funding for projects that extend over more than one year within the Chief Minster's and Treasury and Resources departments.

• Other departments had smaller underspends.

• Departments will be carrying forward nearly £23 million of these approvals into 2013 for projects and other spending pressures. The balance will help fund Capital Projects in future years (as identified in the MTFP).

In addition £28.4 million of Central Contingency was not needed in 2012, and this will be carried forward into 2013

After  adjusting  for  Trading  Operations,  Special Funds and other accounting adjustments there was an accounting surplus of £70.0 million for the year – however, much of this relates to non-cash movements and amounts held in Special Funds and so is not available for everyday expenditure.

• Trading  Operations  incurred  more  expenditure  than expected, but this is due to non-cash decreases in asset values as a result of the 2012 Valuation (£22 million), offset by other smaller variances.

• Depreciation and charges relating to the use of Property, Plant and Equipment by the States for Ministerial and Non- Ministerial departments were broadly in line with budget.

• Special Funds saw Net Income of nearly £60.0 million. The CIF generated significant income for the States of Jersey during 2012, earning net income of £132.5 million in total, representing a return on capital of around 9.8%. Whilst much of this gain was attributable to rallies in the markets in which the CIF invested, the CIF's investment managers also exceeded their combined benchmarks by 2% (equivalent to £14.8 million).

• Other Funds saw smaller amounts of income.

• The most significant Accounting Adjustment was   associated with Pension liabilities (£41.6 million), due mostly to a revised estimate for the amount required to settle the JTSF pre-2007 debt, based on information in the latest Actuarial Valuation.

The States also spent £36.8 million on Capital projects in the year, including improvements to Social Housing and the Prison.

The States Balance Sheet remains strong.

• Property, Plant and Equipment was revalued in the year, and now totals £3.2 billion

• Strategic Investments in utility companies decreased by £37.6 million.

• Pensions liabilities relating to past service liabilities have reduced by £39 million - mostly due to a reduction of £37 million in the provision for the JTSF pre-2007 liability.

2. At a Glance – Financial Results (Table 1)

£m

Final

 Budget  Approved

£m / Business  Budget

Actual / Updated  Actual2012

2011 Plan Forecast

2012

2012

586.9 States Net General Revenue Income 612.3 624.6 627.7

(598.6) Departmental Net Revenue Expenditure - Near Cash (615.8) (656.6) (600.6) (11.7) Operating (Deficit)/Surplus for the Year (3.5) (32.0) 27.1

0.9 Trading Operations Net Revenue Expenditure (1.6) (3.8) (20.7)

(10.8) (Deficit)/Surplus adjusted for Trading Operations (5.1) (35.8) 6.4 (40.6) Depreciation and other Non-Cash Expenditure (40.1) (40.1) (38.8)

15.6 Net Revenue Income of Special Funds and SOJDC - - 60.0

0.2 Other Income/(Expenditure) and Accounting Adjustments - - 42.4

(35.6) Net Accounting (deficit)/surplus for the Year (45.2) (45.2)(75.9) 70.0

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2. General Revenue Income

Figure 1 - Breakdown of States Income

£6m

£80m

£32m

Net General Revenue Income

Budget 2012 Actual 2012 2.5%

£612.3 £627.7  better than the million  million 2012 Budget

The States receives income from a variety of sources,  Income is voted net of directly related expenditure such including taxes, investment returns and charges raised  as Irrecoverable Debts or Investment Management fees, by departments. Total gross income (before consolidation  to represent the amount that is available to be spent on adjustments – see Note 4) for the States of Jersey in 2012  providing services. These expenses totalled £4.7 million in was £891 million, compared to £820 million in 2011.  2012 (2011 - £2.4m), giving Net General Revenue Income

of £628 million. This is the number used for comparison to approvals.

The largest element of income is "General Revenue Income", which is made up of income to the Consolidated Fund covered by the Annual Budget Statement. This represented 71% of Income in 2012, totalling £632 million (2011 – 72%, £589 million). In the Budget Statement, General Revenue

2.2.1 Net Income Tax 2.2.2 Goods and Services Tax

Budget 2012 Actual 2012 3.5% Budget 2012 Actual 2012 0.6%

£416.0 £430.5  more than the  £80.0 £79.6  less than the million million 2012 Budget million million 2012 Budget

Income  Tax  comprises  two  main  elements,  Personal  Goods and Services Tax is a consumption tax of 5% on Income Tax and Company Income Tax. imports  and  supplies  made  in  Jersey.  The  underlying

principles are that the tax is low, broad and simple. As Personal Income Tax a result there are a limited number of reliefs. Businesses

within the financial services industry who generally have Personal Income Tax is a standard 20% rate of tax with  the majority of their activity outside Jersey may apply to a  limited  number  of  allowances/reliefs.  To  protect  the  be approved as an International Services Entity (ISE) for lower to middle income earners, a separate calculation is  GST purposes.They pay a flat rate annual fee instead of also performed using exemption thresholds and a greater  accounting for GST.

number and value of reliefs, but with a higher tax rate

(27%). The lowest of the two tax calculations is then used

to determine the tax charge. Therefore individuals will be

charged no more than 20% tax on their income. This is

explained in a video available on the States' website:

http://www.gov.je/TaxesMoney/IncomeTax/Individuals/ AllowancesReliefs/Pages/MarginalCalculation.aspx

Company Income Tax

Companies pay tax under the zero/ten Regime. Three tax rates are possible:

• 0% - all non-financial service entities (except those at 20% below).

• 10%  -  Financial  Services  Companies  (a  company registered,  or  holding  a  permit,  by  virtue  of  various Laws  administered  by  the  Jersey  Financial  Services Commission).

• 20% - Utility Companies, Rental and Property Development Companies.

Until the 2011 year of assessment, companies could pay tax under the International Business Company (IBC) regime. IBC status was only available to companies owned by non-residents. Under this regime, tax was charged at 30% on Jersey-source income and at rates between 0.5% and 20% on international income. Typically, IBCs were banks, group service companies and other businesses which had a presence in Jersey but whose work was "international" in nature; i.e. derived from clients based outside the Island.

Net Income Tax was £14.5 million (3.5%) higher than the 2012 budget and £0.5 million higher than the most recent forecast included in the 2013 Budget Statement. This was primarily due to an increased tax yield relating to individuals, arising from a larger than expected impact of the 20 means 20 regime, and lower mortgage interest relief due to continuing low interest rates. A revised forecasting model with more detailed yield is now being use, which is expected to improve the quality of forecasting going for- ward. Other factors affecting the variance are an increase in tax from the finance sector, and lower than predicted write-offs.

