Budget Statement 2018 - FULL STATEMENT AS ADOPTED AS AMENDED

BUDGET STATEMENT 2018

(P.90/2017)

AS AMENDED FOLLOWING THE STATES DEBATE OF 28-30 NOVEMBER 2017

Proposition

Draft Budget Statement 2018

(as adopted on 30 November 2017)

The States decided:

1. to approve, in accordance with the provisions of Article 10(3)(a) of the Public Finances (Jersey) Law 2005, the estimate of income from taxation during 2018 of £689,146,000 as set out in Summary Table A of the Budget Statement, with the sum to be raised through existing taxation measures and the proposed changes to income tax, impôts duty, goods and services tax, stamp duty, land transactions tax and vehicle emissions duty for 2018, as set out in the Budget Statement; except that, in relation to vehicle emissions duty, rates shall be increased by 5%; except that the estimate of income from taxation during 2018 shall be increased by £2,100,000 by amending the band limits which apply to the application of vehicle emissions duty in relation to the manufacturer's CO2 emission specifications in line with the table below –

2. to approve, in accordance with the provisions of Articles 10(3)(c) and 11(3) of the Public Finances (Jersey) Law 2005, the appropriation of £10,424,000 in 2018 and the full year effect amounting to £9,400,000 in 2019 from the amount appropriated to growth in the Medium Term Financial Plan Addition for 2017 – 2019 (P.68/2016) to the revenue heads of expenditure of those States funded bodies as set out in the recommended allocation of growth expenditure in Summary Table B; except that the Council of Ministers and the Minister for Treasury and Resources are requested either (a) to allocate the required sum of £1,894,000 to the Department for Infrastructure from Contingency in 2018, or (b )to prioritise the provision of that sum to the Department for Infrastructure from available underspends at the end of 2017, and carried forward to 2018, in order to provide for the payment of Rates on States' properties to the Parishes, as agreed in the current Strategic Plan and the Medium Term Financial Plan, and that the allocation for the payment of Rates by the States as part of the Central Growth proposals in the 2019 Budget and beyond be reinstated;
3. to approve, in accordance with the provisions of Article 10(3)(d) of the Public Finances (Jersey) Law 2005, a capital head of expenditure for each of the capital projects for States funded bodies to be started or continued in 2018 (other than States trading operations), as set out in the recommended programme of capital projects in Summary Table D, totalling £43,233,000; and
4. to approve, in accordance with the provisions of Article 10(3)(e) of the Public Finances (Jersey) Law 2005, each of the capital projects that are scheduled to start during 2018 in the recommended programme of capital projects for each States trading operation, as set out in Summary Table E, that require funds to be drawn from the trading funds in 2018;

5. to request the Minister for Treasury and Resources: (i) to undertake a programme of engagement and awareness-raising with UK firms that charge Value Added Tax (VAT) on goods delivered to Jersey to encourage them to levy the correct sales tax; (ii) to explore with those businesses the opportunities for those businesses to collect any GST due from the consumer and remit that GST directly to the Taxes Office in order to expedite the delivery of the goods; (iii) to report on progress with this work by 10th April 2018; and (iv) to make available from the Contingency budget the resources required to ensure that this work is undertaken without affecting progress with other work-streams;
6. to request the Minister for Treasury and Resources: (i) to undertake a review into the feasibility of extending the scope of GST to include the supply of digital services into Jersey by businesses with no establishment in Jersey; (ii) if it is feasible, to bring legislation to the Assembly no later than the 2020 Budget which seeks to extend the scope of GST to include the supply of digital services into Jersey by businesses with no establishment in Jersey; (iii) to undertake a programme of engagement and awareness-raising with UK or EU digital service suppliers to ensure that they levy the correct sales taxes; and (iv) to make available from the Contingency budget the resources required to ensure that this work is undertaken without affecting progress with other work-streams;
7. to request the Minister for Treasury and Resources to review the principle that income tax is not expected to be due on profits arising from mutuals or similar organisations which compete with other traders who are or will be subject to Corporation Tax on their trading profits;
8. to request the Chief Minister to: (i) request the Channel Islands Competition and Regulatory Authority (CICRA) to undertake an inquiry under Article 6(4) of the Competition Regulatory Authority (Jersey) Law 2001 into the Island's liquor trade, focusing in particular on the effect on competitiveness of including liquor trade on-licences in the retail tax extension, including the retails margins shown in Figure 20, and

(ii) agree terms of reference for the inquiry with CICRA, drawing on the draft terms of reference in the accompanying report.

Minister for Treasury and Resources

Contents

ADDENDUM TO BUDGET STATEMENT 2018 ......................................................................................................... 5 Addendum ............................................................................................................................................................. 6

PART A – INTRODUCTION ...................................................................................................................................... 8

1. Ministerial Foreword ............................................................................................................... 9

PART B – BUDGET STATEMENT 2018................................................................................................................... 15

2. Summary of Tax Proposals .................................................................................................... 16
3. Personal Tax Proposals .......................................................................................................... 17
4. Business Tax Proposals .......................................................................................................... 21
5. Impôts Duty Proposals ........................................................................................................... 27
6. VED Proposals ........................................................................................................................ 30
7. On-going Taxation Work ........................................................................................................ 34
8. Financial and Manpower Implications ................................................................................... 38

PART C – GROWTH............................................................................................................................................... 39

9. Proposed Central Growth Allocation 2018 ............................................................................ 40

PART D – PROGRAMME OF CAPITAL PROJECTS .................................................................................................. 48

10. Proposed/Indicative Capital Programme 2018-2019 .......................................................... 49

PART E – FINANCIAL FORECASTS ......................................................................................................................... 75

11. Financial Forecasts 2017-2021 ............................................................................................ 76

PART F – THE ECONOMIC OUTLOOK ................................................................................................................... 89

12. Economic Background and Outlook .................................................................................... 90

PART G – SUMMARY TABLES ............................................................................................................................. 100

PART H – APPENDICES ....................................................................................................................................... 108 Appendix 1 – IFG: Income Tax Forecasts Update 2017-2021 ............................................................................ 109 Appendix 2 – IFG: GST and ISE Fee Forecast Update 2017-2021 ...................................................................... 116 Appendix 3 – IFG: Impôts Duty Forecast Update 2017-2021 ............................................................................ 118 Appendix 4 – IFG: Stamp Duty Forecast Update 2017-2021 ............................................................................. 121 Appendix 5 – IFG: Other Income Forecast Update 2017-2021.......................................................................... 124 Appendix 6 – Economic Assumption (August 2017) .......................................................................................... 128 Appendix 7 – Financial Forecast – Additional Considerations ........................................................................... 129 Appendix 8 – Social Security Fund Forecast 2017-2021 .................................................................................... 134 Appendix 9 – Health Insurance Fund Forecast 2017-2021 ................................................................................ 138 Appendix 10 – Long Term Care Fund Forecast 2017-2021 ................................................................................ 141 Appendix 11 – Economic and distributional analysis of the proposed extension of corporate tax .................. 143 Appendix 12 – Oxera Review of Employment Income Forecast (restated)....................................................... 162

ADDENDUM TO BUDGET STATEMENT 2018

Addendum

Amendments Approved

At the conclusion of the States debate on the 2018 Budget on 30November 2017, the States had approved two amendments to the original proposition from the Minister for Treasury and Resources and one amendment to the Finance (2018 Budget) (Jersey) Law (P.98/2017) which had an impact of States revenues in 2018.

