Government Plan 2023-2026 as amended.

16 DEC 2022

Government Plan

2023 -2026

GP R.12/2023

Government

Programme

P.97/2022 as amended and approved by the 2023-26 States Assembly on 16 December 2022

CONTENTS

Foreword by the Chief Minister  4 Foreword by the Minister for Treasury and Resources  6 Executive Summary  8 Economic Context  15 Financial Strategy  20 General Revenue Income  24 Budget Proposals  30 Public Sector Spending 2023-2026  40 Delivering Value for Money  47 Capital and Other Projects 2023 - 2026  51 Our Hospital  71 The Government of Jersey Balance Sheet and States Funds  72 Financial Matters Under Development  86

APPENDICES

Appendix 1: Key to Abbreviations  90 Appendix 2: Proposition and Summary Tables  92 Appendix 3: Supplementary Financial Tables  103 Appendix 4: Administrative Tax Measures  115

Government Plan 2023-2026 (P.97/2022) as amended

On 16 December 2022 the States Assembly approved the Government Plan 2023-2026 as amended (a list of adopted amendments is included in Appendix 2).

This document sets out:

• The final Government Plan as amended by all amendments agreed by the States Assembly, together with any necessary consequential and minor factual corrections.

• The P.97/2022 Proposition and Summary Tables, as amended by the States Assembly (see Appendix 2).

Foreword by the Chief Minister

I am delighted to introduce the first Government Plan since the new Council of Ministers and Assistant Ministers took office in July. At the General Election, the public voted for change, for a better way and a fresh approach. We are now putting Jersey back on track, and this plan will support our ambition for Jersey to be a place where everyone can thrive.

We have hit the ground running, developing this Government Plan concurrently with our Strategic Priorities for the next four years, and implementing an action plan for our first 100 days in office. We have already delivered a mini budget to help Islanders with the rising cost of living, legislated to increase the minimum wage to £10.50, and we have taken steps to improve our accountability, transparency, and how we engage with the public.

We live in a beautiful Island – there is so much we value and we want to protect. We nevertheless have our challenges, which the new Government is committed to addressing so that Jersey can be a place where everyone feels they can have confidence in the future. We will continue to act to address the housing crisis, our population and skills challenges and the climate emergency.

This Government Plan takes action to protect our future. It invests an additional £63 million in our key public services during 2023, supports improvements to public infrastructure through £363 million of capital investment over the course of the plan (£141 million in 2023), and gives further assistance with the cost-of-living crisis. These are increasingly challenging and uncertain times globally, but Jersey retains a strong and credible position, where we are able to fund the improvements in services which we must deliver, support Islanders where required and retain a balanced budget.

We must keep taxes competitive and low if we are to continue to thrive and grow our economy. The Government Plan delivers the 12% increases in personal income tax thresholds agreed in the mini budget which will keep more money in the pockets of Islanders. In 2023, we will also freeze alcohol duty, freeze duty on road fuel, increase the minimum annual contribution for High Value Residents and introduce a higher rate of stamp duty for buy-to-let investments, second homes and holiday homes. This is a Government Plan that puts the needs of Islanders first and supports hard-working individuals and families.

The new Government will continue to respond to changing global circumstances and the impact this may have. Increasing interest rates, for example, are likely to put added pressure on mortgage holders, and aspiring mortgage holders. The Government will monitor the increasing burdens on household budgets and act to give targeted support where necessary.

Ministers recognise the challenge that Covid-19 presented to our public finances over the past two years. As an Island, we have recovered well, and importantly this Government Plan ensures that the borrowing undertaken as part of our covid response will be repaid by the end of 2022. This is reflective of a positive position in respect of the health of our public finances. Our funds and reserves remain strong and robust, and the Government Plan forecasts ongoing operating surpluses.

It is important that we use taxpayer's money efficiently, and that every pound spent is benefiting Islanders. In 2023, we will begin work to ensure that the Government is delivering value for money, and focusing spending on areas that matter most to the public and where new investment is needed to support key frontline services. With full employment and intense competition for staff and housing, we are mindful that despite our desire to enhance services, we must not exacerbate the pressures felt in the private sector. This is why we will actively identify where we can stop and simplify our activities so that our public sector can boost productivity.

As a community, we can look forward positively to the years ahead. We have shown in recent years how resilient we are. We now have a government with clear priorities, which is engaged with the issues impacting on Islanders most and focused on dealing with our challenges. Working together, we can support Island families to achieve their ambitions of a long-term future in Jersey, and this Government Plan takes us a step closer to realising that aim.

Foreword by the Minister for Treasury and Resources

Over the next four years, the Treasury and Council of Ministers will need to focus on the many challenges facing our community and concentrate on the issues that matter to Islanders. Government must shape its policies to support a strong economy, ease the pressure on family budgets in these exceptional times, and ensure our success can be shared across the community.

We must protect our Island's future by achieving long term sustainability of our public finances, investing in health & education, and investing in our economic recovery and growth. The cost of living has been the Treasury's number one priority, closely followed by getting a grip on the public finances.

While we rightly focus on our island's finances, we must always be mindful of the wider global situation. The war in Ukraine, changes to UK interest rates and new governments across Europe all have far reaching impacts on the global environment and economy.

With the UK announcing new tax measures and the Bank of England increasing interest rates it shows how vital it is for us to maintain a stable and prudent approach to balancing our finances.

We are assessing the situation and planning for many eventualities and scenarios. Whilst the global and UK economy is in a state of flux it is important to take stock of the situation, understand it's impact whilst remembering we have a strong economy that has proven resilient in the face of many challenges over the last few years.

We also need to be mindful that the current level of volatility, inflation and interest rates may lead to further measures being necessary to support islanders. We will not hesitate to announce further measures should there be a need.

In a highly competitive world, our long-term economic success cannot be taken for granted and, to this end, we will continue to develop a sustainable economic framework within which we can create the right conditions to achieve Jersey's full economic potential in the face of varied global challenges.

Jersey's future must be one of economic success amidst immense global uncertainty. The Government will work tirelessly with all partners and arms-length organisations to ensure that the foundations of a truly sustainable economy are laid during the coming four years

The Housing Crisis in Jersey cannot be understated. The Government needs to send a clear message that our priority is affordable purchases for first-time buyers. We will maximise affordable properties on publicly owned land to restore hope, retain the talents and skills of young Islanders and keep our community diverse and vibrant.

In addition, we will find ways to support affordable purchases, be it through deposit schemes, shared equity, or deferred payment options. In all these areas, building homes and helping first-time buyers, we will continue to stand firmly in support of Andium Homes.

States spending must be controlled and focused on the priorities of Islanders. We will need, of course, to invest in key areas: the health service, mental health, children's services, education, and skills training.

Islanders are rightly concerned at the increase in borrowing that occurred under the last Government. We have committed to too much public debt, and we need to return to prudence and live within our means. We will start to pay down our debts beginning with those accrued during COVID, which can be fully repaid in 2022.

On tax, we must remain consistent in supporting low, simple, and competitive taxes. Treasury will of course need to play its role in designing schemes to fund the climate emergency response and to help change behaviour, this work must be proportional and based on public consensus.

Over the term of this Government Plan, we will continue to monitor the international roll out of the OECD global tax rules – Pillars 1 & 2: ensuring that we preserve our commitment to global tax standards and maintaining our international tax competitiveness. Importantly, to steer us through the MONEYVAL assessment in 2023, which is crucial for the well-being of our economy and to protecting jobs in the Island.

As a government we will work to continue to ensure Jersey is a green, digitally enabled, and entrepreneurial finance centre, which can be confident of its future providing jobs and prosperity for Islanders for years to come.

I have outlined enough challenges and priorities to help four years pass very quickly. Within the Treasury Department itself of course we also have challenges to meet in improving our service to Islanders and businesses.

I will do all I can to tackle these head on and improve our level of service.

We know to expect the unexpected and that Government will need to be nimble and flexible in responding to the challenges of the future.

Executive Summary

Purpose of the Government Plan

Following the general election in June 2022, the new Council of Ministers has developed its Common Strategic Priorities for the next 4 years, which will be lodged with the States on 4 October 22. This will be supported by individual Ministerial Plans, which will include more detail on how each Minister will support these priorities in 2023.

This Government Plan explains the financial context in which those plans will be delivered and sets out the financial approvals that Ministers are proposing to ensure that taxpayer's money is focused on delivering of both their priorities and existing services.