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3. Impôts Duty

Budget 2012 Actual 2012 0.5%

£54.5 £54.2  less than the million million 2012 Budget

Impôts duties are duties charged on goods as they are imported to the Island. The duties apply to a range of commodities including alcohol, tobacco and fuel.

4. Stamp Duty

Budget 2012 Actual 2012 11.9% £21.2  less than the

million£24.0  million 2012 Budget

Stamp duty is charged on property, equity and share transfer transactions according to the value of the transactions. Jersey operates a discount scheme for first time property buyers.  Duty  is  also  collected  on  Wills,  Probate  and Obligations.

A  slower  than  expected  economic  recovery  resulted in significantly lower volume and value of Stamp Duty transactions  than  forecast,  culminating  in  £2.9  million less Stamp Duty than budgeted. Stamp Duty income is particularly sensitive to small volume but high value property transactions and these have been less frequent during 2012 than in previous years. The fall in Stamp Duty on property transactions has been partially offset by Probate duty where a small number of high value estates have been subject to Probate in 2012. 2012 is the last year where large estates will yield significant duty as the States agreed a cap of £100,000 on probate in the 2013 Budget to attract greater investment in the Island in the future.

5. Island Rate

Budget 2012 Actual 2012 1.7%

£11.2 £11.4  more than the million million 2012 Budget

The 12 Parishes in Jersey levy rates to pay for parish services. In addition the Parishes collect an Island Wide Rate levied by the States. The Island Wide Rate was introduced  in 2006  to provide  a contribution  to parish welfare costs which were incorporated into the Island's new Income Support system.

6. Other Income

Budget 2012 Actual 2012 16.3%

£26.6 £30.9  more than the million million 2012 Budget

"Other  Income"  includes  returns  on  States  strategic investments in utility companies, returns on cash balances and various fees and charges.

Other Income is £4.3 million (16.3%) higher than budgeted primarily as a result of an additional Jersey Post dividend of £4.2 million. This was agreed with Jersey Post after the budget was agreed but was included in the latest forecast in the 2013 Budget Statement.

Summary Table 2 – Net General Revenue Income – Outcome compared to Budget Summary Table B

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7. Changes in Net General Revenue Income

Figure 2 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 2012 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 2 - General Revenue Income at 2012 Price s

3. Ministerial and Non-Ministerial Departments Revenue Expenditure

The  Business  Plan  and  MTFP  therefore  approve  Net Revenue Expenditure (NRE) limits for departments, which take into account this income, and so represent the amount that needs to be funded from taxes. Departmental income totalled £130 million in 2012 (2011: £126 million), giving Net Revenue Expenditure of £601 million, (2011: £599 million) on a near cash basis. Figure 3 shows how this is made up.

Total gross expenditure (before consolidation adjustments

– see Note 4) for the States of Jersey in 2012 was £820 million, compared to £855 million for 2011. The majority of expenditure by the States is incurred by Ministerial and Non-Ministerial  departments  through  the  consolidated fund. In 2012 near cash expenditure by these departments made up 73% of total expenditure (2011 – 70%). There were also non-cash amounts totalling £39 million (2011 £41 million), which represent the use of resources such as Property, Plant and Equipment, even though no cash is spent. Departments raise charges for some of the services that they provide, and may also receive other income.

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Figure 3 – Ministerial and Non-Ministerial Departments -

Net Revenue Expenditure (Near Cash)

£33.9m

1. Ministerial Departments Near Cash Expenditure

Near Cash Expenditure represents amounts that transacted in cash during the year, or shortly after (e.g. income charged that will be collected after the year end). It excludes amounts relating to the use of Property, Plant and Equipment, such as depreciation and impairments, which are covered in section 2.3.4. Accounting Officers are held accountable for Near-Cash amounts.

Business

Plan 2012 Near Cash

Approval Expenditure

£ 22.8  2012

million £20.1

Chief Minister's Budget  million

Carried Carry The  Chief  Minster's  Department  provides  support  and  forward from  forward advice to the Chief Minister and Council of Ministers, and  2011 to 2013 co-ordinates policies and strategies across the States.  £1.3  £2.3 million It is also responsible for a range of services, including  million

international relations, constitutional issues, States staffing

and IT, statistics, and the Law Draftsman's Office. Underspend

Other  £2.3 The underspend of £2.3 million is mostly due to the upfront  Transfers million funding for Chief Minister's projects spanning multiple years  (£1.6

and delayed projects. million) out

Education, Sport and Culture

Economic Development The Education, Sport and Culture Department provides

educational, sporting and cultural opportunities for the The Economic Development Department is responsible  people of Jersey, supporting Jersey's commitment to for all areas of economic policy and development in  encourage lifelong learning and enabling everyone to Jersey, including support for the agriculture, fisheries,  realise their potential.

tourism, and finance industries. It also maintains an

overview of policies that may affect the harbours, airport,  The majority of the underspend is due to the system postal and telecommunications services. It oversees  of delegated financial management and delays in UK consumer and regulatory services too. university fee increases.

Business  Business

Plan 2012 Near Cash  Plan 2012 Near Cash

Approval Expenditure  Approval Expenditure

£ 15.9  2012 £101.7  2012

million £17.3  million £103.2

Budget  million Budget  million

Carried Carry  Carried Carry forward from  forward  forward from  forward

2011 to 2013 2011 to 2013 £1.2  £0.9 million £3.4  £3.6 million

million million

Underspend Underspend Other  £0.9  Other  £3.6

Transfers million Transfers million

£1.1  £1.9

million in million in

17

Department of the Environment

The  Department  of  the  Environment  is  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.

Business

Plan 2012 Near Cash

Approval Expenditure

£6.4  2012

million £6.2

Budget  million

Carried Carry forward from  forward

2011 to 2013 £0.3  £0.6 million

million

Underspend Other  £0.6

Transfers million

£0.2 million in

Health and Social Services

The Health and Social Services Department promotes health and social wellbeing for the whole community, providing  prompt  services  to  all  and  protecting  the interests of the frail and the vulnerable.

Business

Plan 2012 Near Cash

Approval Expenditure

£171.2  2012

million £175.5

Budget  million

Carried Carry forward from  forward

2011 to 2013 £1.6  £1.2 million

million

Underspend £1.2

TransfersOther  million

£3.8

million in

Home Affairs

The Home Affairs Department is responsible for the States  Housing

of Jersey Police, the Fire and Rescue Service, the Prison

Service, Customs and Immigration, criminal justice policy,  The Housing Department is responsible for the provision and the registration of births, deaths and marriages. of social housing and estates management.