Second amendment (as proposed by the Connétable of Grouville )

This amendment had two parts: part one increased the VED rates chargeable for emissions band by a further 2.5% in 2018 (the Minister for Treasury and Resources had already proposed a 2.5% increase for 2018); part two adjusted the thresholds for each of the emissions bands by which VED is determined.

First amendment (as proposed by the Connétable of St Helier and amended by the Comité des Connétable s)

This amendment removes the States exemption from paying parish and Island-wide rates on houses and buildings (including premises appertaining thereto) and car parks from 2018.

First amendment to the Finance (2018 Budget) (Jersey) Law (as proposed by the Connétable of St Helier and amended by the Comité des Connétable s)

This amendment gives legal effect to the States decision in the Budget to remove the exemption from the States in respect of parish and Island-wide rates.

The following amendments were also approved during the course of the Budget debate but have no impact on States revenues in 2018:

Fifth amendment (as proposed by Senator Ozouf and amended by the Minister for Treasury and Resources)

This  amendment  has  the  effect of  requesting that  the Minister  for  Treasury  and  Resources  undertake  a programme of engagement and awareness-raising with UK businesses who levy UK VAT on goods delivered to Jersey to encourage them to apply the correct VAT treatment and to explore with those businesses the opportunities to collect any GST due from consumers based in Jersey and remit that GST directly to the Taxes Office in order to expedite the delivery of goods. The Minister for Treasury and Resources is required to report on the progress of this work by 10 April 2018.

Sixth amendment (as proposed by Senator Ozouf and amended by the Minister for Treasury and Resources)

This amendment has the effect of requesting that the Minister undertake a review into the feasibility of extending  the  scope  of  GST  to  include  the  supply  of  digital  services  into  Jersey  by  businesses  with  no establishment in Jersey.

Seventh amendment (as proposed by Senator Ozouf ) – part (i)

Part (i) of this amendment requests the Minister to review the principle that profits arising from mutual trading activities are not taxable. Part (ii) of this amendment, requiring amending legislation to be brought forward by the 2019 Budget, was rejected by the Assembly.

Eighth amendment (as proposed by Senator Ozouf )

This amendment requests the Chief Minister to request CICRA to undertake an inquiry into the Island's on- licence liquor trade.

Further work committed to during Budget debate

In addition to the reviews required to be undertaken by reference to the adopted Budget amendments, the Minister for Treasury and Resources also committed to a number of other reviews during the course of the Budget debate:

Duty free allowance for tobacco

A review will be undertaken into the feasibility of reducing the duty free allowance for tobacco to 40 cigarettes. Subject to the findings of that review, any legislative changes required will be brought forward no later than Budget 2019.

Taxation of Class 1 bookmakers

A review will be undertaken into the feasibility of extending a positive rate of corporate income tax to licensed Class 1 bookmakers. Subject to the findings of that review, any legislative changes required will be brought forward no later than Budget 2019.

Taxation of large liquor vendors

A review will be undertaken into the feasibility of extending a positive rate of corporate income tax to "large liquor vendors". Subject to the findings of that review, any legislative changes required will be brought forward no later than Budget 2019.

Summary

The approved amendments to the 2018 Budget will increase the estimate of total taxation revenue in 2018 by £2,200,000 from £689,146,000 to £691,346,000.

The balance on the Consolidated Fund at the end of 2018 is estimated to be £56,848,000

The full 2018 Budget statement P90/2017 (as amended) can be viewed at: www.statesassembly.gov.je

PART A – INTRODUCTION

1. Ministerial Foreword

Introduction

Budget 2018 builds on the package of measures agreed in the Medium Term Financial Plan (MTFP), combining savings, efficiencies and revenue raising measures to enable investment in priority services. It does this in a balanced and prudent way that ensures Jersey's continued prosperity by preserving strong public finances and delivering balanced budgets by 2019.

When developing the Strategic Plan, Ministers listened to Islanders, businesses and independent experts, and identified our priority investment areas as health, education, infrastructure and promoting economic growth. Since then we have been investing in these priorities and ensuring we have sustainable finances for the long term.

Budget 2018 continues that work. It supports working families by increasing tax allowances and asks businesses and future High Value Residents to contribute a little more. It continues to support the economy in the short term, maintains investment in the health and social care we need as our society ages, and funds improvements to schools so all our children can develop the skills they will need to achieve fulfilling lives and careers.

Of course, there are still some difficult decisions ahead of us.

User-pays charges proposed as part of a package of measures in the MTFP were carefully developed in the context of our priorities. If we do not implement these, or if equivalent revenue raising measures are not found, we will not be able to fully fund the growth in spending we need in health, social services and education.

Budget 2018 is the latest stage of the MTFP, which incorporates efficiencies, savings and charges to enable investment in priority services and achieve broadly balanced budgets by 2019. Budget 2018 is critical to the delivery of the financial plan agreed by the States Assembly and to securing Jersey's future.

Economic outlook

The  latest  data  shows  Jersey's  economy  is  continuing  its  recovery,  with  businesses  feeling  positive  and employment at an all-time high. The economy grew by 1% last year, earnings continue to grow faster than inflation for the fifth successive year, and registered unemployment has fallen to its lowest level since 2009. There are a number of challenges on the horizon, not least the implications of the UK exit from the EU, but these also present some opportunities.

The Fiscal Policy Panel (FPP) has updated its economic assumptions and now expects Gross Value Added (GVA) to grow slightly more than expected in 2017 and 2018. Employment growth is expected to continue but slightly slower growth is anticipated in financial services profits. In its August 2017 letter, the panel continues to advise that we should balance our budgets by 2018/19 and support the economy in the short term.

The panel has raised concerns that revenue-raising measures proposed as part of the MTFP package are proving difficult to implement. The panel is urging us to implement these, or comparable measures, to address a structural imbalance by 2018/19.

Based on the latest data and the new economic assumptions, the income tax forecast is unchanged for this year and next. However, the forecast has been reduced by between £2 million and £3 million per year from 2019 because of earnings growth being slightly lower than expected and the lower assumptions for financial services profits.

There is also a reduction in income forecasts from impôts, Island-wide rates and investments from 2018-2021, mainly due to the effect of the lower Retail Price Index (RPI) and interest rate assumptions.

Budget proposals

Personal tax

I am proposing to increase the tax-free income allowance for working-age people by the June RPI figure of 2.5%. This will benefit 35,000 taxpayers, reducing a single person's annual tax bill by £91 and that of a married couple or civil partnership by £156.

This measure will take Jersey's personal tax free income allowance (for a single person) to £14,900, which compares to Guernsey's allowance of £9,675, the UK's of £11,500 and the Isle of Man's of £12,500.

I  intend to  increase  the  second  earner's  allowance  by  £850 to £5,850,  which  eliminates  the  disparity  in allowances between married and cohabiting couples, where both partners are earning. This measure will benefit 12,000 households.

I am also proposing to increase the minimum annual tax payable by new High Value Residents from £125,000 to £145,000 and to review their minimum tax contribution every five years, starting in 2023. This will apply from January 2018.

Company tax  

I am proposing a number of changes to our corporate tax regime to help fund the necessary investment in health and social care.

First, I am widening the definition of a financial services company to move more financial services companies into the 10% tax rate. This will raise an extra £3 million a year.

Last year I said we would look at how best to tax large retailers. After detailed research, I am now proposing to apply a 20% income tax to larger retailers.

Where the retailer's taxable profits are less than £500,000 a year, the company will be taxed at 0% on all of its profits.

Where the taxable profits are £750,000 or more, the company will be taxed at 20% on all its profits.