The timing of the election has reduced the amount of time Ministers have had to develop this Government Plan. Notwithstanding this, the plan is designed to provide adequate resources and flexibility to drive progress on the Council of Minsters' vision for the Island, whilst ensuring the ongoing sustainability of Government and States' finances.

More detailed information on items in the plan will be published in an Annex to the plan as soon as its practical.

Government Plan 2023-2026

Context

This plan has been written in a time of great economic uncertainty, with the global economy disrupted by the ongoing effects of the war in Ukraine, the Covid-19 pandemic, and other geopolitical developments. We are forecast to see inflation at levels not seen for decades, with interest rates also rising after a sustained period of low interest rates.

These changes have resulted in significant improvement in the forecasts for Government income. However, it also results in expenditure pressures on both Government, and Islanders. This plan takes action to address these challenges whilst investing in the priorities of the new Council of Ministers and ensuring the long-term sustainability of Public Finances.

Addressing the Cost of Living Crisis

In proposing the "Mini-Budget", the Council of Ministers took immediate action to help Islanders with the cost of living crisis, agreed by the Assembly in September 2022. Personal income tax thresholds and allowances for 2023 were increased by 12%, allowing the higher allowances to be factored into the Income Tax Instalment System (ITIS) effective rates issued towards the end of 2022, keeping more money in the pockets of Islanders.

In addition, immediate support was agreed for Islanders through temporary reductions to Social Security Contributions, an enhanced Cost of Living Temporary Scheme (COLTS), an increase to the Community Cost Bonus, enhancements to the Cold Weather Bonus and Payment schemes and further support for families with less than five years residence.

This Government Plan sets out additional revenue measures that continue to support Islanders, by restraining overall increases in duties, where appropriate to do so:

• Freezing alcohol duty on all strengths of beer, cider, wines and spirits.

• Increasing tobacco duty on cigarettes by Retail Price Index (RPI) of 10.4% plus 5% in line with published health policy. Increasing duty on hand rolling tobacco and cigars by RPI of 10.4% plus 6.4% and 8%, respectively, as part of a longer-term commitment to align with cigarettes.[1]

• Freezing duties on road fuel but maintaining the commitment to channel 9 pence per litre to the Climate Emergency Fund.

The cost of these measures has been partly offset by specific targeted measures to raise additional income:

• Increasing Vehicle Emissions Duty (VED), most notably on higher CO2 emitting vehicles, from 1 January 2023.

• Increasing the minimum annual contribution for High Value Residents (HVRs) from £145,000 to £170,000.

• Introducing a higher rate of Stamp Duty for buy to let investments, second homes and holiday homes at 3 percentage points above the normal rate for residential property.

Delivering Value for Money Public Services

As both a national and local government, the Government uses taxpayers' money to provide a full spectrum of services to Islanders. It is essential that these services demonstrably deliver good value for Islanders, with the right services being delivered, and those services being delivered efficiently and effectively.

Following its appointment, the new Council of Ministers has worked quickly to agree its spending priorities. This Council of Ministers does not wish to repeat previous mistakes of agreeing additional expenditure before savings are delivered. To ensure that the consequences of any changes to existing funding are understood, full reviews of services will be undertaken. In the meantime a modest target for savings has been included, with the intention that further savings will be delivered, allowing funds to be reprioritised to areas that benefit Islanders most and that require additional investment.

The plan provides £53 million for the impact of inflation on the cost of public services in 2023, and also maintains commitments to fund Arts, Heritage and Culture (AHC) at 1% of revenue expenditure, to grow Jersey Overseas Aid (JOA) contributions as a proportion of Gross Value Added (GVA) and to invest an additional 2% in our health service each year. The States Grant to the Social Security Fund will also be restored from 2024.

In developing the plan, it became apparent that additional funding was required in some areas of Government, and £63 million of growth has been allocated in 2023. Many of these areas will required further investment in future years of the plan, but Ministers have constrained this growth until it is clear how such additional investment would be affordable over those future years. Amounts have also been included for the ongoing costs of Covid-19, whilst the Plan also provides for the removal of remaining borrowing for Covid-19 consequences.

Investing in our Island

The Capital Programme is vital to ensure that Government has the assets required to effectively deliver quality public services. In recent years Government has consistently spent less on capital than allocated in budget provided, and Ministers have considered both affordability and deliverability in developing the programme.

In total £141 million has been allocated to capital projects in 2023, with £363 million planned across the 4 years of the plan. This represents an investment in our infrastructure, increasing the value of our assets and building our balance sheet. Existing projects have been more realistically profiled to ensure that taxpayers' funds can be used effectively and are not tied up unnecessarily. New investment in the Opera House and development of a therapeutic children's home has also been included, enabled by the one-off special dividends from JT in 2023 and 2024.

It is clear that more investment is required, for example in our drainage network and sports estate. However, this needs to be paid for, and any proposals in future Government Plans will be accompanied by a suitable funding strategy.

Sustainable Public Finances

The Public Finances (Jersey) Law 2019 (PFL) sets out a requirement for each Government Plan to have regard to the long-term sustainability of the Island to ensure that we safeguard it for future generations.

This plan delivers budgets that are balanced across the plan. This is important to ensure that we are spending within our means and making provision for the replacement of our assets.

Summary Forecast Operating Balance

2023  2024  2025  2026 £'000   Estimate Estimate Estimate   Estimate

General Revenue Income  1,075,657  1,163,380  1,193,076  1,233,751 Net Revenue Expenditure  985,044  1,090,711  1,133,108  1,153,331 Net Operating Surplus/(Deficit)  90,613  72,669  59,968  80,420 Depreciation  55,736  57,173  57,762  58,008 Forecast Operating Surplus/(Deficit)  34,877  15,496  2,206  22,412

Table 1: Summary Forecast Operating Balance

The impacts of Covid-19 on the public finances have been lower than forecast in previous Government Plans, and the prudent application of underspends in 2021 and 2022 means that we will be in a position to eliminate the borrowing required for Covid-19 by the end 2022, four years in advance of the previous target. This is an enviable position and reduces future pressure on public finances.

If funds become available through additional income or reduced expenditure over the period of the plan, these will be used to begin to rebuild the Stabilisation Fund in line with the advice of the Fiscal Policy Panel (FPP).

The value of the Strategic Reserve is forecast to be preserved, subject to short-term volatility, and Ministers will continue to consider options to protect and grow the fund in future government plans. These will also be impacted by the outcomes of the review of the Our Hospital project and any changes to the costs or funding strategy. This Government Plan does not include any new borrowing proposals and in fact reduces Covid-19 borrowing to nil. Pending the outcome of the review into the Our Hospital project, the lodged Plan carried forward the existing borrowing approval of £756 million, but this was amended to include only short-term borrowing to cover costs to date and the costs of developing a new scheme and continuing enabling works in 2023.[2]

Ministers are also committed to ensuring that the Social Security Fund remains sustainable for future generations. It is planned that the annual States Grant payment into the Social Security Fund will be restored to its full value from 2024 onwards. The cost of providing old age pensions will increase with the ageing demographic but the Fund is still forecast to hold four times annual spend by the 2070s. The results of the full actuarial review of the Social Security Fund will be published in 2023 and will inform a full review of the fund in the next Government Plan.

The Health and Social Services Minister is currently undertaking a wide review of the Island's health and care cost, which will inform options for the future funding of our whole health and care system. This work will continue throughout 2023 with options being brought to the States Assembly in 2024. It will include reform of the arrangements that underpin the Health Insurance Fund.

Sustainable Wellbeing

The Council of Ministers has taken sustainable wellbeing into account through the development of the Common Strategic Policy 2023-2026, Ministerial Plans and the Government Plan 2023-2026.

The Common Strategic Policy 2023-2026 sets out our shared ambition and our 7 priorities for change:

The Ministerial Plans set out specific priorities for delivery by individual Ministers in 2023 and beyond.

The Government Plan 2023-2026 sets out the income and expenditure that will support the delivery of the Common Strategic Policy and Ministerial Plans in 2023.

The Common Strategic Policy, Ministerial Plans and Government Plan reflect the issues that are most important to Islanders as expressed during the election, were informed by data and evidence, and demonstrate our focus on the economic, social, cultural and environmental wellbeing of Islanders both now and in the future.

The Council of Ministers' policy on population will be published in June 2023, and will be included in future Government Plans in line with P.116/2021.