Business  Business

Plan 2012

Plan 2012 Near Cash  Approval Near Cash

Approval Expenditure  (£24.6  Income

£48  2012 million) 2012

million £47.2  Income £24.4

Budget  million Budget  million

Carried Carry  Carried Carry forward from  forward  forward from  forward

2011 to 2013 2011 to 2013 £1.5  £1.9 million £1.4  £1.0 million

million million

Underspend Underspend £2.0  £1.0

TransfersOther  million TransfersOther  million

(£0.3  (£0.2

million) out million) out

19

Social Security

The Social Security Department is responsible for the administration of contributions and benefits, the Health and Safety Inspectorate, and a number of employment services, including the Work Zone.

The  underspend  is  a  result  of  lower  Social  Security benefits costs due to fewer claimants and slower uptake of employment grants. It also includes a one-off £2.4 million accounting adjustment for Medical Benefits.

Business

Plan 2012 Near Cash

Approval

£166.8  Expenditure

million 2012

£164.4

Budget  million

Carried Carry forward from  forward

2011 to 2013 £10.5  £2.9 million

million

Underspend £6.9

TransfersOther  million

(£6.0

million) out

Transport and Technical Services

The  Transport  and  Technical  Services  department manages  the  highway,  public  transport  and  traffic management network, and has the responsibility for all transport policy in Jersey. It also ensures vehicles are roadworthy, manages the disposal of the Island's waste and provides cleaning and parks and gardening services.

Business

Plan 2012 Near Cash

Approval

£26.9  Expenditure

million  2012

£26.9

Budget  million

Carried Carry forward

forward from  to 2013

2011 £1.8 million million£1.9  

Underspend £1.8

TransfersOther  million

(£0.1

million) out

Treasury and Resources

The Treasury and Resources department manages the Island's finances and assets, ensuring the protection and good use of public funds. It is responsible for the collection of tax and tax policy, States budgets and financial policies, pension  fund  investment  and  administration,  treasury management, investment management and procurement policy. It also manages States property and represents the States shareholder interests in publicly-owned companies.

£2.4 million of the underspend is a result of the upfront

funding  for  Treasury  projects  spanning  multiple  years

including Procure to Pay and the Taxes Transformation

Programme. A further £1.6 million is due to delays in  Allocations for Contingency backlog maintenance in Jersey Property Holdings.

Business

Plan 2012 Near Cash

million 2012 Business Plan Approval2012

Approval

£24.8  Expenditure

£30.2  £19.8

Budget  million million Contingency  Unused Carried Carry  used in 2012 Contingency

forward from  forward  at the year 2011  to 2013 £7.9  end.

£1.5  £4.4 million million £28.4 million Amounts Unused  million

Underspend Carried

Other  £4.4  forward from

Transfers million 2011

£8.3  £16.5

million in million

21

2. Non Ministerial Departments and the States Assembly Near Cash Net Revenue Expenditure

Business

Plan 2012 Near Cash

Approval

million£27.2  Expenditure 2012

£25.1

Budget  million

Carried Carry forward from  forward

2011 to 2013 £0.6  £1.9 million

million

Underspend Other  £2.7

Transfers million

£0.1

million in

Non  Ministerial  Departments  do  not  come  under  direct Ministerial control, due to the nature of the work they perform.

The  States  Assembly  is  the  highest  decision-making authority of the Island. More information about its operation is given in section 2.11.1.

The Bailiff 's Chambers provides support to the Bailiff who is head of the judiciary, president of the States and civic head of Jersey. The Law Officers' Department provides legal advice to the Crown and the States, including States Departments and other Departments. The Judicial Greffe provides administrative and secretarial support to ensure the effective operation of Jersey's courts, and the Viscount's Department is responsible for ensuring the decisions of Jersey's Courts and States Assembly are carried out. The Probation and After-care Service work with the judicial system, the courts, victims of crime and the community to help reduce criminal activity and its impact in Jersey.

The Official Analyst carries out authoritative and impartial scientific  analysis  to  support  the  work  of  other  States departments, local businesses and individuals.

The Lieutenant Governor of Jersey is the representative of Her Majesty the Queen in the Bailiwick of Jersey, and the Dean of Jersey is the leader of the Church of England in Jersey.

The 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.

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

23

Summary Table 3 - Net Revenue Expenditure – Outcome compared to Business Plan Summary Table A

Difference 2012  Final  from Final Business  Approved  Approved

2011 Actual Plan Budget 2012 Actual Budget £'000 £'000 £'000 £'000 £'000

Ministerial Departments

25,332 Chief Minister 22,784 22,442 20,148 2,294 8,459 - Grant to the Overseas Aid Commission 8,881 8,886 8,878 8 18,253 Economic Development 15,898 18,213 17,299 914 103,434 Education, Sport and Culture 101,655 106,862 103,229 3,633 6,640 Department of the Environment 6,439 6,880 6,249 631 170,137 Health and Social Services 171,212 176,690 175,472 1,218 47,688 Home Affairs 47,991 49,144 47,163 1,981 (21,475) Housing (24,558) (23,335) (24,375) 1,040 164,433 Social Security 166,835 171,323 164,406 6,917 25,985 Transport and Technical Services 26,938 28,701 26,868 1,833

Treasury and Resources

26,115 - Department allocation 24,772 34,596 30,203 4,393

- Provision for Central Reserves 12,485 26,246 - 26,246

- Provision for Restructuring costs 10,000 2,137 - 2,137

- Corporate Procurement Savings Target (3,000) - - -

- Central Pay Provision 7,326 - - -

- Terms and Conditions Savings Target (7,000) - - -

Non Ministerial States Funded Bodies

1,489 - Bailiff 's Chambers 1,589 1,866 1,813 53 5,793 - Law Officers' Department 7,817 7,727 6,851 876 6,475 - Judicial Greffe 6,789 6,653 6,635 18 1,278 - Viscount's Department 1,455 1,486 956 530

544 - Official Analyst 606 582 573 9

739 - Office of the Lieutenant Governor 688 774 712 62

24 - Office of the Dean of Jersey 26 26 25 1

246 - Data Protection Commission 223 200 141 59 1,539 - Probation Department 1,961 2,220 2,043 177

693 - Comptroller and Auditor General 753 1,009 560 449

4,787 States Assembly and its services 5,280 5,294 4,795 499 598,608 Net Revenue Expenditure - Near Cash 615,845 656,622 600,644 55,978

Where can I read more?