Where the taxable profits are between £500,000 and £750,000 a year, a tapering provision will reduce the effective rate on a sliding scale from 0% to 20%. This avoids the cliff edge' effect created in other jurisdictions.

This will raise an estimated £5.7 million a year from around 20 businesses, at least 75% of which are not locally owned.

I am also proposing to increase ISE fees and to require more companies to pay them. These fees, which are paid by regulated financial services businesses, currently raise approximately £9 million per year. This measure will raise an estimated £1 million from approximately 1,500 companies.

Impôts

I am proposing to maintain the value of the duty payable on alcohol, petrol and diesel by increasing it in line with RPI.

Given the considerable impact on people's health, and associated cost to government, of smoking, the duty on tobacco will increase in line with RPI plus 5%, with a slightly higher increase for hand rolling tobacco to continue equalising the duty rates.

Vehicle Emissions Duty

VED is charged when vehicles are first registered in Jersey, depending on the level of CO2 emission or engine size. The duty was introduced to encourage Islanders to choose low emission vehicles and I am proposing to amend the VED bands so that only cars emitting 50g CO2/km or less are exempt from paying VED.

This initiative is not solely aimed at raising additional revenue, but also at encouraging people to choose the least polluting vehicles. We are already seeing a gradual move to electric and hybrid vehicles in Jersey. In 2011 there were 82 new registrations. That rose to 148 in 2016 and 140 in the first eight months of this year. This is a trend that is accelerating globally with manufacturers adopting these new technologies. Volvo has announced that all its cars from 2019 will be electric or hybrid, and more than twenty motor manufacturers are offering scrappage schemes to encourage consumers to trade up to new, cleaner models.

This is positive for our environment but it does pose an eventual risk to government's income. Fuel duty currently raises £22 million a year, and we will be considering how to address the gradual reduction in this income as Islanders move to the less polluting options of electric and hybrid vehicles.

Growth proposals

The MTFP identified an extra £40 million per year to be spent on health and social care. This budget allocates £8 million of that funding in 2018.

We made it clear in the MTFP that without the necessary revenue-raising measures, this growth would not be affordable. Therefore, in this budget I am taking £2.1 million from 2018's growth allocation to fund the Department for Infrastructure, as a result of liquid waste charges being deferred until 2019.

The allocation of the remaining £11 million of growth for 2019 will be proposed in Budget 2019, subject to the approval of £11 million of waste charges or equivalent revenue raising measures.

Capital spending

The MTFP identified £168 million for capital projects over the four years of the plan, including £55 million for school buildings, £43 million for sewage works and £21 million for IT systems.

The MTFP identified £43 million for capital projects in 2018. Since then, departments have identified a number of additional priority projects and there have been some increases in estimated costs due to further feasibility work and rising inflation.

The extra £14.7 million needed is coming from unspent capital budgets, existing revenue budgets, and £6.5 million from the Criminal Offences Compensation Fund for the latest phase of work on the prison.

The capital projects for 2018 include the refurbishment of St Mary's Primary School and the final phase of redevelopment of Grainville School.

Nearly £7 million will be spent on projects in Health and Social Services, including the relocation of adult mental health services from Orchard House to Clinique Pinel.

More than £18 million has been allocated for infrastructure projects, delivering roads, drainage and sewage works.

Reserves

In line with FPP recommendations, it is important to ensure flexibility in our plans. This is delivered through annual budgets and contingencies as well as the balances in our current account, the Consolidated Fund. Jersey's financial performance in 2016 has left the Consolidated Fund in a strong position, which means it will no longer be necessary to withdraw money from the Strategic Reserve in 2018.

Future challenges

It is important that we develop sustainable funding mechanisms to meet the growing cost of health and social care. Our MTFP works as a package of measures, incorporating savings, charges and economic growth to fund priority services. It provides a clear strategy to balance budgets by 2019, focusing on the priorities agreed in the Strategic Plan.

Following the States Assembly's decision on waste charges I will work closely with the Infrastructure Minister in the coming months to consult Islanders on the details of such charges. The Fiscal Policy Panel has urged us to approve this, or comparable revenue raising measures, in time to be able to balance the budget by 2019.

I have already announced my intention to bring proposals on student finance to the Assembly. A number of options are still being evaluated and I intend to provide full details in November alongside the debate on Budget 2018.

Work on the final funding strategy and outline business case for a new hospital is continuing and I expect to be ready to lodge proposals for debate in December.

In consulting stakeholders over the payment of rates by the States, it has been made clear that 11 of the 12 Connétable s, who are the guardians of the parish rate system, do not support either the principle of the States paying rates or the specific proposal put to them. In light of this, I am not bringing forward measures in this budget.

Environment

The My Jersey' survey found that climate change is a key concern for Islanders. This budget is investing £17 million in infrastructure projects, following £650,000 allocated last year to prepare for the impact of climate change. Work has started to ensure our coastline is resilient to the effects of coastal and surface water flooding and to coastal erosion.

In 2018 the latest climate predictions will help identify appropriate solutions for the most vulnerable areas. There may be challenging decisions ahead and I will continue to support the solutions identified from this work.

I remain committed to maintaining Jersey's resilience by providing appropriate resources to Departments to maintain and adapt the defences that keep our businesses and homes secure; to reinforce the critical infrastructure that keeps our Island running; and to set standards for building homes fit for the future through the Island Plan review process, which will start in 2018. These actions will ensure Jersey continues to be a safe jurisdiction for all Islanders and businesses.

Review of personal tax system  

Earlier this year the Treasury, assisted by a working group of States Members, completed the first stage of a comprehensive review of personal tax. We released data in March that explained the impact of tax policy changes implemented from 2006 to 2015. This established a shared understanding of the Island's personal tax system, which will help us consider future changes.

The Treasury is now progressing with the second stage of the review, looking at how the personal tax system could be amended to remove some of the discrepancies in income tax paid by similar households. The increase in the second earners' allowance announced in this budget is a significant step in addressing such discrepancies.

The Treasury is building a tool that will allow us to model the impact, on both the Treasury and taxpayers, of moving from the current system of married couple taxation to a system of either independent or household taxation.

We will shortly start consulting Islanders on how this system might change and this consultation will continue throughout 2018.

Taxes Office modernisation  

I will soon be proposing the first tranche of the draft legislation I promised last year to improve Jersey's tax compliance framework and to enable online filing by personal taxpayers.

The legislation will introduce a range of civil penalties that will be easier and cheaper to enforce than existing penalties, which usually require intervention by Jersey's Commissioners of Appeal for Taxes or the Royal Court. These penalties raise the stakes for those who evade their tax obligations, and who can take advantage of the Disclosure Opportunity until 31 December 2017.

I expect the Taxes Office computer system to be replaced by 2020. If all goes to plan, the Comptroller of Taxes expects online filing to be offered from that time.

Work continues on integrating the assessment and collection of social security contributions with the personal tax system. This should be ready at around the same time, or soon afterwards.

Conclusion

The package of proposals in Budget 2018 builds on measures to protect and grow revenues in a fair and sustainable way, and it focuses available funds on the priority services identified in the MTFP. It does this in a balanced and prudent way that ensures Jersey's continued prosperity by preserving strong public finances and delivering balanced budgets by 2019.

We need to maintain investment in priority services and I believe our balanced approach to savings, efficiencies, and revenue raising secures that investment in a way that is fair, appropriate, and in the best interests of our island.

