States of Jersey Financial Report and Accounts 2016.

FINANCIAL REPORT AND ACCOUNTS 2016

R.68/2017

FINANCIAL REPORT

AND ACCOUNTS

2016

1

2

Contents

Key Deliveries  4

1  The Minister's Report  7

1.1  The Minister's Report. . . . . . . . . . . . . . . . . . . . . . 9

2  The Treasurer's Report  11

1. Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. ExplanationoftheStructureoftheStatesofJersey . . . . . 15
3. PerformanceoftheStatesAssemblyApproved. . . . . . . . 17
4. General RevenueIncome. . . . . . . . . . . . . . . . . . . . 17
5. Departments'RevenueExpenditure . . . . . . . . . . . . . .22
6. States TradingOperations – NetRevenueExpenditure . . . .25
7. PerformanceoftheRemainingConsolidatedGroup. . . . . .26
8. Capital Expenditure. . . . . . . . . . . . . . . . . . . . . . .29
9. The StatesBalanceSheet. . . . . . . . . . . . . . . . . . . .33
10. Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . .37
11. Corporate SocialResponsibility . . . . . . . . . . . . . . . .42
12. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . .43

3  Statement of Responsibilities for

the Financial Report and Accounts 45 4  Remuneration Report  47

1. RemunerationPolicy . . . . . . . . . . . . . . . . . . . . . .49
2. Council ofMinisters . . . . . . . . . . . . . . . . . . . . . .49
3. AccountingOfficers . . . . . . . . . . . . . . . . . . . . . .50
4. SegmentalAnalysisofStaff . . . . . . . . . . . . . . . . . .52
5. MedianRemuneration . . . . . . . . . . . . . . . . . . . . .54
6. Gender DiversityofStatesofJersey. . . . . . . . . . . . . .54

5  Governance Statement  55

1. Scope ofResponsibility . . . . . . . . . . . . . . . . . . . .57
2. The PurposeoftheGovernanceFramework. . . . . . . . . .57
3. Governance FrameworkandStructures . . . . . . . . . . . .58
4. Review ofEffectiveness . . . . . . . . . . . . . . . . . . . . 74
5. SignificantGovernanceissues . . . . . . . . . . . . . . . . .77
6. Closing Statement . . . . . . . . . . . . . . . . . . . . . . .88

6  Introduction to the Accounts 89

9  Notes to the Accounts  105

1. SignificantAccountingPolicies . . . . . . . . . . . . . . . 107
2. Critical AccountingJudgementsandkeysourcesof estimationuncertainty . . . . . . . . . . . . . . . . . . . . 121
3. SegmentalAnalysis. . . . . . . . . . . . . . . . . . . . . . 125 9.3a SegmentalAnalysis – StatementofComprehensiveNetExpenditurefortheyearended31December2016 . . . . . 126

9.3b  Segmental Analysis – Statement of Financial Position as at

31 December 2016 . . . . . . . . . . . . . . . . . . . . . . 127 9.3c  Segmental Analysis – Statement of Comprehensive Net

Expenditure for the year ended 31 December 2015 . . . . . . . 128 9.3d  Segmental Analysis – Statement of Financial Position as at