Each department gives an explanation of differences between actual amounts and approvals as part of their departmental pages in the Annex to the Accounts. They also give further information on variances from 2011.

3. Changes  in  Departments'  Near Cash Net Revenue Expenditure

Figure 4 shows how Near Cash Net Revenue Expenditure  Net  Revenue  Expenditure  on  a  Business  Plan  basis has changed since 2002, and how it is projected to change  increased by less than 1% from 2011, and taking inflation in the coming years. Amounts have been restated to 2012  at 2.2% equates to a £11 million decrease in real terms. prices using the RPI(X) to take into account the effects of

inflation. GAAP compliant figures have been included since  The 2012 Business Plan identified £19 million of CSR 2009, but are not available from previous years, meaning  savings and a reduction in Social Security supplement- that figures are not perfectly comparable (as explained  ation of £7 million due to changes to contributions over below). Budget figures have been adjusted for previously  the earnings ceiling. There were also £7 million of capital reported accounting restatements to allow comparability.  to revenue transfers in 2012 to comply with accounting Prior to the move to GAAP some expenditure which would  classification.

not now qualify as capital under accounting standards was

approved (and recorded) as capital expenditure. It is difficult  Offsetting  these  reductions  are  provisions  for  Social to assess the magnitude of these amounts, and so these  Security benefits of £4 million, adjustments for one off have not been reflected in the graph. savings in 2011 of £10 million and essential

growth of £4 million.

Figure 4 - Net Revenue Expenditure at 2012 Price s (excluding impairments)

25

4. Departments Non Cash Expenditure

The 2012 Business Plan approved a total of £40,075,000 for depreciation as part of individual departments approved expenditure limits, and actual depreciation was slightly lower than this.

Impairments are recognised where required by the Jersey Financial Reporting Manual (JFReM), and further details are given in Note 14 – Property, Plant and Equipment.

Gains or losses on disposal of assets are also not included in 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 to gain or loss on disposal.

Summary Table 4 - Non-Cash Amounts

Table 5

Difference 2012  Final  from Final

Business  Approved  2012 Actual Approved

2011 Actual Plan Budget Budget £'000 £'000 £'000 £'000 £'000

Non-Cash Amounts

34,067 Depreciation and Amortisation 40,075 40,075 39,437 638 8,245 Impairments - - (534) 534 (1,674) (Gain)/Loss on Disposal of Assets - - (103) 103

(20) Other Non-Cash adjustments - - (43) 43

40,618 Total Non-Cash Amounts 40,075 40,075 38,757 1,318

4. States Trading Operations

– Net Revenue Expenditure

Under the Public Finances (Jersey) Law 2005, the States  Due to their commercial nature, Net Revenue Expenditure can designate any distinct area of operation as a States  for the Trading Operations includes Non-Cash amounts Trading Operation. Estimates for Trading Operations are  relating to the use of Assets such as depreciation and approved in the Annual Business Plan. At present, four such  impairments. The valuation of assets in 2012 resulted in operations have been designated. £19.7 million of impairments in Jersey Airport and £2.3

million in Jersey Harbours. These movements are very Jersey  Airport  provides  a  wide  range  of  facilities  and  difficult to predict, and so the Net Revenue expenditure services  for  passengers  over  an  extensive  network  of  position for both operations was higher than budgeted. scheduled and charter flight services across the UK and  However,  Jersey  Airport  received  more  income  than Europe. Jersey Harbours is responsible for the operation  budgeted  (£1.0  million)  and  both  Jersey  Airport  and of Jersey's commercial port of St Helier and outlying ports. Jersey Harbours achieved savings associated with their

integration.

Jersey  Car  Parking  is  responsible  for  administration, management, financing, development and maintenance of  public  parking  places.  Jersey  Fleet  Management  is responsible for the acquisition, maintenance, servicing, fuelling, garaging and disposal of vehicles and mobile plant on behalf of the States.

Summary Table 5 - Net Revenue Expenditure – Outcome compared to Business Plan Summary Table B

Difference 2012  Final  from Final Business  Approved  Approved

2011 Actual Plan Budget 2012 Actual Budget £'000 £'000 £'000 £'000 £'000

Trading Operations

(94) Jersey Airport 716 2,229 18,493 (16,264) (959) Jersey Harbours 270 920 1,691 (771) 539 Jersey Car Parking 890 890 639 251 (367) Jersey Fleet Management (272) (272) (137) (135) (881) 1,604 3,767 20,686 (16,919)

Where can I read more?

Each Trading Operation gives an explanation of differences between actual amounts and approvals as part of their departmental pages in the Annex to the Accounts.

27

5. Other Income and Expenditure and Accounting Adjustments

1. Special Funds and the States of Jersey Development Company

Special Funds

In addition to the Consolidated Fund, the Public Finances (Jersey)  Law  2005  names  three  Special  Funds  –  the Strategic Reserve, the Stabilisation Fund and the Currency Fund. These relate to the operation of the States of Jersey in general. The Public Finances (Jersey) Law 2005 also allows the States to establish special funds (also known as Separately Constituted Funds) for specific purposes. These are usually established by legislation or a States decision. A summary of the purpose of the various funds is given in Table 7.

During 2012 Special Funds saw Net Revenue Income (NRI) of £59.9 million. The majority of this figure was income in the Strategic Reserve which saw returns on its investments of £56.9 million (9.6% on opening investment value). Income/expenditure approvals for Special Funds are not included in the Business Plan, and so results for these entities cannot be compared to budget.

States of Jersey Development Company

The States of Jersey Development Company (SOJDC) is a wholly owned subsidiary company of the States. It was originally incorporated in 1996 as the Waterfront Enterprise Development Board (WEB), 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. In 2010, the States approved proposition P73/2010, which set  out  proposals  for  the  restructure  of  WEB into  the SOJDC, clarifying the role of the company and widening the company's remit to cover all designated "Regeneration Zones".

The SOJDC is outside of the Budgeting Boundary, but for 2012 the SOJDC showed a small profit.