The post-Brexit reality is an uncertain one but our strong public finances and resilient economy are ready to manage both the opportunities and threats that will emerge. With our considerable reserves, minimal debt and net assets of more than £6 billion, our public finances are in a stronger position than those of most other places in the world. We want to protect this position, and Budget 2018 maintains the investment that will support our economy, create jobs and improve the living standards for all of us in Jersey.

Senator Alan Maclean

Minister for Treasury and Resources

PART B – BUDGET STATEMENT 2018

2. Summary of Tax Proposals

The Minister for Treasury and Resources considers annual Budget measures within the context of spending plans,  the  economic  situation,  current  income  forecasts  and  the  States  strategic  priorities.  The  spending proposals for 2018 were set out in the MTFP Addition 2017-2019 which was adopted by the States Assembly in September 2016.

A summary of the taxation proposals contained in the 2018 Budget has been provided below: Personal Tax Proposals

• Income tax exemption thresholds to be increased by 2.5% for working age people, delivering a tax reduction of £91 at 26% for a single person, and £156 at 26% for a married couple/civil partnership
• Second earner's allowance to be increased by £850 to £5,850 delivering a further tax reduction of £221 for married couples/civil partnerships where both are earning.
• Enhancements to the tax regime applied to high value residents, including requiring future high value residents to pay more
• Minor amendments to the rules applying to pensions and pension schemes including greater flexibility in accessing small pension funds

Business Tax Proposals

• Subjecting the profits of larger corporate retailers to tax at 20%
• Extending definition of "financial services company" to bring more companies within the scope of the 10% company income tax rate
• Increasing some International Services Entities ("ISE") fees paid by businesses
• Disallowing the deduction of rates by landlords renting property in Jersey consistent with the 2017 Budget amendment
• Legislating for the taxation of non-Jersey limited liability partnerships
• Introduction of a Stamp Duty anti-avoidance provision

Impôts Duty Proposals

• RPI limited increases in impôts duties charged on alcohol and road fuels
• Impôts duties on tobacco increased by RPI +5%, with a greater increase on hand rolling tobacco as a continuation of the policy to equalise the duty rate
• VED (as amended by the Connétable of Grouville ): 5% increase in the rates, plus reduction in the thresholds for the emissions bands

3. Personal Tax Proposals

Income tax exemption thresholds

The income tax exemption thresholds set the income level at which an individual or married couple/civil partnership[1] start paying personal income tax. An individual or married couple with income below the income tax exemption threshold that applies to them will not pay any personal income tax.

In addition every individual/married couple taxable by reference to the marginal rate calculation benefits from the income tax exemption thresholds; with the relevant income tax exemption threshold reducing the amount of income which is subject to the marginal rate of tax. Therefore increasing the income tax exemption threshold benefits the vast majority of taxpayers.

Consistent with established policy the Minister proposes to increase income tax exemption thresholds for working age[2] taxpayers by 2.5% which is the lower of: (i) the most recently published increase in the RPI (2.5% June 2017 RPI figure per Statistics Unit[3]); and (ii) the most recently published increase in average earnings figure (2.6% June 2017 figure per Statistics Unit[4]).

The impact of this proposal on income tax exemption thresholds is shown in the table below:

FIGURE 1 – Income tax exemption thresholds for 2017 and 2018 years of assessment

Married Couple/Civil Partnership – working age  £23,350  £23,950  £600  £156

As the following table highlights, the income tax exemption thresholds in Jersey are generous compared to the equivalent tax allowances in Guernsey, the UK and the Isle of Man.

FIGURE 2 – Single person exemption thresholds/personal allowance across comparable jurisdictions

Consistent with the established policy of moving towards a single set of income tax exemption thresholds for all taxpayers regardless of age, the income tax exemption thresholds for those born on or before 31 December 1951 are being maintained at their current level.

The personal income tax forecast is created utilising a number of economic assumptions (endorsed by the FPP). One of the economic assumptions utilised relates to the increase in RPI. Due to the fact that the June 2017 RPI figure reported by the Statistics Unit (2.5%) is slightly lower than the assumed RPI figure for 2017 (2.8%), the Minister's proposal will increase expected personal income tax revenues by approximately £500k per annum from the 2018 year of assessment onwards compared to the IFG forecast (resulting in additional States income in 2019 onwards).

Second earner's allowance

Married couples are entitled to the married couple's income tax exemption threshold (see above) and, where both spouses are in receipt of earnings (i.e. employment income, self-employment income or pension income[6]) they are also entitled to an allowance known as "second earner's allowance". Second earner's allowance reduces the income tax payable on the earnings of the lower-earning spouse.

This differs to co-habiting (unmarried) couples, where each partner is entitled to the single person's income tax exemption threshold.

This differing treatment of married couples and co-habiting couples means that it has been tax beneficial for couples where both partners are in receipt of earnings to co-habit rather than get married.

In the 2017 Budget the Minister increased second earner's allowance by £500 in order to narrow the tax benefit enjoyed by co-habiting couples and in the 2018 Budget the Minister proposes that the second earner's allowance is increased by a further £850 so that the proposed married couple's income tax exemption threshold plus the second earner's allowance is equal to two single person's income tax exemption thresholds. See the table below:

FIGURE 3 – Second earner's allowance proposal for 2018

FIGURE 4 – Comparison of taxpayers with the 2018 proposals

Type of taxpayer  Proposed income tax  Proposed second  Total

exemption threshold  earner's allowance

(2018)  (2018)

Single person – working  £29,800  N/A  £29,800 age x 2

Married Couple / Civil  £23,950  £5,850  £29,800 Partnership – working

age

The proposed increase of £850 reduces the tax payable by married couples utilising all of the second earner's allowance by £221; for such married couples the combination of the proposed increases in income tax exemption thresholds and the second earner's allowance will increase their allowances by £1,450 (reducing their income tax payable by £377). It is estimated that the proposed increase in the second earner's allowance will cost approximately £2.6m per annum from the 2018 year of assessment (resulting in reduced States income in 2019 onwards).

Although a significant step forward, this proposal does not fully equalise the tax treatment of married couples and co-habiting couples in all situations. Despite this change for some households it will remain tax beneficial to be married, whilst for other households it will remain tax beneficial to co-habit. A review of the personal tax system is currently underway which is seeking to address the discrepancies in the way that similar households are taxed. See the on-going taxation work for more details.

Taxation of high value residents ("HVR")

An HVR is an individual who has come to Jersey by obtaining entitled status under Regulation 2(1)(e) of the Control of Housing and Work (Residential and Employment Status) (Jersey) Regulations 2013. As a result of obtaining this status, they are entitled to access preferential income tax rates once their taxable income exceeds a certain threshold[7].

In December 2016 the Tax Policy Unit published a post-implementation review of the HVR regime applicable since July 2011[8]; making a number of recommendations that were endorsed by the Council of Ministers. In the 2018 Budget the Minister proposes to bring forward the legislation in order to give effect to those recommendations, creating a new regime for those granted HVR status on or after 1 January 2018. The key aspects of the new regime are outlined below:

1. Increase the expected annual minimum income tax contribution to £145,000

The expectation under the new regime is that an HVR will have taxable income of at least £725,000, thereby generating an annual personal income tax liability of at least £145,000 (i.e. £725,000 @ 20%) year on year. This represents a £20,000 increase in the annual minimum income tax contribution from those HVRs granted 2(1)(e) status in 2017.

Any income (with the exception of income generated from Jersey real estate) in excess of £725,000 will be subject to tax at the existing preferential tax rate of 1%.