Economic Context

The International Economic Outlook

The latest forecast from the International Monetary Fund (IMF)[3] is for global growth of 3.2% this year and 2.9% next, much lower than the 6.1% seen in 2021. By any comparison, this is a significant drop off from the global growth position. Growth is expected to stabilise in the post-pandemic environment going into next year for emerging economies, while we could see continued falls in advanced economies for the next two years. Whilst circa 3% growth might appear strong in a normal national context, in a global context anything below 3% is very low, and as such these figures need to be interpreted as a particularly problematic global economic outlook.

Figure 1: Economic growth forecasts (%). Source: International Monetary Fund July 2022

The key risks to the global outlook relate to supply-chain disruption due to the ongoing war in Ukraine and bounce back from the pandemic. The war has disrupted the global economy due to international tensions with Russia and led to higher global commodity prices for key Russian and Ukrainian exports such as oil, gas and grain. Imposed sanctions have also had an impact on the economies imposing them, mainly in places of needing to source alternative supply-chains.

Commodity price increases and lingering supply-demand imbalances have led to increased 2022 inflation projections. The IMF in their most recent 6 monthly report (June 2022) forecast 6.6% in advanced economies and 9.5% in emerging market and developing economies. Inflation in both the UK and US has risen more quickly than these expectations – for example UK inflation was 8.6% in August 2022. Wage growth has on average not kept up with inflation across both advanced and emerging market and developing economies.

Jersey's Economic Outlook

The 2020 GVA for the island was £4,636 million. On the last official figures Jersey's economy contracted sharply in 2020, this is not unexpected with the global circumstances. Evidence does suggest that the economy has held up better than expected and also recovered well. Official GVA growth rate figures show a contraction of 8.7% – driven by a difficult year for sectors such as hospitality which were particularly affected by the pandemic. Additionally, there was a significant fall in banking profits, partly due to the cuts in interest rates in early 2020. This however is expected to significantly change going into 2023 with the markets expecting the Bank of England to raise interest rates considerably, which is a driver of banking profits in Jersey. The complete removal of pandemic restrictions over the last year will additionally guide the return to normal growth levels.

Since a pandemic peak in the lockdown of spring 2020, the number of people Actively Seeking Work (ASW)[4] in Jersey has fallen from 2,290 to just over a quarter of that figure at 620, the lowest on record. This, combined with approximately 1,000 job positions being available[5], places the economy in a position of near-full employment and suggests a strong recovery from the pandemic.

Figure 2: Actively Seeking Work (non-seasonally adjusted). Source: Statistics Jersey

The Business Tendency Survey (June 2022)[6] provides strong evidence for economic recovery post-pandemic with the proportion of businesses reporting an increase in activity being 20 percentage points higher than those reporting a decrease. Despite this, it is notable that across all sectors businesses are facing considerable price-related pressures. No business reported a decrease in input costs on the previous quarter, compared to 84% reporting an increase. In the finance sector, 28% of surveyed businesses reported a decrease in profitability, compared to the considerably higher figure of 42% in the non- finance sector.

Where previously the hospitality industry was lagging behind other areas on a return to trend business activity' levels due to extended periods of inactivity through the pandemic, they have now caught up with other sectors. On the other hand, the finance sector faced the least impact from the pandemic and therefore had the least recovery needed to return to trend levels. All sectors are now sitting in a similar, slightly positive place on this measure. The hospitality and finance sectors can be compared to all sectors combined on the chart below.

Figure 3: Weighted net balance of responses to business activity question of Business Tendency Survey, by sector. Source: Statistics Jersey

The FPP's Medium-Term Report (July 2022) lowered their long-term growth expectation, reducing trend GVA growth from 0.6% to 0.45% due to the lower expectations for growth in the working age population[7]. This was mitigated somewhat by an increase in long-term productivity expectations. The previous report forecast 0.2% growth in productivity, 0.3% in working age population and 0.1% in employment; now these figures sit at 0.35%, 0.1% and 0% respectively.

The FPP's latest forecast from July 2022 comes after the observed sharp downturn in economic activity in 2020. They predict for a strong recovery, set to level off above 2019 levels, from 2023. This is not in contradiction to downwards revisions to annual trend growth forecasts due to expected rises in productivity and the minimal revision of 0.15%. A considerable factor in this forecast is the growing financial services sector and their forecast profits. The chart below provides an illustrative projection for changes in GVA until 2026, based on the previous three FPP forecasts.

Figure 4: Economic forecast – changes in GVA. (Index 2019 = 100). Source: Fiscal Policy Panel

There are ongoing issues within the economy around affordable housing. The graph below shows the widening of the gap between wage growth and housing price growth over the last 20 years which has accelerated dramatically in the last 3 years. This causes significant pressure for the population and acts as a blocker to growth as well as causing difficulties for individuals and families.

Figure 5: House Price Statistics - Annual House Price Index, Retail Price Index and Average Earnings Index: Source Statistics Jersey

Fiscal Framework

The Fiscal Policy Panel is established by the Public Finances Law, which enshrines its independence and sets requirements for it to provide an annual report on Jersey's economy and Government finances, and to inform the preparation of the Government Plan. The Council of Ministers or the Minister for Treasury and Resources can also request other reports on specific subjects.

The FPP will continue to be responsible for monitoring the application of the fiscal guidelines.

The fiscal framework remains an important pillar of Jersey's economic and fiscal policy and sets the medium and long-term aims that help to inform budgetary decision making, with particular regard to the balance of income and expenditure (i.e. budget deficits or surpluses).

The key guidelines identified in previous Government Plans are to:

• Seek to increase the Strategic Reserve and public sector net worth, while following the advice of the FPP on borrowing and net financial assets.

• Run a primary structural current balance or surplus in the long-term until the Strategic Reserve is judged large enough to meet its mandate.

• Borrow only to finance investment (or refinance liabilities), except under times of economic duress, and monitor the impact on net financial assets.

The Fiscal Framework continues to be kept under review and will be updated if necessary.

Financial Strategy

Financial Principles

The Council of Ministers agreed the following financial principles to be used as a framework for decisions making in preparing this Government plan.

Tax Policy Principles

The following tax policy principles established in previous Plans continue to be used in this Plan.

Financial Strategy for 2023-2026

In developing the plan, the Council of Ministers have had to contend with significant competing pressures and have considered the recommendations from the Fiscal Policy Panel. The financial strategy for 2023-2026 applied the agreed financial principles to these immediate challenges faced by the Government. The key elements of the financial strategy for the Government Plan and the mini-budget, for 2023-2026 are:

• An affordable and deliverable plan, with Public finances balanced across the plan period.

• Alleviating the impact of the Cost-of-Living crisis on Islanders. As well as direct support for more vulnerable Islanders, budget measures have been designed to give back money to taxpayers.

• Eliminating the requirement for borrowing to fund the impact of the Covid-19 pandemic with Covid-19 borrowing fully repaid in 2022. The States Grant to the Social Security Fund (which was used to meet the financial impacts of the pandemic) will be reinstated in full from 2024.

• As the Council of Ministers has had limited time to develop the plan due to the timing of the election, additional expenditure approvals have been included to meet their immediate priorities. Whilst some of these may require more investment in future years, these costs should be met through the simplification and rationalisation of existing government activities or improved income forecasts.

• The plan includes a refreshed approach to reducing the cost of Government, which focuses on delivering all elements of Value for Money (VFM), including cashable efficiencies, improved productivity and detailed reviews of specific services to drive best value.

• The Our Hospital project is being reviewed as part of the Council of Ministers' 100 Day Plan. To reflect this, the project was included in the lodged plan based on existing States decisions, but shown separately. Following the completion of the review, the Council of Ministers proposed an amendement to the plan to reflect any changes to the project, which was subsequently adopted.. In 2023 a new scheme over two or more sites will be developed, and the plan includes approvals for this work, and enabling spend, funded through short-term borrowing whilst the financing strategy is reviewed.[9]

Ministers have had a relatively short period to develop the plan, and focused on the immediate priorities. There are a number of outstanding matters that need attention, such as how to fund future infrastructure, the sustainability of the Social Security Fund and a financing strategy for the climate emergency which will need to be considered in future Government Plans.

General Revenue Income

The Government funds ongoing, annual expenditure and investment in assets through three main sources: general tax revenues, other government income and departmental income which are paid into the Consolidated Fund.

General Tax Revenues

General tax revenues provide the main source of funding for the Government, with four main tax types.

Other Government incomes

The Government also receives income from four other sources, as set out in the table below.