Summary Table 6 – Net Revenue Income of Special Funds and SOJDC

2011 Actual 2012 Actual £'000 £'000

Net Revenue Income of Special Funds and SOJDC

14,825 Special Funds Net Revenue Income 59,864 816 States of Jersey Development Company Limited Net Revenue Income 149 15,641 Net Revenue Income of Special Funds and SOJDC 60,013

29

Table 7 – Purpose of Special Funds

Special Fund Function

Established under the Public Finances (Jersey) Law 2005, this is a permanent reserve.

The policy for the Reserve was agreed by the States under P133/2006, stating that it

is to be used only in exceptional circumstances to insulate the Island's economy from Strategic Reserve  severe structural decline (such as the sudden collapse of a major island industry) or Fund  from major natural disaster. The States have subsequently approved P84/2009

which proposed that this policy is varied to enable the Strategic Reserve to be used,

if necessary, for the purposes of providing funding of to £100 million for a Bank  Depositors' Compensation Scheme.  

Established under the Public Finances (Jersey) Law 2005, the purpose of this Fund is

to provide a reserve which can be used to make Jersey's fiscal policy more Stabilisation Fund  countercyclical in order to create a more stable economic environment. The Fund

receives cash allocations in more buoyant economic conditions and makes payments

at times of anticipated economic downturn.

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

(Jersey) Law 1959, and the Decimal Currency (Jersey) Law 1971, the fund holds Currency Fund  assets that match the value of Jersey currency notes and coinage in circulation, such

that the holder of Jersey currency could be repaid on request. It also produces and

issues currency notes and coins, and administers the currency in issue.

Established under the Building Loans (Jersey) Law 1950, to establish a building loans Dwelling Houses  scheme to enable residentially qualified first-time buyers, who have never owned

Loans Fund

residential freehold property in Jersey, to purchase their first home.

Established in 1977, the purpose of this fund was to aid the recruitment of staff from  Assisted House Purchase Scheme  the UK, by facilitating the purchase of suitable properties by the States on behalf of  

the employee. It is no longer making new loans.  

Established by the former Housing Committee under the general powers of the  

99 Year  Building Loans (Jersey) Law 1950, this fund allowed the Committee to lend to  Leaseholders Fund  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.

Established under the Agriculture (Loans and Guarantees) (Jersey) Regulations  Agricultural Loans  1974, the fund makes loans to individuals engaged in work of an agricultural nature in Fund  Jersey for the purpose of furthering their agricultural business. Approval of new loans

to farmers has been suspended.

Established under P170/2001 to replace the Tourism Investment Fund, this fund  Tourism  makes grants to stimulate investment in the tourism industry and infrastructure in  Development Fund  order to improve Jersey's competitiveness and to sustain the industry as an important

pillar of the economy.

Channel Islands  Established by the Gambling (Channel Islands Lottery) (Jersey) Regulations 1975,  Lottery (Jersey)  the fund promotes and conducts public lotteries, the draws for which may be held in  Fund  Jersey or Guernsey.  

Established under P74/99 and P84/99, the fund assists in meeting the requirements  Housing  for the development of social rented and first-time buyer homes by providing  

Development Fund  

development and interest subsidies.  

Criminal Offences  

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

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

Confiscation Fund  

These funds hold amounts confiscated under law. Funds are then distributed in  Civil Asset  accordance with the relevant legislation.  

Recovery Fund  

2. Other Income/(Expenditure) and Accounting Adjustments

There are some items of expenditure that are outside the scope of the budgeting boundary but don't form part of a Special Fund. One example is actuarial movements in  pension  liabilities,  which  is  a  non-cash  accounting adjustment.  In  2012  the  value  of  Pension  Liabilities reduced, mostly due to the change in the provision for the JTSF past service liability. This is explained more fully in Note 30.

Accounting Standards also require that all transactions and balances between entities within the States of Jersey are eliminated in the consolidated accounts. As well as eliminations between income and expenditure, the figure above also includes an elimination of amounts released from Capital Grants received from other States Funds in previous years. More details of consolidation adjustments are given in Note 4 (the segmental analysis).

Summary Table 8 – Other (Income)/Expenditure and Accounting Adjustments

2011 Actual 2012 Actual £'000 £'000

Other (Income)/Expenditure and Accounting Adjustments

4,384 Movements in Pension Liabilities (41,588) (5,448) Other (Income)/Expenditure (1,432)

883 Consolidation Adjustments 654

(181) Other (Income)/Expenditure and Accounting Adjustments (42,366)

31

6. Capital Expenditure

2.6.1 Consolidated Fund – the Capital Programme

The 2012 Business Plan included a capital expenditure allocation from the Consolidated Fund of £37.6 million, with £16.3 million funded from expected proceeds from property and social housing disposals. During the year £3.2  million  was  transferred  from  Revenue  to  Capital and £27.1 million was approved for the P40/2012 Social Housing Schemes, giving an effective capital approval of up to £67.9 million. There were also £71.6 million of unspent approvals from previous years.

During  2012  actual  capital  expenditure  from  the Consolidated Fund amounted to a total of £33.3 million (including  amounts  funded  through  Fiscal  Stimulus). The table below gives details of this expenditure against approvals; projects with a total allocated budget of greater than £1 million are shown separately.

Table 9 - Consolidated Fund Capital Programme

Table 9 - Consolidated Fund Capital Programme (continued)

33

The most significant projects incurring  Phillips Street Shaft: This project has been designed to expenditure in 2012 were: alleviate the flooding risk to the North of Town. The project

involves digging a 30 metre hole in Anne Court Car Park Housing Rolling Vote: The main areas of expenditure in  and then tunnelling under Phillips Street to allow access the Housing Rolling Vote were the refurbishment projects  for the surface and foul drain network. Then the North of at Clos Gosset, Jardin Des Carreaux, Pomme D'Or Farm  Town is to be connected to the Cavern. The project began and Le Squez Phase 2. These projects are expected to  enabling works in December 2012 and is planned to be complete in early 2013. In addition to this, planning and  completed in 2014.

design work for refurbishment projects at Le Sqeuz Phase

2c, La Collette Phase 1 and Journeaux Street took place  Prison Improvement Phase 4: This phase of the prison in 2012 with the building phases beginning over the winter  improvement is the creation of new visitor and staff facilities, of 2012 / 2013. required as a consequence of cumulative increases in

the prison population over recent years. The project was Sludge Thickener Project: The sludge thickener project  completed in December 2012 significantly under budget. begun in 2011 to replace the existing sludge thickener  As a result the remaining budget will be used to build an plant at Bellozanne which had reached the end of its  additional storage facility within the prison in 2013.

useful life. The enabling works were completed during

2012 and phase 2 of the project began on schedule.  2.6.2 Trading Operations

However, due to the current economic climate the main  Capital Expenditure

contractor experienced financial difficulties and went into

administration.  Transport  and  Technical  Services  are  During  2012  actual  capital  expenditure  from  Trading currently in the process of appointing a new contractor to  Funds amounted to a total of £3.6 million. Table 10 gives complete this project. details of this expenditure against approvals, projects with

a total allocated budget of greater than £1 million being shown separately.