2. Ensuring the £145,000 income tax contribution is paid

As highlighted above, it is expected that HVRs arriving under the new regime will generate, at least, £725,000 of taxable income each year, so that they will pay £145,000 of income tax. Under the existing HVR regime, if a HVR has insufficient income (for example due to change in circumstances or fluctuating business profits) to meet their expected annual minimum income tax liability, there is no mechanism to enable them to pay more income tax.

The Minister therefore proposes the introduction of a top-up mechanism that means that where a HVR has insufficient income to generate their expected income tax contribution, they will be deemed to receive income so as to ensure that their tax liability is £145,000. This will also apply in cases where the HVR is entitled to claim any reliefs and allowances that would ordinarily reduce the tax payable below £145,000. The purpose of this proposal is to ensure that all HVRs arriving under the new regime will pay their expected minimum income tax contribution.

The facility to access the income top up mechanism will also be available to existing HVRs on an election basis. Anecdotal evidence suggests there are some HVRs who will opt for this.

3. Periodically revalorise the expected annual minimum income tax contribution  

The level of the expected annual minimum income tax contribution will be reviewed on a regular basis so as to ensure the tax contribution made by HVRs retains its value over time. It is proposed that the first review will be completed for 2023 and will take place every 5 years thereafter. It is proposed that any increase will not be more than the accumulated increase in the RPI for the relevant period and will be subject to a review of the internationally competitive position of the HVR regime. This revalorisation will apply to all HVRs that are within

the new regime.

Tax rules applying to pensions and pension schemes

The Minister proposes a number of minor changes to the tax rules applying to pensions and pension schemes:

1. Fund transfers by occupational pension schemes

Firstly, the Minister proposes to extend the circumstances in which pension fund transfers can take place so that the scheme manager of an approved Jersey occupational pension scheme is able to transfer the whole, or part, of the fund value of all of the members, or part of the membership, of the scheme to another approved Jersey occupational pension scheme. This change will assist the scheme managers of occupational pension schemes to reorganise these schemes. Scheme managers wishing to enter into such a transfer must seek the approval of the Comptroller in advance of completing the transfer.

2. Targeted anti-avoidance rule – transfers to overseas schemes

In the major pension changes introduced with effect from 1 January 2015, the broad ability to transfer pension funds overseas was introduced. With, in particular, the introduction of pension freedoms in the UK, there is the potential for individuals to break Jersey residence for a short period of time, transfer their pension fund outside of Jersey, withdraw all of their pension fund whilst non-resident and then subsequently return to Jersey – accessing the whole of their pension fund without paying any Jersey tax.

As a consequence the Minister proposes that a targeted anti-avoidance rule is introduced to prevent Jersey income tax being avoided in these circumstances. This anti-avoidance rule will apply where:

1. a pension fund transfer from Jersey to another jurisdiction occurs, and
2. the pension holder establishes tax residence in Jersey in the year of assessment in which the transfer occurs, or any of the following three years of assessment; and
3. following the transfer but at a time that the pension holder is non-Jersey resident, a lump sum payment is made to the pension holder from the fund value transferred

Where the anti-avoidance rule applies, the pension holder will be deemed to have received, on the date that they establish residence in Jersey, a lump sum payment from an overseas pension scheme which is taxable in Jersey.

3. Greater flexibility with small pension funds

The current pension rules allow both trivial pension funds and very small occupational pension schemes funds to be paid out as a lump sum in certain circumstances in order to allow small pension funds that are unlikely to pay a material pension to be paid out to the pension holder, avoiding the pension fund incurring further administrative charges and hence achieving a better outcome for the pension holder.

The Minister proposes that the circumstances in which such lump sum payments can be paid are made more flexible. In the context of trivial pension funds it is proposed that the monetary limit is increased in line with inflation to £35,000 and the prohibition on paying a lump sum where the pension holder has commenced benefits is removed.

In the context of very small pension funds (those worth less than £19,000), the Minister proposes that pension schemes may allow the whole of the pension fund to be paid out at any time, with whatever amount is paid being treated as taxable income of the pension holder. A £50,000 cap is proposed on the total amount that can be paid out under this provision in order to prevent pension holders seeking to access all of their pension savings by breaking their pension fund into a series of small pension funds.

4. Business Tax Proposals

Taxation of larger corporate retailers

In the 2017 Budget the States Assembly adopted the following proposition:-

"to agree in principle that from 2018 a higher rate of tax on profit should be applied to retail businesses operating in Jersey, whether owned by Jersey resident companies or by non-resident companies, where annual taxable profits exceed a certain threshold (which is to be determined during 2017) providing this does not pose a risk to the zero-ten regime and to direct the Minister for Treasury and Resources to bring forward the necessary legislative changes for debate by the Assembly during 2017"

Correspondingly the Minister is bringing forward proposals in the 2018 Budget which seek to tax the assessable profits of "larger corporate retailers" for the 2018 year of assessment at 20%. The key points of the proposal are as follows:

• A "large corporate retailer" will be a company which meets the following tests:
  • 60% of its trading turnover is from retail sales to customers in Jersey; and
  • retail sales to customers in Jersey are equal to or greater than £2m per annum
• "Retail sales" will not include wholesale supplies or the provision of services.
• Where the taxable profits of a "large corporate retailer" are less than £500k per annum the company will be subject to tax at 0% on all of its profits.
• Where the taxable profits of a "large corporate retailer" are £750k or more the company will be subject to tax at 20% on all of its profits.
• Where the taxable profits of a "large corporate retailer" are more than £500k but less than £750k per annum a tapering provision will apply. The effect of the tapering provision for "large corporate retailers" with taxable profits of between £500k and £750k per annum will be to reduce the effective rate of tax on a sliding scale from 0% up to 20%. This tapering provision avoids the "cliff edge" effect created in both the Isle of Man and Guernsey's version of the larger corporate retailer tax. The impact of the tapering provisions is shown in the graph below:

FIGURE 5 – Tapering effect of the larger corporate retailer tax proposals

£240,000 £220,000 £200,000 £180,000 £160,000 £140,000 £120,000 £100,000 Tax payab£80,000le £60,000 £40,000 £20,000 £0

Taxable profits

• Targeted anti-avoidance rules will be introduced alongside the taxing provisions in order to prevent companies disaggregating retail sales and/or profits amongst companies under common ownership in order to avoid the scope of the tax.
• There will be no difference in the taxation of "larger corporate retailers" owned by locally resident individuals and those owned off-island; both will be subject to the tax in exactly the same way.
• Locally resident individuals will be entitled to a tax credit for any tax paid by the company when taxed profits are distributed by way of dividend, including where the dividend is paid through an intermediate holding company based in Jersey or Guernsey. In the context of locally owned companies the Minister's proposals will effectively result in the acceleration of tax which would have ultimately been paid by the individual shareholders when the profits are distributed.

It is estimated that this proposal will result in approximately 20 additional companies (of which approximately 5 are locally owned) paying company income tax for the 2018 year of assessment and will raise approximately £5.7m of additional States income for 2019.

Widening of definition of "financial services company"

Only companies which falls within the definition of "financial services company" contained within the Income Tax Law[9] are subject to the 10% company income tax rate. A number of companies that undertake financial services activities fall outside that definition and hence are subject to the standard 0% company income tax rate. In the 2018 Budget the Minister proposes that the definition of "financial services company" is widened so that more companies that undertake financial services activities are subject to the 10% company income tax rate.