31 December 2015 . . . . . . . . . . . . . . . . . . . . . . 129

4. Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
5. Expenditure. . . . . . . . . . . . . . . . . . . . . . . . . . 131
6. Non-CashItemsandotherSignificantItemsincludedin NetRevenue Expenditure. . . . . . . . . . . . . . . . . . . 132
7. InvestmentIncome . . . . . . . . . . . . . . . . . . . . . . 133
8. Gains andLossesonFinancialAssets . . . . . . . . . . . . 134
9. Social BenefitPayments . . . . . . . . . . . . . . . . . . . 135
10. StaffCosts . . . . . . . . . . . . . . . . . . . . . . . . . . 136
11. Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
12. Finance Costs. . . . . . . . . . . . . . . . . . . . . . . . . 143
13. Property,PlantandEquipment. . . . . . . . . . . . . . . . 144
14. IntangibleAssets . . . . . . . . . . . . . . . . . . . . . . . 148
15. Non-CurrentAssetsHeldforSale . . . . . . . . . . . . . . 149
16. LoansandAdvances . . . . . . . . . . . . . . . . . . . . . 150
17. Available ForSaleFinancialAssets. . . . . . . . . . . . . . 151
18. InfrastructureInvestments. . . . . . . . . . . . . . . . . . 154
19. InvestmentsheldatFairValuethroughProfitorLoss. . . . 155
20. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 156
21. Trade andOtherReceivables. . . . . . . . . . . . . . . . . 157
22. Cash andCashEquivalents. . . . . . . . . . . . . . . . . . 159
23. Trade andOtherPayables . . . . . . . . . . . . . . . . . . 160
24. External Borrowings . . . . . . . . . . . . . . . . . . . . . 161
25. Currency inCirculation . . . . . . . . . . . . . . . . . . . . 162
26. Finance LeaseObligations . . . . . . . . . . . . . . . . . . 163
27. Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . 164
28. DerivativeFinancialInstruments. . . . . . . . . . . . . . . 165
29. Past ServiceLiabilities . . . . . . . . . . . . . . . . . . . . 167
30. Defined BenefitPensionSchemesRecognisedonthe StatementofFinancialPosition . . . . . . . . . . . . . . . 169

31. Capital Commitments. . . . . . . . . . . . . . . . . . . . . 171

1. Changes inAccountingStandards . . . . . . . . . . . . . . .91 9.32 Commitments underOperatingLeases . . . . . . . . . . . 172

2. ExplanationofthecontentsoftheAccounts. . . . . . . . . .92 9.33 Risk ProfileandFinancialInstruments. . . . . . . . . . . . 173

9.34  Summary of Key Funds Held by SoJ . . . . . . . . . . . . . 176

7  Auditor's Report  95 9.35  Contingent Assets and Liabilities . . . . . . . . . . . . . . 178

1. IndependentAuditors'ReporttotheMinisterforTreasury  9.36 LossesandSpecialPayments . . . . . . . . . . . . . . . . 179 andResourcesoftheStatesof Jersey. . . . . . . . . . . . .97 9.37 Gifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
2. Report oftheComptrollerandAuditorGeneralto  9.38 Related PartyTransactions. . . . . . . . . . . . . . . . . . 180 theStatesAssembly . . . . . . . . . . . . . . . . . . . . . .98 9.39 Third PartyAssets . . . . . . . . . . . . . . . . . . . . . . 185

9.40  Entities within the Group Boundary . . . . . . . . . . . . . 186

8  Primary Statements  99 9.41  Social Security Funds Notes . . . . . . . . . . . . . . . . . 188

42. Events aftertheReportingDate . . . . . . . . . . . . . . . 192

1. States ofJerseyConsolidatedStatementofComprehensiveNet

43. PublicationandDistributionoftheFinancialReport

Expenditure (Operating Cost Statement) for the year ended

and Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 192 31 December 2016 . . . . . . . . . . . . . . . . . . . . . . 101

2. States ofJerseyConsolidatedStatementofFinancialPosition

(Balance Sheet) as at 31 December 2016 . . . . . . . . . . 102 10  Statement of Outturn Against Approvals 193

3. States of Jersey Consolidated Statement of Changes in Taxpayers'  10.1  StatementofOutturnagainstApprovals. . . . . . . . . . . 195 Equity for the year ended 31 December 2016 . . . . . . . . . . . . 103 10.2  Statementofaccountingpolicies . . . . . . . . . . . . . . 197
4. States ofJerseyConsolidatedStatementofCashFlowsforthe 10.3  Revenue Expenditure. . . . . . . . . . . . . . . . . . . . . 199 yearended31December 2016. . . . . . . . . . . . . . . . 104 10.4  Capital Expenditure. . . . . . . . . . . . . . . . . . . . . . 203
   5. Reconciliations . . . . . . . . . . . . . . . . . . . . . . . . 207

3

Key Deliveries 2016

Financial Performance INCOME

2016

2015

£1,110m

2015

£692m

£1,502m

2016

£737m

CONSOLIDATED

An increase in total income of £392 million (35%) from 2015 primarily due to investment income performance and an increase in income tax revenue.