Table 10 - Trading Operations Capital Expenditure

Total  Remaining 2012  Total Project  Allocated  Unspent

Expenditure Expenditure Budget Budget

£'000 £'000 £'000 £'000

Jersey Airport

Engineering/ARFFS Building (127) - 4,084 4,084 DVOR/Doppler DME - - 1,070 1,070 Arrivals/Pier/Forecourt (173) 538 4,764 4,226 Primary Radar Les Platons 279 2,637 3,464 827 Regulatory Compliance 2010 30 480 2,990 2,510 Secondary Radar Les Platons (265) 619 1,500 881 Telebag System (159) 2,492 2,492 - Other projects 328 590 3,455 2,865 Jersey Airport Total (87) 7,356 23,819 16,463

Jersey Harbours

St Helier Marina - - 1,810 1,810 Gorey Pierhead 174 174 3,000 2,826 Port Crane 74 138 1,900 1,762 Elizabeth Harbour EB/WB Walkways 241 550 2,975 2,425 Elizabeth Harbour Trailer Park 207 487 1,100 613 Other projects 1,276 2,133 5,175 3,042 Jersey Harbours Total 1,972 3,482 15,960 12,478

Jersey Car Parking

Anne Court Car Park - 34 9,000 8,966 Automated Charging System 129 129 1,000 871 Concrete Repairs - 1,297 2,519 1,222 Jersey Car Parking Total 129 1,460 12,519 11,059

Jersey Fleet Management

Vehicle & Plant Replacement 1,578 1,649 3,124 1,475 Jersey Fleet Management Total 1,578 1,649 3,124 1,475

Total 3,592 13,947 55,422 41,475

35

The  most  significant  projects  incurring  expenditure in 2012 were:

Primary Radar Les Platons / Secondary Radar Les Platons: The Primary and Secondary Radars servicing Jersey Airport from Les Platons have been replaced. The project was undertaken in order to comply with Single European Skies directives. The construction phase was completed in January 2012 and the commissioning phase was undertaken throughout the year. The negative spend for the year relates to adjustments to expenditure which occurred in previous years.

Gorey  Pierhead:  The  design  phase  for  this  project commenced in 2012 and tenders have been issued to the market. Work is expected to begin towards the middle of 2013.

Vehicle and Plant Replacement: From the beginning of 2012, all States vehicle purchases, servicing and repairs should  be  made  through  Jersey  Fleet  Management. To facilitate this, additional funding of £5 million will be injected into the Jersey Fleet Management Trading Fund from the Consolidated Fund between 2012 and 2015.

Automated Charging System: The trial phase of this project  was  undertaken  over  the  winter  of  2012/13  in Sand Street Car Park. The trial is expected to complete in March 2013. The results of this will allow for a roll out of the project into all multi storey car parks.

7. The States Balance Sheet

1. Key Movements in Assets and Liabilities

During the year the value of Property, Plant and Equipment held by the States increased by £262.8 million to nearly £3.2  billion.  This  was  primarily  due  to  the  revaluation exercises that were carried out in the year which lead to an overall increase in values of £276.8 million. This included increases in the Property portfolio (Land, Buildings and Other structures) of £253.6 million and the Social Housing portfolio of £70.2 million, and a decrease in the value of  networked  assets  of  £45.6  million.  More  details  of movements in the value of Property are set out in Note 14.

Overall  the  value  of  Strategic  Investments'  decreased by £37.6 million. There was a decrease in the Strategic Investment in JT of £27 million. The value of equity shares increased  by  £2.2  million,  and  the  preference  shares (valued at £29.5 million in 2011) were redeemed. There was also the issue of an infrastructure investment of £10 million which is accounted for separately from the Strategic Investment. The value of the States' investment in Jersey Water increased (£5.1 million), and there was a decrease in the value of the States' holdings in Jersey Electricity (£14.3 million). Further details on the valuations are given in Note 18.

The States held less cash at the end of 2012 than at the end of 2011, due to variations in the cash requirements of the organisation between the two years. The total value of non-strategic investments increased by £92 million. This was due to the increase in the value of investments in the Strategic Reserve, and also a higher level of investments held in the Consolidated Fund at the year end.

Provisions were lower in 2012, due to the settlement of the £22 million provision recognised in the Criminal Offences Confiscation Fund during 2011, associated with an asset sharing agreement regarding a confiscation.

Pensions liabilities relating to past service liabilities have reduced by £39 million, as set out in Note 29. This was mostly due to a reduction of £37 million in the provision for the Jersey Teachers' Superannuation Fund pre-2007 liability. This was based on a Management Board proposal to the States on the treatment of the pension increase debt,  based  on  the  2010  Actuarial  valuation  of  the scheme. There was also a small movement in the value of the Public Employees Contributory Retirement Scheme Past Service Liability.

Where can I read more?

The Notes to the Accounts give more details of the States Assets and Liabilities.

Figure 5 - States' Assets and Liabilities

Current Liabilities

2. Financial Position of States Funds

The key results relating to the position of significant funds are highlighted below.

Consolidated Fund

As at the end of 2012, the unallocated Consolidated Fund Balance was £31.2 million. The 2012 Budget forecasted an unallocated balance in the Consolidated Fund of £7.4 million. This was revised in the 2013 budget to £32.7 million, mostly due to a better than expected opening balance (£47.2 million compared to £24.8 million). There were also several additional items incorporated into the forecast, such as the allocation of £27 million for Housing Schemes and the repayment of £20 million of preference shares by JT. More details can be found in the 2013 Budget Statement and the Medium Term Financial Plan.

The actual balance was £1.5 million less than expected. The MTFP forecast included a £5 million contribution to the Innovation Fund which has not yet been made, and adjusting for the effect of this item results in the balance being  £6.5  million  less  than  forecast.  This  difference is primarily as a result of a shortfall in Property receipts (which were £5 million less than forecast), and other, smaller variances.

Trading Operations

The  Trading  Fund  balance  increased  for  each  of  the Trading Operations during 2012. However, a significant amount of these balances has been earmarked for future projects, as detailed in the relevant pages in the Annex to the accounts.