It is proposed that the definition of "financial services company" is widened from the 2018 year of assessment to include:

• Companies registered under the Financial Services (Jersey) Law 1998 to carry out general insurance mediation business ("GIMB")
• Companies registered with the Jersey Financial Services Commission as a registrar
• Companies holding permits under the Insurance Business (Jersey) Law 1996
• "Finance companies" – companies trading in the provision of credit/finance to customers

As with the proposed changes to larger corporate retailers, locally resident individuals will be entitled to a tax credit for any tax paid by the company when taxed profits are distributed by way of dividend. In the context of locally owned companies the Minister's proposals will effectively result in the acceleration of part of the tax which would have ultimately been paid by the individual shareholders when the profits are distributed.

It is estimated that this proposal will result in approximately 25 additional companies (of which approximately 10 are locally owned) paying company income tax for the 2018 year of assessment and will raise approximately £3.0m of additional States income for 2019.

Increase in ISE fees

An entity which meets certain conditions is eligible to be registered as an International Service Entity ("ISE"). The benefits of being an ISE is that the entity is broadly taken out of the scope of GST (i.e. it is not obliged to register for and charge GST on the supplies it makes, nor is it charged GST on the supplies it receives).

The ISE status is elective. Eligible entities which do not wish to be registered as ISEs are instead required to comply with the normal GST rules (i.e. an entity making taxable supplies which exceeds the £300k threshold is liable to be registered and charge GST and all entities must pay GST on the supplies they receive).

The fees payable by ISEs are set out in the Goods and Services Tax (International Services Entities) (Jersey) Regulations 2008 ("the ISE Regs"). There are separate fees applicable depending on the class of financial services business an entity is regulated under. An entity which is regulated under a number of different classes of financial services business must pay the cumulative fee arising from each of those classes of financial services businesses for which it is regulated.

When introduced the ISE regime was anticipated to raise between £5m and £10m per annum. Figure 6 below summarises the ISE fees collected each year since the regime was introduced alongside GST in 2008:

FIGURE 6 – ISE fees collected per year since regime was introduced

Year  Total ISE fees

2008  £6,113,100 2009  £5,736,100

The level of ISE fees payable were last reviewed in 2010/2011. At that time the fee for "vehicles administered" and "other entities" was increased from £100 to £200 and the fee for entities registered under the Banking Business (Jersey) Law 1991 was increased from £30,000 to £50,000. All the remaining ISE fees have been unchanged since the ISE regime was introduced in 2008.

The Minister is proposing the following changes to the ISE regime from 2018:

• Revalorisation: it is proposed that all ISE fees (with the exception of the fees charged for "vehicles administered" and CIF/AIF vehicles) are revalorised upwards by reference to the June 2017 RPI figure. A summary of the revalorisation proposed is provided in figure 7 below. It is estimated that this specific proposal will raise approximately £400k per annum in additional ISE fees from 2018 (resulting in additional States income in 2018 onwards).

FIGURE 7 – Summary of proposed revalorisation of ISE fees

Regulation  Type of entity  Currfeenet ISE  Proposed 2o0n18 R IPISE fee based

4(1)(a)(i)(A)  Trust company business  £7,500  £9,350 4(1)(a)(iii)(A)  Trust company business  £7,500  £9,350

4(1)(b)  Banks  £50,000  £58,000 4(1)(c)  CIF permit holders  £2,500  £3,120 4(1)(d)  CIF permit holders (managed)  £500  £625 4(1)(e)  Fund service business  £2,500  £3,120 4(1)(f)  Fund service business (managed)  £500  £625

• "Other entities": entities which are not entitled to claim ISE status by reference to their regulatory status can claim ISE status provided they meet a series of conditions[10]. The fee payable by these ISEs is £200; in light of the benefit of ISE status it is proposed that the fee payable by these ISEs is increased to £500. It is estimated that this specific proposal will raise approximately £220k per annum in additional ISE fees from 2018 (resulting in additional States income in 2018 onwards).
• Fee payable by AIFSBs: the requirement for an entity carrying on Alternative Investment Fund Services Business ("AIFSB") to register with the JFSC was introduced from 2nd April 2013. As the ISE Regs were introduced prior to that date they do not specifically refer to AIFSBs. As the ISE Regs do not specify a fee in respect AIFSBs, an entity which is solely regulated as an AIFSB and wishes to register as an ISE will prima facie pay the "other entities" fee of £200 rather than the higher fee payable by entities holding permits under the CIF Law and entities registered to carry on fund services business under the Financial Services Law. The proposal is to align the ISE fee payable by AIFSBs with that payable by entities holding permits under the CIF Law and entities registered to carry on fund services business. It is estimated that this specific proposal will raise approximately £135k per annum in additional ISE fees from 2018 (resulting in additional States income in 2018 onwards).
• Fee payable by AIFs: similarly the ISE Regs do not specify the fee payable by Alternative Investment Funds ("AIFs"). It is proposed that ISE Regs are updated so that AIFs pay a specified ISE fee of £200, equivalent to the fee currently payable by Collective Investment Funds ("CIFs"). This specific proposal will not raise any additional revenue.
• Use of term "managed manager": the ISE Regs utilise the term "managed manager", a term which does not appear in the JFSC's regulatory framework. It is proposed that the term "managed manager" is therefore  replaced  with  the  term  "managed  entity"  which  does  appear  in  the  JFSC's  regulatory framework. This specific proposal will not raise any additional revenue.
• ISE fee charged to "managed entities": it is then proposed that the ISE fee charged to "managed entities" which are registered exclusively as fund managers is increased so that it aligns with the fee payable by non-managed entities which are registered as fund managers of £3,120. It is estimated that this specific proposal will raise approximately £155k per annum in additional ISE fees from 2018 (resulting in additional States income in 2018 onwards).

GST on flu vaccinations

The Minister proposes a minor amendment to the GST Law in order to align the GST treatment of flu vaccinations delivered by pharmacists and doctors.

Deduction of rates by landlords renting property in Jersey

In Budget 2017 the States Assembly adopted the proposition[11] to agree in principle that from 2018 a landlord renting out property in Jersey would no longer be entitled to deduct the cost of rates paid under the Rates Law when calculating the amount of rental income chargeable to tax.

Accordingly, as directed by the Assembly, the Minister proposes an amendment to the Income Tax Law. Under this amendment, with effect from the 2018 year of assessment, any landlord receiving rents from property situated in Jersey may no longer deduct property rates (i.e. foncier rate, occupier rate and Island-wide rate) when calculating the amount of rental income on which they pay tax. This would include rates which are paid by a landlord indirectly, for example where the rates are paid by the landlord to a share transfer property company as a proportion of a service charge paid to the company.

It is estimated that this measure will raise approximately £600,000 from the 2018 year of assessment (resulting in additional States income in 2019 onwards).

Foreign limited liability partnerships

Under the Income Tax Law the profits of a limited liability partnership ("LLP") which is established under Jersey Law are assessable on the partners of the LLP rather than the LLP itself. The rule specifically applies to LLPs established under Jersey Law and in strictness does not apply to LLPs established in foreign jurisdictions ("foreign LLPs").

The established practice of the Taxes Office has been to apply the same tax treatment to foreign LLPs as the treatment which is applied to LLPs established in Jersey (i.e. to assess the profits of foreign LLP on the partners). Accordingly the proposal is to amend the Income Tax Law to ensure that the Law catches up with established practice. This proposal will not raise any additional revenue.

Stamp Duty anti-avoidance

Stamp duty is paid on various documents which are registered in the Public Registry or with the Royal Court under the Stamp Duty Law.

Unlike other revenue raising laws there is currently no anti-avoidance rule within the Stamp Duty Law. The Minister is concerned that the lack of an anti-avoidance rule within the Stamp Duty Law could be exploited and accordingly proposes to introduce such a general anti-avoidance rule into the Stamp Duty Law.