STATES ASSEMBLY APPROVED An increase in General Revenue Income, as approved by the States Assembly, of £45 million (7%)

from 2015 primarily due to an increase in income tax revenue and investment income.

EXPENDITURE

CONSOLIDATED

An increase in total expenditure of £43 million (4%) from 2015 primarily due to the valuation movement of specific pension debts.

2015

£1,152m

2016

£1,195m

STATES ASSEMBLY APPROVED Departmental net expenditure increased marginally by £1 million (0.2%) from 2015, including investment in key priority areas offset by savings achieved.

2016 2015

£697m £698m

4

Key Deliveries 2016

BALANCE SHEET

2016

2015 £6,244m

£5,871m

2015

£771m

2015

£1,464m

An increase in the net asset position of £373 million (6%) mainly due to the increase in value of investments.

MANAGING INVESTMENTS

2016 The Strategic Reserve (also known £820m as the Rainy Day Fund') achieved

investment returns of £105 million in 2016 – representing net performance

in excess of 13.5%.

Protected capital value based on 2012 is £691 million.

2016

£1,751m THE SOCIAL SECURITY FUNDS have increased in value by

£287 million from 2015.

The Social Security (Reserve) Fund achieved income of £254 million, representing a net rate of return in excess of 19%

5

Financial Report and Accounts 2016

Key Deliveries 2016

WHAT DID WE SPEND IT ON?

13,912

children in full time mainstream education (January 2016)

77% GCSE A* – C (England 67%)

81% A Level A* – C (England 77%)

78,000 bed days at the Hospital

188,000 Hospital Outpatient attendances

39,165 Emergency Department attendances

Jersey Fire and Rescue  

attended 1,210 Jersey Police dealt with

12,937 incidents emergencies

Back to Work scheme helped  

jobseekers get 2,036 jobs 2.6% of the  Island's road network

oPvaeird O3 l0d A,0ge P00en  sp ie oo n tpl o e  resurfaced in 2016 £40.9 million spent on capital  

projects by States Departments

£10.5 million spent by Andium Homes  and £24.1 million by the States of Jersey  

Development Company

6

1  The Minister's Report

The Minister's Report

7

The Minister's Report 8

1.1  The Minister's Report

Jersey's already robust finances have grown even stronger in 2016, with net assets of £6.2 billion, and we are best placed to take advantage of the opportunities arising in these uncertain times and also to weather any economic shocks that may lie ahead.

A strong economy, record levels of employment and continuing to win the fight against unemployment, as well as stellar investment performance have led to a very good year for our public finances.

The remarkable dedication of our public servants in progressing the transformation of the public sector and savings targets, in some cases ahead of time, whilst continuing to deliver the essential services to Islanders have improved yet further that financial position and I thank them for all their hard work.

These factors together have resulted in broadly

balanced budgets for 2016, and after the results of wider organisation, such as the Strategic and Social Security Reserves, Andium Homes, Ports of Jersey and The Jersey Development Company are taken into account, there was a surplus of £308 million.

The improved financial position is extremely pleasing,

yet latest income forecasts for the remaining years of the MTFP (2016–2019) have not significantly improved from those previously given in light of the uncertainties we face and the challenges for corporate taxation receipts.

The Plan, as set out in the MTFP is working, making vital investment in health and education in particular, whilst investing in the economy and delivering savings, however the job is far from done and we are certainly not be complacent.

The government's strategic priorities have once again underpinned our financial planning during 2016, and will continue to do so throughout the current year and beyond. We have been focussing on the future by prioritising investment in the Health and Education Departments, and by ensuring that there is sufficient funding for Jersey to protect the Island's interests during the UK's Brexit negotiations.

Like many governments across the world, we are also facing the challenge of an ageing population, which means that our financial strategy must be far-sighted enough to take this into account by investing in healthcare now. This is just one part of our commitment to making the right decisions today so that we can future-proof the Jersey of tomorrow. The education of our children, the strength of our economic performance and international reputation, and the ongoing development of our digital transformation are further examples of how our financial planning must account for the needs of the present while also investing in the Island's future.