Departmental income sources

In addition to amounts paid directly to the Consolidated Fund, Government departments receive money from fees and charges for individual services. These amounts are included within individual net revenue expenditure allocations and are estimated at £100 million in 2023. The number of different sources of income reflects the variety of services provided by the Government. This includes fees for private patients at the hospital, school fees, fees for the disposal of inert waste, planning fees, and income from rents and our sports facilities. This income is included in department Heads of Expenditure.

Special Funds also receive income designated to them, as well as the investment returns on fund balances. This is then used for expenditure in line with the purpose of the fund.

Latest Income Forecasts

The Income Forecasting Group (IFG) advises on the forecasts of all States income from taxation and social security contributions. Membership of the group includes senior civil servants, the Government's chief economic advisor as well as at least two external members.

The Income Forecasting Group's latest forecast was prepared in August 2022, and reflects the latest economic forecast produced by the independent Fiscal Policy Panel in July 2022. The forecast is published alongside the Government Plan.

The global macroeconomic outlook continues to evolve in a rapidly changing environment. Since the Spring 2021 IFG revised forecast report[10] the global economy has worsened, with the continued conflict in Ukraine, supply chain and energy supply disruptions contributing to rising inflation.

The FPP economic assumptions reflect the latest local and international developments to July 2022. The main variations to the economic assumptions used in the IFG Forecast for Spring 2021 include:

• Higher interest rates and increased financial services profits lead to an upgrade in the GVA forecast for 2023. This is followed by a period of slower growth in 2024 and 2025.

• Inflation is projected to reach a peak of 9.2% in 2022, the forecast is lower than the UK predominantly due to less of a reliance in Jersey on gas for energy supply.

• Average earnings are projected to rise almost alongside inflation, due to a tight labour market keeping demand for skills high and thus wages reflecting this.

• Employment is assumed to rise consistently in the financial services sector, whilst the non-finance sector is expected to see a period of above trend growth reflecting strong post-pandemic recovery.

• The forecast for house prices and transactions remains unchanged to 2025 with small changes to the trend.

The IFG's Summer 2022 forecast (based on the FPP assumptions of July 2022) has been developed as a central forecast' to represent the IFG's view of the most likely outcome.

The IFG's latest forecast of total States income reflects:

• The FPP's economic assumptions of July 2022 and other related economic data from Jersey;

• General revenues income outturn for 2021;

• Initial information on general revenues income for the first two quarters of 2022;

• Forecasts from Treasury for Other Income'; and

• Market intelligence from the IFG.

The Summer 22 forecast is the latest forecast produced and covers the years 2022-26, the forecast assumes standard tax policy where relevant. The impact of the mini-budget (P.80/2022, approved in September 2022) was considered separately by the IFG and is shown separately to the central forecast scenario.

The FPP will issue further economic assumptions as part of their annual report in November 2022, and the IFG will consider the impacts of any changes on the income forecast following the issue of that report.

Figure 6: Range of IFG Income Forecast Summer 22. Source: IFG

Summary of Latest Forecast

The overall changes from the Spring 2021 forecast addendum are:

Personal Income Tax

Personal income tax has increased for all years of the forecast. This is primarily driven by higher than expected tax outturn for 2020 and 2021, data from the Income Tax Instalment Scheme (ITIS), as well as the latest FPP economic assumptions. The higher forecast in economic assumptions for compensation of employees, average earnings and employment growth all contribute to an increased projection of personal income taxes over the plan period.

Corporate Income Tax

Corporate income tax reflects a significant increase in the previous forecast driven by financial services profits growth with market expectations for rising interest rates over the period of the plan. The forecast for corporate income tax from non-financial services also increases, though financial services remains the majority of corporate income tax collected.

GST and International Services Entity Fees

The FPP's economic assumptions for compensation of employees, the main determinant of Goods and Services Tax (GST) receipts have increased and are the main driver for the increase in forecast GST receipts. The forecast also incorporates the increased receipts from the lowering of the de minimis level from £135 to £60 from 1 July 2023, estimated at £1.1m from 2023 onwards.

Impôts Duties

Impôts duty reflects an increase in each year of the forecast, driven predominantly by forecast increases in the RPI, with the default assumption being that duties for fuel and alcohol are maintained in real terms and that tobacco duties rise above RPI. The adjustments for Covid-19 which take into account behavioural changes along with the latest available market intelligence data were reviewed. The Covid-19 adjustments reflect behaviours and consumption re-adjusting slowly in 2022 and returning to pre-pandemic levels from 2023 onwards. Impôts duties have been forecast based on existing tax policy for duty increases. Variations from these long-term policy positions are not reflected by the IFG forecast, but are addressed in the next section on budget proposals.

Stamp Duty

Stamp duty has been revised to incorporate the outturn of in-year transactions for 2022 and the updated FPP economic assumptions. The stamp duty forecast has grown significantly from 2021 forecasts, with the property market in 2021 seeing the highest annual average values as well as the highest turnover of properties for all property types to date.

One-off Dividend Income

Subsequent to the IFG Forecast, an additional planned special dividend payment has been agreed with Jersey Telecom. This will increase income in both 2023 and 2024 by £20 million, and is funded through the retained proceeds of the sale of the IoT element of the company.

These proceeds will fund further investment in our Island, including investment in the restoration of the Opera House, the provision of a Therapeutic Children's Home, and funding of an ongoing Community Fund to build on the successes of the Fiscal Stimulus programme in providing funding to local organisations to improve the facilities they provide to Islanders.

Furthermore, an additional £5 million will be held centrally to support initiatives to reduce hospital waiting lists.

Budget Proposals

Overview

When viewing the budget proposals outlined in this Government Plan, it is important to recognise that they were preceded by a cost of living mini-budget which was adopted by the States on 21 September 2022 and was part of the Government's 100 Day Plan.

From a tax perspective, the mini-budget included proposals from the Council of Ministers to increase the income tax thresholds by 12% from 1 January 2023. This is well ahead of the RPI figure for June 2022 (7.9%). These changes are summarised below to provide the context in which the Government Plan should be viewed.

No further changes to personal income tax thresholds and allowances are being proposed in this Government Plan. However, several budget proposals in other areas are outlined below.

In the event that RPI rises above the 12% increase in thresholds and allowances provided for, then making amendments to the Government Plan will be considered by Ministers.

Income tax (personal taxation) exemption thresholds

The income tax exemption thresholds operate like a personal tax allowance. They set a limit below which an individual, married couple or couple in a civil partnership do not pay income tax. Additionally, individuals and couples with income below these thresholds will not pay Long Term Care (LTC) contributions.

When these thresholds are increased it benefits those who pay tax at the marginal rate. Data suggests that around 90% of personal taxpayers pay at the marginal rate (rather than at the standard rate), meaning that a large majority of taxpayers benefit from these increases.

In the past, any increases to the thresholds have been based on the lower of inflation (RPI) or the growth in average earnings.

The impact of these increases is shown below.

Income Tax Exemption Thresholds

Tax 2022  2023  Approved  Reduction

Actual   Approved Increase @ 26% Single person  £16,550  £18,550  £2,000  £520 Married couple/Civil partnership  £26,550  £29,750  £3,200  £832

Table 3: Income Tax Exemption Thresholds

The income tax exemption thresholds are higher than the equivalent allowances in Guernsey the UK and Isle of Man.

Second earners' allowance

Where both spouses or civil partners are earning (for example, they are employed, self- employed, or receiving certain pension income) they are also entitled to the second earners' allowance', which reduces the tax payable on the earnings of the lower-earning spouse.

Co-habiting couples who are neither married nor in a civil partnership are entitled to two single person's thresholds which, when combined, exceeds the married/civil partner threshold. The second earners' allowance equalises the tax position of couples who are married or in civil partnership with two income earners compared to those who are not.

The second earners' allowance will be increased by 12% from 1 January 2023 as approved by the States Assembly on 21 September 2022 in response to the cost of living crisis.

Second Earners' Allowance

Tax 2022  2023  Approved  Reduction

Actual   Approved Increase @ 26% Second earners' allowance  £6,550  £7,350  £800  £208

Table 5: Second Earners' Allowance

Child allowances

Where an individual or a couple has a child, they can claim an increase to their income tax threshold. The increase is per child and is available from birth until the year in which the child finishes compulsory education. An additional allowance in respect of children is available for single parents, unmarried couples, and for married couples and civil partners where one individual in that couple is incapacitated. It is available per household.