This general anti-avoidance rules will take effect on the day that the Draft 2018 Budget is lodged. This is to prevent any potential loss of stamp duty in respect of transactions which might be registered between the date that the Draft 2018 Budget is lodged and the date of the Budget debate.

The Minister emphasises that the general anti-avoidance rule will be applied where necessary in respect of any transaction which is registered in the Public Registry or with the Royal Court on or after 3 October 2018.

5. Impôts Duty Proposals

Background

Each year, in advance of the Budget, the proposals for impôts duties are reviewed against the prevailing economic conditions, the Island's financial position and the States strategies on alcohol and tobacco and for the environment. The Minister's proposals for 2018 take all the above factors into account.

To help inform his decision the Minister has considered the following:

• The most recent rate of inflation
• The States existing tobacco and alcohol strategies, as well as the States environmental and transport objectives
• Consultation with the Council of Ministers

It is proposed that the proposed increases in impôts duty will take effect at midnight on 31 December 2017. Alcohol

The Minister is proposing increases in alcohol impôts duty of 2.5% in line with the increase in the RPI to June 2017, maintaining the real value of the impôts duty on alcohol. Figure 8 outlines the proposed increases to alcohol impôts duty rates for the specified products:

FIGURE 8 – Proposed increases in alcohol impôts duty

Wine – 75cl bottle of table wine  2.5%  4p Pint of beer/cider exceeding 2.8% abv but not  2.5%  1p exceeding 4.9% abv (standard)

Pint of beer/cider exceeding 4.9% abv (strong)  2.5%  2p

As a result of these proposals, it is estimated that the impôts duty collected on all alcohol will total close to £21m in 2018. This would be in line with the IFG forecast update which assumes that all alcohol impôts duties will increase in line with inflation.

Tobacco

It is proposed that the policy of increasing impôts duty on tobacco at a level above the cost of living is continued. As a result the Minister is proposing to increase the rate of duty on tobacco products by 7.5% (equal to the increase in the RPI to June 2017 plus 5%). This amounts to 43p increase in the impôts duty on a packet of 20 cigarettes.

There is currently a significant differential between the impôts duty on hand rolling tobacco and cigarettes and in order to close the gap it is proposed to increase the duty on hand rolling tobacco by 10% (equal to the increase in the RPI to June 2017 plus 7.5%). It is intended to equalise the impôts duty over the next three to five year period.

As a result of these proposals, it is estimated that the impôts duty collected on all tobacco will total just over £15m in 2018. This will raise an additional £800k over and above the IFG forecast update resulting in additional States income in 2018 onwards.

Road Fuel

The Minister continues to consider all issues regarding the duty for road fuel, including the current worldwide price of hydrocarbon oil and the retail price of fuel at garages in the island.

Having taken this into account it is proposed to increase the duty on road fuel in line with the increase in the RPI to June 2017, this will result in an approximate 1p increase in the impôts duty on a litre of unleaded petrol/diesel. This maintains the value of the duty in real terms.

As a result of these proposals, it is estimated that the impôts duty collected on all road fuel will total £22.5m in 2018. This will raise an additional £500k over and above the IFG forecast update.

Customs Duties

It is calculated that the duty collected on goods imported from outside the EU will total £145k in 2018. This is in line with the 2018 forecast.

Detailed Impôts Duty Increases for 2018

FIGURE 9 – Impôts Duty increases proposed for 2018

Commodity  2017 impôts duty  Proposed  Proposed 2018

increase  impôts duty

Litre bottle of whisky at 40% abv  £14.04  2.5%  £14.39 Bottle of table wine  £1.49  2.5%  £1.53

FIGURE 10 – 2017 retail price margins – comparisons with the UK (June 2017)

Jersey  Jersey  GST   Price  Duty  UK  UK  UK   Price  Duty Retail  Duty  net  &  Retail  Duty  VAT  net  & Price  of  GST   Price  of  VAT

Duty  as a  Duty  as a &  % of  &  % of GST  price  VAT  price

Litre of whisky  £20.96  £14.04  £1.00  £5.92  72%  £21.00  £11.50  £3.50  £6.00  71% Pint of standard beer  £3.56  £0.36  £0.17  £3.03  15%  £3.06  £0.49  £0.51  £2.06  33%

20 king size cigarettes  £8.38  £5.75  £0.40  £2.23  73%  £9.52  £5.73  £1.59  £2.20  77% Litre of unleaded petrol  £1.11  £0.47  £0.05  £0.58  48%  £1.16  £0.58  £0.19  £0.39  66%

FIGURE 11 – Comparison of typical 2017 tax and duty levels for a range of commodities (June 2017) Jersey  Jersey GST  Guernsey  UK Duty  UK VAT at 20%

Duty  at 5%  Duty

Litre of whisky at 40% abv  £14.04  £1.00  £13.58  £11.50  £3.50 Bottle of table wine  £1.49  £0.34  £1.79  £2.16  £1.00

Note: The figures above are before the impact of the 2018 Budget proposals. The prices shown are based on a narrow range of sources but are for equivalent products. There will be considerable price variations in each jurisdiction. Fuel prices are also subject to rapid change.

6. VED Proposals

Introduction

Vehicle Emissions Duty ("VED") is charged on motor vehicles when they are first registered in Jersey. The duty has a range of rates according to the vehicle's emissions or engine size. The rates are intended to incentivise the choice of less polluting vehicles, the least polluting currently being charged no VED and the highest polluting charged at £1,839.60.

Changes to VED were last introduced in 2016 and the Minister for Treasury and Resources had proposed an RPI increase to the VED rates and a reduction in the upper threshold for the nil rate band.

The Connétable of Grouville proposed an amendment to the Budget in two parts which were both adopted by the Assembly. The effect of the amendment is to increase VED rates for each emissions band by 5%, instead of the Minister's proposed 2.5% increase, and to reduce the upper and lower limits of each emissions band by 50g/CO2/km, with the upper threshold for the nil rate band staying at 50g (as originally proposed by the Minister). No changes were made to engine size intervals for the bandings based on engine displacement (i.e. where engine size is used as the basis for duty).

Restricted speed agricultural tractors attract their own rate of VED, no changes are proposed to these VED bands.

Existing Bands

The 2017 VED bands for vehicles are given in Figure 12 and Figure 13:

FIGURE 12 – 2017 rates of VED: CO2 emissions

Manufacturer's CO2 Emission specifications  Current Rate of Vehicle Emission Duty (gm/CO2/km)

<100  £0 101-125  £51.10 126-150  £153.30 151-175  £255.50 176-200  £408.80 201-225  £766.50 226-250  £1,277.50

>251  £1,839.60

FIGURE 13 – 2017 rates of VED: cylinder capacity

In the absence of CO2 Emission data charge by  Current Rate of Vehicle Emission Duty cylinder capacity of engine

<1000cc  £0 1001-1400  £204.40 1401-1800  £357.70 1801-2000  £511.00 2001-2500  £715.40 2501-3000  £1,022.00 3001-3500  £1,328.60

>3501cc  £1,839.60

Revenue Implications

The total revenue collected from VED in 2016 was £1.4m. As things stand, the amount of VED anticipated to be collected in the future will diminish as engine technology improves and increasing numbers of vehicles are anticipated to fall into the lower bands.

The 2017 forecast VED revenue for MTFP 2 is given below in Figure 14:

FIGURE 14 – Forecast VED revenue for MTFP 2

Year  Forecast VED Revenue 2017  £1.376m

2018  £1.306m

2019  £1.242m

2020  £1.242m

2021  £1.242m

VED rates and bands as amended

Figures 15 and 16 illustrate the 2018 VED emissions bands and rates as amended by the Connétable of Grouville and adopted by the States Assembly.