The economy saw its second consecutive year of growth in 2015, with real GVA increasing by 2%. The majority of the non-finance sectors of the economy recorded real growth, although the finance sector saw GVA decline by 1% on an annual basis. Employment in Jersey is at a record high and the Fiscal Policy Panel expect the economy to grow further in 2016 and 2017. However, the rate of growth is likely to slow, and despite improvement in a number of economic indicators in 2015, the FPP see considerable uncertainty regarding the likely short- and long-term economic implications of the UK's exit from the EU, and the impact on Jersey.

We must also continue to invest in our physical infrastructure, and in the maintenance and development

of our housing stock, while at the same time working hard to deliver more and better government services for less. Reforming the public sector helps us to free up funds for many of these agreed priorities. Of course, there is still a long way to go, but it is encouraging to see that expenditure by Departments grew by only 0.2% in 2016 compared to 2015. This was one of the smallest increases in expenditure for many years and demonstrates our focus on this area.

General revenue income was £45.1 million higher than in 2015, the largest contributions coming from investment returns and personal taxation which rose by £27.4 million over 2015, reflecting the strength of the economy and record employment levels.

The value of our strategic reserve saw an increase, too, building on 2015's value of £771.4 million to £819.6 million in 2016. This £48.2m increase was due to investment gains

The Minister's Report

9

of £104.9 million, set against withdrawals of £56.7 million as agreed in the MTFP 2016–2019.

The returns on the Social Security Reserves were equally strong, finishing the year at £1.75 billion, with investment returns of over £250 million.

These Accounts help to demonstrate how Government is committed to strong financial stewardship and the discipline necessary to provide financial resilience in uncertain times.

This report is important for two reasons. Firstly, it allows us a full picture of Jersey's finances, rather than the snapshots that we see throughout the year in the course of debate and discussions. It also provides everyone with an opportunity to scrutinise the way Government departments fund their services and how effectively the Government has prioritised spending while moving towards balanced budgets.

We remain committed to working with States Members and Islanders in the ongoing formulation of our policies, and to publishing our data regularly, openly and in a form that is easily and readily accessible.

I would like to thank all the staff across the States of Jersey for their contribution throughout the year, and add a personal note of thanks to the hard working team at the Treasury. I also thank my Assistant Minister, Connétable John Refault, for his wise counsel and support.

Senator Alan Maclean

Minister for Treasury and Resources

Date: 26th May 2017

The Minister's Report 10

2  The Treasurer's Report

The Treasurer's Report

11

The Treasurer's Report 12

1. Highlights

These consolidated accounts include not only the results against income and expenditure approved by the States Assembly in the Budget and Medium Term Financial Plan but also include

the results of the wider States of Jersey group which includes entities such as the Social Security Funds, Andium Homes Limited, the States of Jersey Development Company and Ports of Jersey. A full explanation of the structure of the States of Jersey Group is provided over the page.

The highlights below pick out some of the high level points of interest.

£307m

SURPLUS

£2m

DEFICIT

CONSOLIDATED STATES ASSEMBLY APPROVED

rounding applied

The Treasurer's Report

13 Highlights

At a Glance – Financial Results

TABLE 1 – SUMMARY OF FINANCIAL RESULTS

691,743 States Net General Revenue Income 2 736,803 45,060 (697,031) Departmental Net Revenue Expenditure – Near Cash 3,4 (696,048) 983

– Departmental Pay Award (2,406) (2,406)

(44,676) Departmental Depreciation/Amortisation 5 (40,154) 4,522

(38,755) Departmental Net Revenue Expenditure – Other Non Cash 5 (22,660) 16,095 (18,824) Trading Operations Net Revenue Expenditure 6 393 19,217

62,658 Net Revenue Income of Special Funds 7 390,886 328,228 (21,050) Net Revenue Expenditure of Consolidated Entities 7 (14,695) 6,355

24,785 Other Income/(Expenditure) 8 (46,271) (71,056) (708) Consolidation Adjustments 8 1,819 2,527

The Treasurer's Report 14

Highlights

2. Explanation of the Structure of the States of Jersey

Principal Activities of the States of Jersey

The States Assembly raises taxes and other levies to fund

the provision of a wide range of public services including Health Care, Education, Social Security and the administration of Justice. These functions are primarily carried out by Departments, both Ministerial and Non Ministerial.