Both allowances will be increased by 12% from 1 January 2023 as approved by the States Assembly on 21 September 2022 in response to the cost of living crisis.

2022  2023  Approved  Reduction Actual   Approved Increase @ 26% Child allowance  £3,060  £3,450  £390  £101

Table 6: Child Allowance

Additional Child Allowance in 2022 and 2023

Tax 2022  2023  Approved  Reduction

Actual   Approved Increase @ 26% Additional child allowance  £4,590  £5,150  £560  £146

Table 7: Additional Child Allowance

Child care tax relief

An individual or couple paying a nursery, nursey class, registered day carer or an accredited nanny can claim an increase to their exemption threshold. The increase is capped depending on the age of the child. A higher cap is available in respect of children under 4 years of age.

Child care tax relief costs will be increased by 12% from 1 January 2023 as approved by the States Assembly on 21 September 2022 in response to the cost of living crisis.

Child Care Tax Relief

Tax 2022  2023  Approved  Reduction

Actual   Approved Increase @ 26% Child care  £6,273  £7,050  £777  £202 Child care (enhanced)  £16,320  £18,300  £1,980  £515

Table 8: Child Care Tax Relief

Impôts (Excise) Duties

Ministers' proposals for excise duties on tobacco, alcohol, road fuels and motor vehicles are set out below.

Increases in excise duties approved by the Assembly, will take effect at midnight on 31 December 2022.

Tobacco

In line with recent years, rates of duty for tobacco products have been subject to above- inflation increases with a view to changing consumer behaviour. Ministers wish to continue with that approach, acknowledging that the price of those products is linked to consumption, especially regarding the uptake of smoking among children and young people.

Continuing that policy of above-inflation increases, Ministers proposed an increase on tobacco products of 12.9% (equating to June 2022 RPI of 7.9% plus 5%), except for cigars and hand-rolling tobacco, which will be subject to a greater increase.

In recent years there has been a policy of closing the gap between duty charged on hand- rolling tobacco and cigars, and the duty charged on cigarettes. In continuing to close this gap, Ministers proposed to increase the duty on hand-rolling tobacco by 14.3% (equating to RPI of 7.9% plus 6.4%).This increase removes the differential between the amount of duty charged on hand-rolling tobacco and the duty charged on cigarettes.

Ministers proposed to increase the duty on cigars by 15.9% (equating to RPI of 7.9% plus 8%).The differential between the amount of duty charged on cigars compared with the duty charged on cigarettes and hand-rolling tobacco will now be £85 per kg (2022: £89 per kg).

The proposed increase in duty for 2023 would mean a 97p increase in the duty on a standard packet of 20 cigarettes (from £7.54 to £8.51 per packet). The increase on hand- rolling tobacco of 14.3% means a £4.26 increase in a 50g pouch (from £29.81 to £34.07 per pouch).Following an amendment to the Government Plan, it was agreed that tobacco duty increases would use September 2022 RPI of 10.4% rather than 7.9%.[1] This increased duty by 15.4% on most tobacco, 16.8% for hand-rolling tobacco and 18.4% for cigars.

Road fuel

To help with the ongoing cost of living impacts, Ministers propose to freeze fuel duty for all types of road fuel in 2023. In the months leading up to the publication of this Government Plan, the pump price for petrol and diesel has reduced, bringing some benefit for motorists and businesses. There continues to be considerable variation between pump prices across different forecourts, often nearby to one another.

This freeze for a full year should be considered an exceptional policy, which is being proposed specifically to help with the increases in the cost of living.

Ministers remain firm in their commitment to pay 9p per litre from fuel duty receipts into the Climate Emergency Fund.

Alcohol

Recognising the importance of the hospitality industry to our Island's economy, Ministers are proposing to freeze duties on all types of alcoholic beverages on the basis that further duty rises would adversely affect the industry at a time when prices are rising.

Vehicle emissions duty

VED is charged when a vehicle is first registered in the Island. The amount of VED payable depends on the manufacturer's CO2 emissions data, meaning that the charges are higher for the most polluting vehicles.

Continuing to encourage the purchase of electric cars and lower emission vehicles, Ministers are proposing to significantly increase VED rates from 2023. This excludes commercial vehicles and tractors.

VED charges will increase for nearly all vehicles, with the greatest increases applying to the most polluting vehicles. From 1 January 2023, the highest two bands will be increased by 75% and 85% respectively, with lower bands increasing by 32%. The Government will continue to keep VED rates under review for future years to encourage the importation of more efficient petrol and diesel vehicles, as well as electric vehicles.

RPI impact of increases in Impôts

The estimated impact of the increase in tobacco duty and VED is an increase in RPI of 0.2%.

GST review – offshore retailers and the GST "de minimis" level

The requirement for large offshore retailers to register for GST and the reduction of the import GST de minimis to £60 has been deferred from 1 January 2023 until 1 July 2023. This postponement was in response to a request from a group of businesses impacted by the new rules to allow them time for necessary systems changes. The deferment was debated and approved by the States in September 2022.

Higher rates of Stamp Duty on buy-to-lets

Following the States' adoption of an amendment to Government Plan 2022 from the then Corporate Services Scrutiny Panel, proposals have been developed to charge higher rates of Stamp Duty on the purchase of properties that are acquired for any purpose other than to be used as a person's main residence. This includes buy-to-let properties, second homes, and holiday homes. The higher rate will also be applied to relevant transactions subject to Land Transactions Tax (LTT') and Enveloped Property Transactions Tax (EPTT').

To support the Island's housing needs, Ministers are also proposing an exemption to the higher rate for property developers who purchase and develop residential property for resale, in the course of their trade.[1]

Economic analysis has assessed the potential impacts on revenue and owner-occupation. It is suggested that the measure could modestly increase revenue and stimulate additional purchases by owner-occupiers.

For the time being, Ministers are proposing that the higher rate is set at 3 percentage points above the normal rate of tax for residential property from 1 January 2023.

The wider review of Stamp Duty (scheduled to conclude in the Summer of 2023) will present a further opportunity to review the market impact of the higher rate, albeit based on a relatively short period of time.

Enhanced capital allowances

Currently businesses are able, under part 12A of the Income tax (Jersey) Law 1961, to claim capital allowances on qualifying capital expenditure to offset against allowable profits at a rate set at 25% per annum on a reducing balance basis.

As part of the 2024 Budget, which will be delivered in 2023 and focus on innovation and enterprise, Ministers will consider a range of measures to encourage and stimulate investment, including the case for increasing the rate for capital allowances available to businesses that make qualifying capital purchases.[1]

Benefits-in-Kind Exemption – Bicycles and Bus passes

Ministers are proposing to extend the schedule of tax exempt benefits-in-kind to include all pedal bicycles (manual and electrically-assisted) and bus passes provided by employers to their employees.

High Value Residents (HVRs)

The Minister for Treasury and Resources must consider the limits and rates of income tax for HVRs by 1 January 2023 (and then every 5 years).

From 2018, all incoming HVRs have entered regime 4' of the HVR tax system, under which they are subject to a mandatory minimum annual personal income tax charge of £145,000, with all income exceeding £725,000 taxed at 1%. Approximately 70 of 200 HVRs in Jersey fall within regime 4.

Using the available RPI data for the 4 years between March 2018 and June 2022, Ministers are proposing that the minimum tax charge should be increased to £170,000, with all income exceeding £850,000 taxed at 1%[2].

Ministers are reviewing the existing HVR scheme with a view to refreshing the scheme for new entrants.

Higher rate of stamp duty - buy to let, second homes and holiday homes[1] 4,660

Freeze alcohol duty  (1,880)

Tobacco duty increases[2] 456

Freeze fuel duty  (2,213)

Increase in Vehicle Emissions Duty  1,693

Increase High Value Residency contribution  1,750

Rent-a-room relief[3] (330)

Budget Proposals  4,136 Table 10: Summary of Budget Proposals

Rent-a-room relief

Ministers are proposing a rent-a-room income tax relief, under which lodging income of £10,000 a year or less will be exempt from income tax. If lodging income exceeds £10,000 the full amount would be taxable in the normal way but would benefit from the existing concessional treatment. This proposal is intended to encourage better use of existing housing stock and allow Islanders to generate additional income while providing accommodation at a fair rent to ease the housing strain. The required legislative changes will be made by an amendment to the Draft Finance (2023 Budget) (Jersey) Law 202- and would come into force for the year of assessment 2023 and future years.[4]

Additional Tax Measures to be Considered in Future Plans

Previous Government Plans included the development of measures and options to raise taxation of approximately £10 million in total for implementation by 2024. The agreed changes to HVR and Stamp Duty deliver £6.4 million of this target[5], and further measures that will be considered include:

• Further changes to Stamp Duty. A review of Stamp Duty is due to be concluded in the Summer of 2023.