Special Funds

The balance in the Strategic Reserve increased by £56.9 million during the year, and now holds over £651.2 million. This increase was due to returns on its investments held in the Common Investment Fund. Other Funds saw smaller movements in their fund balances, and details are given in their individual pages in the Annex to the Accounts.

Where can I read more?

The relevant pages in the Annex gives more information about the performance and position of the funds.

37

3. Assessment of Liquidity Estate management Strategy

The States of Jersey's fiscal policy is to operate budget  The States aims to provide safe and affordable surpluses  during  periods  of economic  growth  with  the  accommodation for all States departments whilst objective  of  transferring  surpluses  to  the  Stabilisation  striving to maximise asset values and minimise Fund in order to help fund any deficits that arise in periods  property operating costs. The States' estate

of economic decline. In their fifth annual report published  management policy has four main aspects.

in October 2012, the Fiscal Policy Panel (FPP), the States'

independent fiscal experts, made an assessment of the

economic outlook for Jersey and recommended that the

States should act to give discretionary fiscal support to

the economy in 2012 and 2013. The FPP recommended  Maintaining a legally compliant Estate

that the extent of stimulus should not be limited by the

balances on the Consolidated or Stabilisation Funds. A fundamental  requirement  of the  Estates Man-

agement function is to implement the policy of The Stabilisation Fund was used in the 2009-2011 period  maintaining a legally compliant estate for staff, users

to provide fiscal stimulus funding and the current balance  of facilities and the general public. Jersey Property is just over £1 million. The FPP does not recommend  Holdings undertakes an ongoing assessment of the transfers into the Stabilisation Fund in 2012 or 2013. It is  statutory compliance levels for buildings under its intended that this Fund will be rebuilt once the economy  management. In 2012 a compliance approaching begins to recover. 90% was achieved as an average throughout the

year,  which  compares  favourably  with  industry The  Strategic  Reserve  is  maintained  as  a  permanent  standards. Each test or inspection is certified as

reserve, where the capital value can be used in exceptional  complete  by  competent  contractors  and  is  not circumstances  to  insulate  the  Island's  economy  from  confirmed as compliant until certification has been severe structural decline. The Strategic Reserve Balance  received by Jersey Property Holdings.

is £651 million. The FPP did not recommend a transfer in

or out of the Strategic Reserve in its October report. Office rationalisation process

The unallocated Consolidated Fund balance at the end

of 2012 was £31 million and this is broadly in line with  A currentlyphased underway,review of offices which in aimsthe States to consolidateof Jersey theis the  forecast  in  the  MTFP.  Historically,  the  FPP  has

recommended that a working balance of £20 million be  office working environment. estate, reduce its size and provide a modern maintained  where  possible  on the Consolidated  Fund.  The relocation of the Police Headquarters and

The MTFP shows that this will not be achieved in 2014

and 2015 with respective balances of £12 million and £9  Sprtoagtiroanmfmaeci.l ities  represents  phase  one  of  the million forecast. The next MTFP will consider the forecast  The MTFP (Appendix 5) includes proposals for

consolidated fund balance from 2016. the  future  phases  of  the  office  rationalisation

programme.

4. Financing, Treasury and

other policies These  objectives  are  mutually  supportive,  as

rationalisation of the estate will result in the release

of  disposal  proceeds,  deliver  surplus  sites  with Financing  the potential for affordable housing developments

and, by reducing the size of the gross built area States  expenditure  is  substantially  funded  through  maintained, reduce property operating costs.

accumulated  and  current  year  revenues  rather  than

borrowing.  Only  comparatively  small  amounts  of

borrowings exist for specific assets in the form of Finance

Leases.

Significant Treasury Policies

The States of Jersey regards the successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured. Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications for the States of Jersey.

The States of Jersey acknowledges that effective treasury management will provide support towards the achievement of its business and service objectives. The Treasurer of the States is therefore committed to the principles of achieving  value  for  money  in  treasury  management, and to employing suitable comprehensive performance measurement techniques, within the context of effective risk management.

5. Review of the Pension Schemes

The States two main public sector pension schemes are extremely important to the Island, with over 1 in 3 Jersey households relying on a public sector pension scheme. The pension schemes are an important tool in attracting key  public  sector  workers,  and  funded  public  sector schemes reduce the reliance on social security benefits.

Life expectancy has improved greatly in recent years which

is impacting on the affordability of public service pensions. Review of operational property In  addition,  expectations  of  how  much  money  will  be

earned over the long term from the investments have been The States is also committed to reviewing the  reducing and are now significantly lower than when the appropriateness of its operational properties. A  schemes were established. The long term sustainability review of the operational portfolios of the Education  of public sector pension schemes has been the subject of estates was completed in 2011 from which an action  the Hutton report in the UK, and the States of Jersey has plan has been developed and is being delivered.  recognised the need to consider its own schemes.

A similar review has commenced in respect of the  A Technical Working Group (TWG) was formed in August Health estate. This is more complex as it involves  2011, with terms of reference to "Develop and prepare harmonisation with the requirements of the Health  a  report  on  possible  options  for  changes  to  Public modernisation process, key to which is the provision  Employees Contributory Retirement Scheme (PECRS) to of a new General and Acute Hospital.  ensure its viability and sustainability for the future." The

key principles are that the scheme must be Sustainable, These reviews are likely to lead to a rationalisation  Affordable and Fair for the long term.

of  these  portfolios  through  better  utilisation  of

buildings, with opportunities to dispose of buildings  The TWG report was published in March 2013 with the aim with alternative use value. of introducing changes to PECRS in 2015. The high level

proposals include:

Disposals of surplus assets

• Career Average Revalued Earnings (CARE) Scheme

Theare surplusStates hasto arequirements,policy of disposingreducingof assetsthe States'which • Normal retirement age linked to Jersey state pension age property portfolio to a size which is more affordable

and efficient, and releasing capital proceeds to fund  • Higher employee contribution rate (average increase in the States capital investment programme within the  the UK public sector schemes is 3% of pay)

MTFP. Larger sites will be transferred to the States

of Jersey Development Company for development,  • Equity and fairness – treat all employees fairly

subject  to  the  necessary  approvals,  with  Jersey

Property Holdings disposing of surplus small sites  • Risk sharing between employer and employees

and parcels of land directly to the market.