The States of Jersey Accounting Boundary

The entities included within the States of Jersey Accounting Boundary are shown on the following page. More information on specific entities is given below.

Consolidated Fund

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

Trading Operations

Under the Public Finances (Jersey) Law 2005, the States can designate any distinct area of operation as a States Trading Operation. Estimates for Trading Operations are approved in the Medium Term Financial Plan.

Special Funds

In addition to the Consolidated Fund, the Public Finances (Jersey) Law 2005 names four Special Funds – the Strategic Reserve, the Stabilisation Fund, the Currency Fund and the Insurance 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, and more detail is given in Note 34.

Social Security Funds

In 2013 the Accounting Boundary was expanded to include the Social Security Fund, Social Security (Reserve) Fund and Health Insurance Fund, which were

previously specifically excluded by the JFReM. The Jersey Dental Scheme and the Long Term Care Fund when established in 2014 were also included in this category. Details of the purpose of the funds are given in Note 34.

States Owned Subsidiary Entities Andium Homes Limited

The incorporation of the Housing Department into a separate legal entity, a company limited by guarantee (other than the Strategic Housing Policy Unit, which

was retained by the States) was approved by the States under P.63/2013. The transfer into the new company was effective from the 1 July 2014.

The agreement of the Memorandum of Understanding for Andium Homes, resulted in a more significant involvement of the States of Jersey in decision making than was the case for the Strategic Investments. By virtue of those arrangements, it was deemed that the States operates direct control of Andium Homes.

To reflect this the results of Andium Homes are shown within the consolidated financial statements.

Ports of Jersey Limited

The incorporation of Jersey Airport and Jersey Harbours Trading Operations into a separate legal entity, Ports of Jersey Limited, took place on 1 October 2015. Similarly to Andium Homes Limited, the States of Jersey is deemed to operate direct control of Ports of Jersey and, as a consequence, the results of Ports of Jersey are shown in the consolidated financial statements.

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 P.73/2010, which set out proposals for the restructure of WEB into the SOJDC, clarifying the role of the company and widening the companies remit to cover all designated "Regeneration Zones".

The Treasurer's Report

15 Explanation of the Structure of the States of Jersey

Ministerial  Fleet Management Strategic Reserve Loans Funds Social Security Fund States of Jersey Departments Development

Car Parking Stabilisation Fund  Tourism  Social Security

Company Ltd Non-Ministerial  Development Fund (Reserve) Fund

Currency Fund

Departments Andium Homes Ltd

Lottery Fund Health Insurance

Insurance Fund

Jersey Overseas  Fund Ports of Jersey

Housing

Aid Commission* Limited

Development Fund Long Term Care

General Revenue  Fund

Confiscations Funds

Income

Jersey Dental

Ecology Fund

Scheme

1 Public Finances (Jersey) Law 2005

* The Jersey Overseas Aid Commission is a separate entity funded by a grant from the States Assembly but is included in this group for reporting purposes as it includes Commissioners who are States Members.

Public Sector Bodies Outside of the Accounting Boundary

Some functions of Government are carried out by Public Sector Bodies that are outside of the Accounting Boundary (and so not included in these accounts). These include:

PARISHES

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

TRUST AND BEQUEST FUNDS

The States administers a number of Trust and Bequest Funds. These funds commonly set defined purposes for the use of their assets, and so are not controlled by the States directly.

STRATEGIC INVESTMENTS

The States owns controlling investments in these utility companies, but as it does not exert direct control as defined by the JFReM these are accounted for as Strategic Investments in the Accounts.

• Jersey Electricity plc

• Jersey New Waterworks Company

• Jersey Telecom Group Limited

• Jersey Post International Limited

The Treasurer's Report

16

Explanation of the Structure of the States of Jersey

More information about the valuation of these companies is given in Note 9.17.