• Broadening the tax base of corporate taxation. This has included the recent introduction of taxation of medicinal cannabis growing and processing.

In addition, we will consider options for restricting interest relief for landlords.

The next Government Plan will also include Budget measures to promote innovation, including a policy roadmap on innovation for Jersey businesses. This will follow stakeholder engagement with Islanders and investors in 2022 and 2023.

Progress of Tax Reforms and Reviews

Independent Taxation

From 1 January 2022, independent taxation became mandatory for all new couples arriving in Jersey and for all couples marrying or separating on or after that date.

The transition to independent taxation will be gradual. A pilot group of couples elected to be taxed independently for the year of assessment 2022. For the 2023 year of assessment the opportunity to elect to be independently taxed was open to any couple. A further year to elect for a voluntary move will be available for the 2024 year of assessment subject to States Assembly approval.

In 2023, Ministers intend to lodge the final stage of legislation that will pave the way for all couples to be taxed independently. This legislation will contain the compensatory allowance that will ensure a smoother transition for marginal rate couples who would otherwise lose out financially. As above, this is subject to approval by the States Assembly.

International Tax Reform

For the past several years, the OECD has been working intensively to establish a new global tax framework, aimed at addressing the challenges of increased globalisation and the digitalisation of the economy. The Government of Jersey has been closely engaged throughout every step of this process through Jersey's seat in OECD fora.

On 8 October 2021, the OECD Inclusive Framework – of which Jersey is a founding member

– released a statement on a two-pillar solution, in which 136 jurisdictions, including Jersey, joined the political consensus on the new tax framework.

The proposed elements of these pillars are targeted and limited in scope, focussing on the world's largest Multi-National Enterprises (MNEs). The October announcement was an important political stepping-stone and established the Building Blocks for the tax reform process. But significant further technical work is ongoing and implementation plans remain to be developed. Jersey remains actively involved in these discussions.

If ultimately agreed by Inclusive Framework:

• Pillar One of the Building Blocks will create new profit allocation rules for the world's largest Multi-National Enterprises (MNEs), with global turnover in excess of 20bn and profitability in excess of 10%. The Pillar 1 rules will exclude Regulated Financial Services. For the very small and targeted number of MNEs globally that are impacted by Pillar One, certain of their profits would be re-allocated to market jurisdictions; and

• Pillar Two of the Building Blocks will introduce a new framework of taxation whereby Multi-National Enterprises (MNEs) that are in scope (those with global revenues of at least 750m) would pay a Minimum Effective Rate of taxation of 15 percent, with an important carveout for investment entities (such as funds). This Minimum Effective Rate would be calculated in a specific way based on financial statements and on a country-by-country basis.

Pillar One is a minimum standard that Jersey will be required to introduce in legislation, notwithstanding the minimal practical impact. However, Pillar Two is a common approach, giving Jersey options regarding how, if at all, a global minimum tax would be implemented in Jersey. The Government is engaged in extensive stakeholder engagement and data analysis

– locally and internationally – to understand potential impacts of the various policy options. However, it is not possible at the present time to clearly predict what MNE behavioural effects may be, given that impacts will depend in part on what other jurisdictions do with implementation and the timing of those actions. As no political decision has been made on Pillar Two, this Government Plan contains no estimate of any potential impact the reform measures may have. This position will be kept under review for future Government Plans as decisions on implementation are made.

Reporting Information by Partnerships

Following the introduction of new economic substance rules for partnerships in 2021, partnership filing requirements are being amended. Partnerships will file one combined notification each year, which will be used to capture all relevant information relating to the partnership's economic substance and income tax. The opportunity will also be taken to bring the general partnership assessing rules into line with that for other Jersey partnership vehicles, giving their partners full responsibility over their tax position. The changes to the law and filing processes have been subject to a public consultation.

Company Tax Return Filing Deadline

To help ease pressures over the Christmas period, Ministers are proposing to move the deadline for companies to file tax returns from 31 December to 30 November. This measure, which was subject to a public consultation, will also align the filing and payment deadlines for companies.

GST on Menstrual Sanitary Products

In agreeing P.66/2022[6], the Assembly previously requested the Minister for Treasury and Resources to issue law-drafting instructions to make all menstrual sanitary products exempt from GST. The 100 Day Plan includes an alternative proposal to provide free sanitary products.

The Assembly's decision made to exempt all menstrual sanitary products from GST will however be respected unless a specific proposition rescinding that decision is brought forward and adopted by the Assembly.[7]

Public Sector Spending 2023-2026

This Government Plan proposes £966 million of spending in 2023 on delivering services to Islanders. While the impact of the Covid-19 pandemic on Government finances is reducing, this plan also includes £30 million of necessary and contingent funding to respond and recover from the pandemic in 2023. This is a reduction from the £86 million budgeted for Covid-19 in 2022.

Recognising the impact of rising inflation on government expenditure, an additional £53 million has been provided in 2023. Further amounts are built into the plan for the impact of inflation in future years.

In addition to the costs of the pandemic response in 2023, we will be investing a further £61 million in initiatives that support the delivery of ministerial priorities (including the 100 Day Plan).

The table below shows how expenditure changes in each year of the plan.

Figure 6: Income and expenditure trends before depreciation

Inflation and Formula Driven Growth

It is both prudent and good financial management to plan for the impact of economic influences on Government finances. As such, we have set aside amounts to cover inflationary pressures on pay (held centrally), benefits and non-pay expenditure.

4% of non-pay expenditure inflation has been allocated directly to departments (after allowing for inflation on departmental income capped at 2.5%). 2.7% has been held centrally to contribute to the Value For Money savings target in 2023.

Since parts of our organisation will be subject to inflation at much higher levels, for example fuel supplies, a provision is being made and will be held centrally for these excess inflation items.

Inflation is, by nature cumulative, and so this amount grows throughout the plan. There remains a significant amount of uncertainty around levels of inflation. Higher inflation will typically lead to increased levels of both income and expenditure. It is proposed that if inflation is higher than forecast and income forecasts consequently increase, any unspent amounts at the end of 2022 are prioritised to provide additional provision in the reserve against the corresponding impact on expenditure in 2023.

The Plan also includes a number of areas of expenditure that are determined by pre-agreed formulas: an annual 2% increase in Health budgets to maintain service standards and meet the costs of health care inflation, staged increases in the JOA budget to 0.3% of GVA by 2025, and maintenance of spending on Arts, Heritage and Culture as 1% of government expenditure.

Revenue Growth Funding

This plan proposes additional funding for departments to meet the immediate priorities identified by the Council of Ministers. This funding totals £63 million in 2023 over and above amounts included in previous plans and is in addition to departments' existing budgets. Additional funding is provided to address service pressures across all areas of government, including significant additional funding for health, education and children's services. The States Employment Board will have a continued focus on strategic workforce planning, which will consider how any headcount implications of the growth should be managed to reduce the impact on the wider labour market, in conjunction with the Value for Money programme.

£10 million of this growth has been held centrally in the reserve, where the exact amount of timing of spend is still uncertain. This includes provisions for potential inflation in excess of RPI, and funding of the ongoing financial consequences of elements on the 100 Day Plan which are yet to be finalised.

Whilst there may be a need for further investment in future years, these costs should be met through the simplification and rationalisation of existing government activities and any improvements in income forecasts. Departments will not be able to commit to additional expenditure until this is realised.

Figure 8 provides a summary of this additional funding by department (including amounts held centrally). Further information on the proposed additional expenditure can be found in Appendix 3.

Value for Money

The targets previously included in Government Plan 2022-2025 have been reviewed by the Council of Ministers, and reprofiled across the period which is considered to be a more realistic plan. In 2023, £7 million of the £10 million target will be achieved through restraint in the allocation of non-pay inflation, with a further £3 million delivered through the Value For Money programme, which is set out in the next section of the plan.

These targets are a minimum reduction in overall expenditure, and the Council of Ministers will look to simplify operations, stop services that are no longer required and improve efficiencies across government. This will allow funding to be reprioritised into areas needing further investment, or further reduce overall spend. This work is part of the longer term VFM programme, expected to deliver full year impacts from 2024.