• Contribution cap for employees, employers and tax-payers

A  consultation  process  on  this  proposals  was  begun in early 2013. It is anticipated that the Jersey Teachers Superannuation Scheme (JTSF) will be considered at a later stage.

39

6. Retirement Benefit Schemes not recognised on the Statement of Financial Position

In  addition  to  the  defined  benefit  schemes  outlined in Note 30, the States of Jersey operates two further pension  schemes:  the  Public  Employees  Contributory Retirement Scheme (PECRS) and the Jersey Teachers' Superannuation Fund (JTSF).

Financial Assumptions

The main financial assumptions made by the actuary where applicable were:

The PECRS and JTSF are both final salary schemes, but  are  not  conventional  defined  benefit  schemes  as the employer is not responsible for meeting any ongoing deficency in the scheme. Due to that limitation on the States' responsibility as employer, the scheme deficit in each case is disclosed below but not recognised in the States Accounts. The figures below are prepared using the methodolgy set out in IAS 19, which differ from those used to assess the long-term sustainability of the funds.

The States of Jersey employs a building block approach in determining the long-term rate of return on scheme assets. Historical markets are studied and assets with higher returns consistent with widely accepted capital market principles. The assumed long-term rate of assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the scheme.

The Public Employees Contributory Retirement Scheme (PECRS)

The  PECRS  is  open  to  all  public  sector  employees  The States in agreeing P190/2005 on September 2005 (excluding teachers) over 20 years of age, and membership  confirmed responsibility for the past service liability which is obligatory for all employees on a permanent contract.  arose from the restructuring of the PECRS arrangements The Scheme is managed by a Committee of Management  with  effect  from  1  January  1988.  More  details  of  the and five sub-committees.  agreement are set out in Note 1, Accounting Policy 17.

This liability amounted to £250.5 million at 31 December The figures include the admitted bodies of the PECRS  2012 (2011: £252.0 million), and more details are given in other than JT Group Limited and Jersey Post International  Note 29. The past service liability will be repaid over 82 Limited.  years (from 2002), after which the employers' contribution

rate  will  revert  to  15.16%  of  members'  salaries.  The The market value of the Scheme's assets as at 31 December  payment relating to this liability made in 2012 was £4.1 2012 was £1,314 million (2011: £1,182 million).  million (2011: £4.0 million).

The  results  of  the  most  recent  actuarial  valuation  of the PECRS indicated that the Scheme has an actuarial surplus of £ 40.6 million. This surplus will be treated in accordance with the terms of the Scheme's Regulations.

41

Demographic Assumptions

The principal demographic assumptions made by the actuary to calculate the liabilities under IAS 19 were:  

Assets of the scheme and the weighted average expected rate of return on assets  

2011 2012

Long-term rate  Long-term rate

of return  Value of return  Value expected  expected

% p.a. £'000  % p.a. £'000

8.00 878,047 8.00 1,052,727

7.50 - 7.50 88,056

2.80 6 2.70 -

2.60 - 2.50 -

3.90 279,941 3.10 140,627

1.80 24,420 1.00 32,857

Total market value of assets 1,182,414 1,314,267      (1,880,420) (2,081,084)

Net pension liability (698,006) (766,817)

Changes to the present value of the scheme liabilities during the year

2011 2012 £'000 £'000

1 January 1,791,829 1,880,420

   54,067 52,883    311 46,271   95,389 87,055

      (23,464) 53,378     12,253 12,411

    (49,965) (51,334)

31 December 1,880,420 2,081,084

Changes to the fair value of the scheme

assets during the year 2011 2012 £'000 £'000

  1,265,584 1,182,414

     90,990 79,855      (171,956) 55,022

     35,508 35,899     12,253 12,411

    (49,965) (51,334)

31 December 1,182,414 1,314,267

    l  

Amounts for current period and previous four periods

2008 2009 2010 2011 2012 £'000 £'000 £'000 £'000 £'000

  924,254 1,110,963 1,265,584 1,182,414 1,314,267    (1,306,089) (1,680,165) (1,791,829) (1,880,420) (2,081,084) (381,835) (569,202) (526,245) (698,006) (766,817)

  (260,192) 133,596 63,342 (171,956) 55,022

   (23,258) 27,835 47,676 13,731 14,283

* This item consists of gains/(losses) in respect of liability experience only, and excludes any change in liabilities in respect of changes to the actuarial assumptions used.

The valuation at 31 December 2012 showed an increase in the scheme deficit from £698 million to £767 million.

43

The Jersey Teachers Superannuation Fund (JTSF)

Membership of the JTSF is compulsory for all teachers in full-time employment and optional for those in part- time employment. The Fund is managed by a Board of Management which has established sub-committees to investigate and report on complex and technical issues.

The figures include Non-Provided Schools that qualify as Accepted Schools under the law.

The market value of the Fund's Assets as at 31 December 2012 was £327 million (2011: £302 million).  

The results of the actuarial valuation as at 31 December 2010 concluded that there was no surplus or deficit in the scheme after taking account of the States of Jersey's expected future payments to cover the pension increase debt. The details  and  timing  of these  expected  future payments are currently being developed.

The JTSF was restructured with effect from 1 April 2007 and now generally mirrors the PECRS. A provision for the past service liability, similar to the PECRS Pre-1987 past service liability has been recognised although this has not yet been agreed with the Scheme's Board of Management. The employer's contribution rate rose to 16.4% and the actuary has confirmed that this will repay the past service liability over 80 years (from 2007).

Demographic Assumptions

2011 2012

Males

        28 years 27 years         30 years 28 years

Females

        31 years 30 years         33 years 31 years

Members who joined the Scheme after 31 March 2007 assumed to exchange

Commutation 16.67 of their pension entitlements. Nil

for other members.

Assets of the scheme and the weighted average expected      

rate of return on assets

2011 2012 Long-term rate  Long-term rate

of return  of return

expected  Value expected  Value

% p.a. £'000  % p.a. £'000

0. 255,265 8.00 275,863

7.50 14,699 7.50 23,533

2.80 - 2.70 25,168

2.60 25,148 2.50 -

3.90 - 3.10 -

1.80 6,738 1.00 2,288

Total market value of assets 301,850 326,852      (569,772) (624,842)

Net pension asset/(liability) on the balance sheet (267,922) (297,990)

Changes to the present value of the scheme liabilities during the year

2011 2012 £'000 £'000

1 January 561,106 569,772

   13,969 13,504   29,792 26,208

      (23,203) 28,902     3,102 2,994

    (14,994) (16,538)

31 December 569,772 624,842