INDEPENDENT BODIES

Independent bodies, including for example the Channel Island Competition Regulation Authority and the

Jersey Financial Services Commission, mainly provide supervisory and regulatory functions, and are established by legislation to be independent from the States of Jersey.

WNED W OLLYSOPECIAL

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3. Performance of the States Assembly Approved

2016 was the first year of the Medium Term Financial Plan 2 which had a clear strategy to balance budgets by 2019 whilst focussing on the priorities agreed in the Strategic Plan. The final outturn for 2016 is more positive than that projected in the MTFP and Budget 2017.

The States achieved broadly balanced budgets in 2016 with a small deficit after depreciation of £1.8 million. Income from income tax and investment returns performed strongly and expenditure remained stable.

The following analysis of performance focuses on the income and expenditure approved by the States Assembly.

4. General Revenue Income

TABLE 2 – NET GENERAL REVENUE INCOME – OUTCOME COMPARED TO PRIOR YEAR AND TO BUDGET SUMMARY TABLE A

457,583 Net Income Tax 487,965 30,382

85,042 Goods and Services Tax 84,798 (244) 54,146 Impôts Duty 58,410 4,264 29,032 Stamp Duty 30,305 1,273 11,928 Island Rate 12,141 213 14,023 Other Income (Dividends) 12,568 (1,455) 12,505 Other Income (Non-Dividends) 22,760 10,255 27,483 Other Income (Return from Andium) 27,856 373

471,000 16,965 83,334 1,464 56,787 1,623 25,394 4,911

12,142 (1) 11,149 1,419 9,710 13,050 27,785 71

FIGURE 1 – BREAKDOWN OF NET GENERAL REVENUE INCOME RECEIVED

Goods and Services Tax

£84.8m

Net Income Tax Impôts Duty £488.0m £736.8m £58.4m

(2015: £691.7m) Stamp Duty £30.3m

£45.1m Island Rate £12.1m

Other Income (Dividends)

£12.5m

Other Income (Non-Dividends)

Other Income £22.8m (Return from Andium)

(all charts in this section apply rounding ) £27.9m

The Treasurer's Report

17 Performance of the States Assembly Approved

All references to 2016 forecast' are based on the most recent published forecast for 2016 which was included in the Budget 2017 and MTFP Addition.

Net General Revenue Income

2015 Actual

A2c0t1u6al B2u0d1g7et

6.5% higher than last year

5.7% better than the 2016 forecast

The largest element of income received by the States

is General Revenue Income', which is made up of income to the Consolidated Fund covered by the Annual Budget Statement and includes taxes, duties and some investment income.

In the Budget Statement, General Revenue Income

is voted net of directly related expenditure, such as Irrecoverable Debts or Investment Management fees,

to represent the amount that is available to spend on providing services. Net General Revenue Income for 2016 was £736.8 million, compared to £691.7 million for 2015 largely as a result of an increase in Income Tax of £30.4 million and a £10.3 million increase in Other Income (Non-Dividends) driven by investment performance. Income from Impôts and Stamp Duty were also higher than 2015 by £4.3 million and £1.3 million respectively

Directly related expenditure totalled £1.2 million in 2016 (2015: £3.3 million), giving gross General Revenue Income of £738.0 million. The remainder of income received by the States includes charges raised by departments included in their cash limits and income relating to Trading Operations and Special Funds.

WHERE CAN I READ MORE?

Details of directly attributable expenditure for each type of General Revenue Income are included in The General Revenue Pages in the Unaudited Annex to the Accounts.

Net Income Tax

2015 Actual

A2c0t1u6al B2u0d1g7et

6.6% higher than last year

3.6% better than the 2016 forecast

Income Tax comprises two main elements, Personal Income Tax and Company Income Tax.