Covid-19 Response and Recovery Spending

Whilst the impact of the pandemic has reduced, we will still be providing £25 million for direct costs of the pandemic in 2023. Whilst much of the cost is one-off, there are some items where spend will continue into 2026 and beyond[15]. In future plans these will begin to be incorporated into departmental expenditure, to reflect the ongoing costs of living with Covid- 19. As the ongoing impacts of Covid-19 continue to be uncertain, a reserve of £5 million has also been provided in 2023 to meet unforeseen costs of Covid-19 or other health protection incidents. If possible, this will be supplemented by unspent allocations at the end of 2022.

Depreciation

Depreciation represents the cost of using Government assets in the provision of services. It is included when calculating whether the Government is running a surplus or a deficit, which follows FPP advice, and helps to ensure that the need to continue to invest in assets is adequately recognised in planning.

The increase in depreciation during 2023-2026 reflects an estimated uplift in asset values, as a result of either assets being created or replaced.

Revenue Heads of Expenditure

The Government Plan is required, by the Public Finances Law, to set out the proposed amount to be spent from the Consolidated Fund by each head of expenditure, after allowing for any estimates of departmental income. Heads of expenditure within this Government Plan relate to each Government of Jersey department, non-Ministerial and other states bodies, and also central items and reserves. In addition, a separate head of expenditure for Covid-19 related expenditure is included to allow expenditure in those areas to be clearly tracked and reported on.

Expenditure is approved in this manner to ensure that there is clear accountability, both at political and officer levels. Expenditure has been allocated to departments for 2023, and estimates produced for 2024 to 2026. The departmental expenditure limits for 2023 incorporate both existing resource requirements and new funding, but exclude pay-inflation, which is held centrally.

Following the refinancing of the pre-existing past-service pension liabilities in 2022, a separate head of expenditure to meet the interest cost of the bond issued has been created, with the budgets previously used to service the liabilities transferred from CYPES and T&E. In addition, transfers to the Strategic Reserve to form a sinking fund for the eventual repayment of the bond are included in the States Funds section.

Changes to Ministerial Accountability

The proposed revenue heads of expenditure include changes to align departmental budgets to ministerial remits, as required by P.52/2022 and as set out in the Council of Ministers' 100 Day Plan. The Cabinet Office head of expenditure brings together the budgets for the Chief Operating Office, Office of the Chief Executive and Strategic Policy, Planning and Performance department.

Following an amendment to the Government Plan, the Infrastructure, Housing and Environment Department was split into Environment and Infrastructure Heads of Expenditure and the Department for the Economy was split into Economic Development, Tourism, Sport

& Culture and Financial Services. [16]

Other changes to reflect ministerial accountability include the transfer of the Office of the Superintendent Registrar to Justice and Home Affairs and the transfer of the Library to Children, Young People, Education and Skills. These have been reflected as departmental transfers, with details published in an annex to the Government Plan.

Table 14: Revenue Heads of Expenditure

Reserve Heads of Expenditure

The General Reserve is held outside of operational expenditure limits, and can be used to meet unforeseen pressures, or to provide advance funding for urgent expenditure in the public interest. In each year, amounts are held to manage fluctuations in benefit expenditure due to economic changes, and to allow one-off funding for emerging issues. In 2023 an additional £5 million has been provided to support initiatives to reduce hospital waiting lists.

A Covid-19 contingency of £5 million has been included, alongside a separate provision to meet the incremental cost to front-line services of the parental leave policy introduced across the Government in 2022.

£10 million of revenue growth has been held centrally in the reserve where the exact amount of timing of spend is still uncertain. This includes provisions for potential inflation in excess of RPI, and funding of the ongoing financial consequences of elements on the 100-day plan which are yet to be finalised.

£10 million was allocated in the Reserve in 2022 for assisted home ownership schemes, and any amounts not used in 2022 will be carried forward within the reserve for the same purposes. The Minister for Treasury and Resources will review other unspent reserves at the year end and consider the need to carry forward such amounts into 2023, including sums to pump prime resourcing of the VFM programme.

Following an amendment to the Government Plan, it was agreed to reduce the General Reserve in 2023 and 2024 for the purposes of funding the Jersey Care Model (including digital systems) and the Digital Care Strategy.

The Reserve for Centrally Held Items includes provisions for inflation that have not been allocated to departments, including pay and excess inflation provision. Inflation is by nature cumulative, and the provision consequently increases in latter years of the plan.

Delivering Value for Money

Islanders have expressed a view that we must continue to drive value for money in everything that Government does. External reviews have also made recommendations as to how we must change our public services to improve trust and reliability.

It is vital that the Government establishes a clear plan for the prioritisation of service delivery outcomes as well as the efficient and effective use of resources.

This Council of Ministers proposes to establish a Value For Money (VFM) programme, over the next four-year period, which will engender a strong and positive financial management culture that strives for continuous improvement, delivers cashable efficiencies, and improves productivity and reliability of its services ensuring that taxpayers, service users and Islanders receive better value for money outcomes.

Providing efficient and effective services will be an important part of the Government's agenda over the next 4 years. A productive Public Service not only underpins public trust but also delivers wider benefits for our Island and our economy. To be successful in this regard, it is recognised that the Government and its services need to engage with employees, service users and customers, to better understand their experiences and needs in order to achieve congruous outcomes.

Islanders have demonstrated their desire for change. We must re-build trust by delivering a professional Government based on integrity, strategic thinking and clear communication whilst ensuring delivery of value for money to the taxpayer.

The objective by 2026 is to have restored trust and accountability in Government by focusing on two outcomes:

• Trusted, reliable and value for money public services.

• Government that is responsive, compassionate and accessible, and public servants are supported to do their best work.

Objective  Restoring trust and accountability in Government for 23-26

A government that is responsive, Trusted, reliable and

Outcome  compassionate, and accessible.

value for money

by 2026  Where public servants are supported to

public services

do their best work.

Objectives of the Value for Money Programme

The Value For Money programme aims to drive a culture in which all colleagues across Government understand and act on their responsibility to ensure that for each action and decision there is focus on the elimination of wasteful processes and spend and a focus on improving service delivery.

Over the next four years we will focus on the following:

• Ensuring that Government spending is targeted and that value for money is improved for taxpayers.

• Controlling growth in expenditure and rigorously managing debt.

• Introducing targeted areas of spend restraint through specific controls and the identification of achievable and sustainable efficiency savings.

• Ensuring we invest appropriately in service improvements, as well as the overall priorities of the government.

• Supporting cost effective solutions for the delivery of all public service.

• Ensuring high performing vital emergency and frontline services.

• Timely delivery of crucial capital projects to support public services whilst adhering to optimal value for money principles, including but not restricted to, the new sewage treatment works, a mental health facility and improvements in the school estate.

• Optimising the Government's property portfolio.

• The Council of Ministers will continually seek to identify opportunities for joint working with Guernsey which could generate improved value for money through collaboration, whether through revenue savings or more effective services.[24]

Programme Delivery

In simple terms, improving efficiency means that Government is able to spend less and achieve the same or spend the same and achieve more and improve outcomes; carrying out activities faster, or with fewer resources or to a better standard.

A Political Oversight Group, chaired by the Minister for Treasury and Resources, will oversee the implementation of this programme of work to ensure a culture of visible focus, attention to efficiency and the provision of better value for money services will be cascaded throughout Government. The programme will drive these outcomes through the following approaches:

1. Cashable Savings Targets and delivery plans for each Department.
2. A Productivity Improvement Programme.
3. A series of Best Value Reviews.

Cashable Savings

The Fiscal Policy Panel has recommended that efficiencies should be sought regardless of the stage of the economic cycle, but also noted that "efficiencies can be difficult to deliver" and as such should only be relied upon if there is a clear plan for delivery.

Cashable efficiency targets have been allocated to Departments as part of the Departmental Revenue Budgets and are detailed, for 2023, in the table below. Delivery plans including SMART targets will be tracked and monitored, with progress reported through the VFM programme governance to Council of Ministers and regular reporting to stakeholders for transparency and scrutiny. Detail for future years will be provided in future Government Plans.

Departments will ensure there are tight controls and rigorous spend validation across their budgets and headcount. A series of thematic deep dives will be conducted to support departments in the delivery of their VFM targets. For example, in 2023 there will be 3 prioritised areas of focus; Health & Community Services; Infrastructure, Housing & Environment; and technology spending.

The targets previously included in Government Plan 2022-2025 have been reviewed by the Council of Ministers, and reprofiled across the coming 4-year period which is considered to be a more realistic plan. In 2023, £7 million of the £10 million target will be achieved through restraint in the allocation of non-pay inflation, with a further £3 million delivered through the VFM programme. The non-pay inflation saving is shown against the Reserve for Centrally Held Items below.

The targets, in the table below, are a minimum reduction in overall expenditure, and the Council of Ministers will look to simplify operations, stop services that are no longer required and improve efficiencies across government. This will allow funding to be reprioritised into areas needing further investment, or further reduce overall spend. This work is part of the longer term VFM programme, expected to deliver full year impacts from 2024.

Productivity Improvement Programme

Efficiency and effectiveness are not only about more for less cost, but also about better services. Given the relative size of Government spending, the annual public purse, a more productive Government will also have benefits for the wider economy.

The VFM programme will therefore launch a refreshed focus on improving productivity. With the implementation of training and tools, staff will be able to identify and remove wasteful and unproductive process which impact on services often creating delays and negatively impact of service user experience. The aim will be to improve how well we do things, how quickly and smoothly services are delivered, thus improving the customer experience as well as the work environment for staff.

Best Value Reviews

Best Value Reviews will be a fundamental part of the VFM programme. Reviews will be conducted in specified services, to confirm there is alignment between the Government's strategic priorities and service delivery outcomes, while considering for example, appropriate resources to deliver desired outcomes and appropriate form of service delivery. Best Value Reviews will be conduct using multi-disciplinary teams, subject matter experts and contributions from service users. Best Value reviews will ensure we invest appropriately in services improvements and that we are able to demonstrate improved outcomes and more cost-effective services.

Governance

These programmes will only yield successful outcomes with visible leadership from the top and effective governance.

 We will ensure that the programme benefits from fit for purpose programme governance and oversight. The Political Oversight Group, with other Ministers, will provide clear and visible leadership. The Executive Leadership Group will be responsible for leading and cascading the programme aims and targets through their respective Departments, including engagement with employees. The programme will track, monitor on agreed targets, providing transparent reporting to stakeholders.

Capital and Other Projects 2023 - 2026

Introduction

The Capital Programme sets out expenditure on the development and replacement of the Island's assets, including Estates, Infrastructure, Equipment and IT. It is essential that we continue to invest in the replacement and maintenance of our Island's assets so that we can deliver the services that Islanders need. This does not include the capital plans of the States of Jersey Development Company, Andium Homes and other State-Owned Entities, who will also be investing significantly across the plan period.

The allocation of funding to projects is on a cashflow basis and approvals are annual even though a four-year view of cashflow is presented. For Major Projects the first year of expenditure is approved with the total cost of the project also presented for approval where required. No property disposals have been included in the plan, but the Minister for Treasury and Resources can approve changes to funding allocations for projects through the application of property receipts or other income.

In some cases, one-off projects in delivery from previous plans may incur some costs in 2023 due to unforeseen delays. Heads of Expenditure established in previous plans will continue to exist to allow for this.

Deliverability and Affordability

The Government has consistently allocated more in aggregate to Capital Projects than departments have been able to spend. This has tied up tens of millions of pounds of taxpayers money that could have been productively invested in other projects.

In developing an updated capital programme for this government, both the affordability and deliverability of the programme have been considered.

• Deliverability – the programme should take into account the internal and external capacity constraints. This includes the capacity of the market to deliver the work (for example the capacity of the construction industry), and the government's internal capacity to develop and manage the projects. It also includes other factors such as the time to secure planning approval.

• Affordability – government must have sufficient funds to pay for the capital programme – in particular, a forecast positive Consolidated Fund balance must be maintained.

Capacity constraints differ based on the nature of the project, and the deliverability of construction (estates), specialist construction (infrastructure), replacement assets and Information Technology have been separately considered.

Large scale exceptional projects were also considered separately, as these can often be delivered outside of normal capacity constraints, especially once in delivery.

The timing of spend on existing projects from previous plans has been reviewed and reprofiled. This work is closely aligned to the project delivery frameworks in place within Corporate Portfolio Management Office (CPMO) for both construction and non-construction projects.

Project Gateways

•Feasibility  

Strategic  funding in  Outline  Full

Outline  GP Business  Included as a  Business  Project moves

Case  •Informs  Case  project with  Case  into delivery (SOC) future  (OBC) costings (FBC)

years totals

Projects typically require high levels of funding to spend over multiple years. Project planning requires decisions to be taken on the basis of estimates and successful delivery can be subject to several risks. To help to ensure that governance processes support VFM and it is important that decisions can be taken to stop or amend a project throughout the decision cycle. Accordingly, planning for projects now follows a three-stage approach that helps to control for the inherent risk and uncertainty involved in seeking to determine cost and resource requirements often several years in advance of project commencement.

- Stage 1: Strategic Outline Case (SOC) – projects first enter the programme following the completion of an SOC. This is an early-stage business case that also provides high-level estimates of likely financial and resource requirements. In accepting an SOC, the Government will commit funding and/or internal officer time to further feasibility work that aims to develop a more detailed and comprehensive business case. Government Plan allocations for future years will be informed by the potential cost implications, but, as costings are still elementary, no express commitment is made to deliver the project until a more detailed Outline Business Case has been prepared and agreed.

- Stage 2: Outline Business Case (OBC) – the OBC is the principal planning document for projects. It is drafted after detailed policy and feasibility work has been completed and thereby allows for a robust estimate of likely expenditure and resource requirements. After the OBC is approved, a project can generally be reflected in the Government Plan with assigned costings, for the Assembly's consideration.

- Stage 3: Full Business Case (FBC) – while OBC costings are the Government's best estimate of financial requirements developed following detailed policy and feasibility

work, they are still uncertain and based on assumptions. Changes in circumstances within the supply chains, the emergence of competing priorities, or wider economic change can give rise to unforeseen additional costs or reduce the anticipated benefits that will accrue from the project. The FBC allows a final decision point once actual commercial terms have been agreed, and the project is ready for implementation. If the FBC is accepted by Ministers, the project will move into delivery.

Major Projects

The PFL defines major projects' under Article 1 as follows:

1. a capital project the duration of which, from start to finish, is planned to be of more than one year and the total cost of which is planned to be of more than £5 million; or
2. a project that has been designated as a major project under an approved government plan;

Major Projects are separately identified within each section of the programme.

Grouped Heads of Expenditure

Grouped Heads of Expenditure were introduced in the Government Plan 2022-2025. Grouped Heads improve flexibility, allowing Accountable Officers to manage individual projects within a wider programme so that any individual delays or changes to project expenditure can be managed within the approved financial envelope. It is only possible to adopt this approach where the projects concerned support similar outcomes.

In future years where the exact timing and amount of funding required is uncertain, a single amount has been included, with an indication of which projects may be funded from it. More detailed allocations would be made in future Government Plans. This approach gives clear visibility of future projects, without the inclusion of figures where the amount or timing of spend remains uncertain.

Major Projects will not be included in a grouped head of expenditure once the total expenditure for the project has been agreed in a Government Plan. However, some projects planned for future years of a grouped head of expenditure may ultimately become Major Projects (for example if the estimated costs exceed £5 million). For example a replacement school would almost certainly become a major project, but would remain in the New School and Educational Developments grouped head of expenditure until timing and costs are confirmed in an Outline Business Case.

Where a head of expenditure provides ongoing annual funding that will be used for a range of projects (a "rolling vote") only the current year of approval is considered in terms of classification as a Major Projects.

Longer Term Capital Planning

The intention is to publish a 25-year outlook for project investment by 2024 once the priorities of the new Government are agreed. This programme will be centred on the requirements of the Island as set out in the relevant policies and guidance.

In 2023, we will be working on a strategic process that gathers together the total Government portfolio of land and buildings and reviewing the gaps in the short, medium and longer term. This will necessarily be informed by the requirements of each service area and their future objectives. The current level of replacement and maintenance costs will be relevant in this regard and developments in estates management and enterprise asset management will support this project, as will the plan condition survey of the States Estate.

The Capital Programme

The Capital programme allocates £363 million to projects across 2023-2026, which will invest in our Estate, Infrastructure and Information Technology, as well as allowing for the replacement of assets. More details on the individual projects in each area (including Major Projects) are given in the following sections. Project totals (including previous approvals/spend) are included where appropriate for individual projects. They are not included for "rolling votes" or grouped heads of expenditure.