Personal Income Tax

The standard rate of personal income tax is 20%; when calculating the tax due personal taxpayers are entitled to a limited number of allowances / reliefs. To protect lower to middle income earners, a separate calculation is also performed using exemption thresholds and a greater number and value of allowances/reliefs, together with

a higher tax rate (26% from 2014 year of assessment). The lowest of the two tax calculations is then used to determine the tax charge. Therefore personal taxpayers are never charged 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

Since 2006 new taxpayers with employment income have tax collected via their salaries through the Income Tax Instalment System (ITIS) in the year in which they earn the salary and are known as Current Year Basis (CYB) taxpayers. Prior to 2015 tax collected from CYB taxpayers was accounted for a year in arrears, in the same way as Prior Year Basis (PYB) taxpayers.

The proportion of CYB taxpayers is increasing each year, and will continue to do so until eventually the entire tax base will be CYB. For that reason, the accounting treatment was amended in 2015 to permit tax collected from CYB taxpayers to be accounted for in the year it is collected. This change meant that the tax paid by CYB taxpayers through ITIS would be recognised one year earlier and, for comparative purposes, previous years were restated.

The Treasurer's Report 18

Company Income Tax

Companies pay tax under the 0/10 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 activities.

Net Income Tax for 2016 was £488.0 million which

is £30.4 million (6.6%) more than 2015. Within this, Company Tax increased by £3.0 million and Personal Tax £27.4 million.

Increases in tax from CYB taxpayers accounts for the majority of the movement in Personal Tax. It is expected that CYB taxpayers will account for the majority of future increases in Personal Tax due to two main factors:

• Growth in the CYB population (i.e. there are more CYB taxpayers) as an overall proportion of taxpayers; and

• Growth in the tax paid by existing CYB taxpayers at a rate higher than that of PYB taxpayers.

Recent analysis from the Taxes Office and Economics Unit confirms a correlation between increases in CYB

tax income and economic and migration trends. Current economic assumptions are that real GVA grew 1.0% faster in 2016 than expected, reflecting that earned income also grew faster than expected at 5% for 2016. These will both have contributed to higher than expected CYB tax income in 2016.

Faster growth in the tax paid by existing CYB taxpayers is also likely to be the result of the demography of the CYB population which includes all new taxpayers, for example, school leavers, graduates and professionally qualified migrants who can experience faster income growth in the early part of their career until they reach their maximum earning potential.

Net income tax was £17.0 million (3.6%) more than the 2017 Budget Forecast produced in September 2016. This was primarily down to an increase in the Personal Tax paid by CYB taxpayers. A prudent forecast was used in September 2016 recognising the relatively short period of trend data available to support forecasts. The positive indications from the in-year information is now borne out by the increased expectation of economic growth in 2016.

Goods and Services Tax

2015 Actual

A2c0t1u6al B2u0d1g7et

0.3% lower than last year

1.8% better than the 2016 forecast

Goods and Services Tax is a consumption tax of 5% on imports and supplies made in Jersey or, for businesses within the financial services industry who generally have the majority of their activity outside Jersey, a flat rate annual fee may be applied as an International Services Entity (ISE).

Income from GST fell marginally from 2015 (£0.2 million, 0.3%) due to a significant one off income in 2015 from Import GST and a drop off in ISE fees due to corporate restructures and relocations which was partially offset by an upward trend in other GST receipts. Income from GST was slightly higher (£1.5 million, 1.8%) than the forecast in the Budget 2017.

Impôts Duty

2015 Actual

A2c0t1u6al B2u0d1g7et

7.9% higher than last year

2.9% better than the 2016 forecast

Impôts duties are duties charged on certain goods as they are imported into the Island. The duties apply to a range of commodities including alcohol, tobacco and fuel. There were increases in duties received in 2016 on alcohol, tobacco products and fuel totalling £4.3 million compared to 2015.

The £1.6 million overachievement against the Budget 2017 forecast is primarily due to duties from alcohol which were £1.1 million higher than forecast. There are some indications that this could be the result of higher levels of consumption in the year but the trend remains one of decreased consumption over a longer timeframe. Duty from tobacco products was £0.7 million higher

than forecast which has again been attributed to higher consumption in the context of a continuing longer term decrease in importation and consumption. These were offset by minor underachievement against forecast across other duties.

The Treasurer's Report

19

[1]Stamp Duty

2015

Actual £29.0m A2c0t1u6al £30.3m