FIGURE 15 – 2018 VED bands and rates as amended: CO2 emissions

Manufacturer's CO2 Emission specifications  2018 Rate of Vehicle Emission Duty (gm/CO2/km)

0-50  £0 51-75  £53.66 76-100  £160.97 101-125  £268.28 126-150  £429.24 151-175  £804.83

176-200  £1,341.38 201 or more  £1,931.58

FIGURE 16 – 2018 bands and rates of VED as amended: cylinder capacity

In the absence of CO2 Emission data charge by  2018 Rate of Vehicle Emission Duty cylinder capacity of engine

500cc or less  £0 501cc - 1400cc  £214.62 1401cc-1800cc  £375.59 1801cc-2000cc  £536.55 2001cc-2500cc  £751.17 2501cc-3000cc  £1,073.10 3001cc-3500cc  £1,395.03

>3501cc  £1,931.58

Revenue Implications

The approved VED rates and emissions bands are estimated to raise an additional £2.8m in 2018 and £2.5m in 2019 which are a combination of the Minister's original proposals and the agreed amendment from the Connétable of Grouville .

The revised forecast of VED is:

Year  Forecast VED Revenue 2017  £1.376m

2018  £4.106m

2019  £3.742m

2020  £3.742m

2021  £3.742m

7. On-going Taxation Work

Modernising Jersey's system of personal taxation

The Taxes Office is continuing its review of the personal tax system with a view to modernising the current model. This is in particular with regard to the current system of married taxation (where a married man is taxed on his own income and the income of his wife).

Looking at options such as independent taxation (taxing people individually on their own income), or household taxation (taxing cohabiting and married couples on their joint income) requires a major review of the current system of tax reliefs and allowances.

The work required is complex and detailed. Careful analysis is required in order to determine whether an equitable system can be developed which minimises financial impact on taxpayers whilst maintaining yield for the Treasury.

In recent Budgets steps have been taken to improve the equality of the tax system, for example removing gender based tax allowances. Now the fact that different households with the same income may have different tax bills, needs to be addressed.

There are two main aspects to the review. The first being the modelling tool that the Taxes Office is continuing to develop. This will be used to analyse the impact of potential changes to the tax system both in terms of any winners and losers' taxpayers and the overall impact on States tax revenues.

The second aspect being to engage with Islanders. This will take a number of forms, commencing with an Apptivism chatbot, to be launched in mid-October. This is aimed at gathering views on the equality of the current tax system and to find out the broad direction that people may prefer for taxing households, married or otherwise, in the future. The findings of the chatbot will be used to inform the approach taken as the consultation moves onto the next stage which will include focus groups, questions within the 2018 Jersey Opinions and Lifestyle Survey and followed by a full consultation.

The intention is that emerging findings will be published in Budget 2019, with recommendations within the Budget 2020.

Additional Personal Allowance ("APA") – P109/2016 Amendment 5

In Budget 2017 the States Assembly agreed an amendment that required the Minister for Treasury and Resources to bring forward legislative changes that would commence the phasing out of the additional personal allowance ("APA") from cohabiting couples from year of assessment 2018.

The Minister is not proposing to bring forward such legislative changes within Budget 2018. There are three key reasons for this:

• Further work undertaken since last year's Budget has found that this measure would have an adverse impact on a number of lower income households contrary to the original intention of the amendment.
• The Budget 2018 proposal to further increase the second earner's allowance goes some way to equalising the position between unmarried and married couples

• The aforementioned ongoing work in relation to modernising Jersey's system of personal taxation should be completed before removing personal tax reliefs and allowances so as to minimise unintended consequences for Islanders

The above has been discussed with the Deputy of St John who proposed the original amendment, and who is in agreement with the Minister that the legislative changes should not be brought forward at this time.

The future availability of the APA will be considered specifically as part of the modernisation process. Benefits in Kind (BIK) consultation

A public consultation on potential changes to the future taxation of benefits in kind will be launched before the 2018 Budget is debated.

Collection of company profit information

In the 2017 Budget the Assembly approved the law change required in order for the Comptroller to oblige all companies to report their profits to the Comptroller. Correspondingly the Taxes Office changed the tax return issued to companies for the 2016 year of assessment in order to collect more information from a broader range of companies taxable at 0%.

Consideration is being given to whether the tax return issued to companies for the 2017 year of assessment requires further changes in order to obtain more detailed information from a broader range of companies.

Tax Gap Analysis  

The "tax gap" is the difference between the amount of tax that should, in theory, be collected by the Taxes Office and what is actually collected. Across the globe tax authorities have used such tax gap analysis to target their resources in order to maximise additional revenue from their activities. The production of Jersey's "tax gap" will therefore assist the Taxes Office with its plans to increasingly allocate its resources on a risk basis.

No similar analysis has been completed previously in Jersey, and although methodologies/approaches utilised in other jurisdictions (such as the UK) can be drawn upon, the analysis will ultimately have to reflect the unique characteristics of the Jersey economy. Due to current workloads within both the Taxes Office and the Statistics Unit it is anticipated that work on Jersey's tax gap will commence later this year and take approximately 2 years to complete.

Review of interest tax relief

The Tax Policy Unit will issue a technical issues paper on the future tax deductibility of interest in the context of business activity before the end of 2017.

Revaluation of property for rates purposes

In the 2017 Budget the States Assembly amended the Rates (Jersey) Law 2005, creating the power for the States to introduce regulations containing provisions for the revaluation of property within the Island when determining its rateable value. Work developing these regulations is ongoing and the Treasury will liaise closely with the Constables before any proposals for revaluation are finalised.

Stamp duty – enveloped property

Work is continuing on the issue of the sale of Jersey real estate owned within a corporate structure by way of transfer of shares which crystallises neither a stamp duty charge nor a land transaction tax liability. The Tax Policy Unit is seeking external advice to identify the approach to the issue taken in other jurisdictions with similar property transfer tax regime and determine whether they might be applicable in a Jersey context. Based on the advice received it will be determined whether it is feasible to bring forward amendments in the 2019 Budget.

Revenue Administration Law

In March 2017 the Taxes Office released a consultation document on proposed changes to the Island tax compliance framework[13]. The consultation document covered a number of issues, including the introduction of a range of civil penalties to be levied by the Comptroller of Taxes. A summary of responses to that consultation document will be published shortly, which will outline the direction of travel on the key issues.

The Taxes Office is currently working with the Law Draftsman on the preparation of a new Revenue Administration Law. The ultimate aim of this new piece of legislation is to consolidate the administrative elements of the various taxes administered by the Comptroller of Taxes; creating a simplified and coherent framework. The introduction of a new Revenue Administration Law is a significant undertaking and hence it is proposed that it is developed and introduced in tranches over the next few years; with the first tranche scheduled to be lodged with the Assembly later this year.

Additional work committed to during the Budget debate

During the Budget debate, the Minister for Treasury and Resources committed to undertake a number of additional reviews which were originally part of Budget amendments but were rejected by the Assembly.

The first three reviews committed to (duty free tobacco, taxation of Class 1 bookmakers, taxation of "large liquor vendors") were originally proposed as firm measures in the fourth amendment, lodged by Senator Ozouf . The Minister for Treasury and Resources lodged an amendment making the implementation of each of the measures subject to a feasibility review. During the debate, the Minister agreed not to progress his amendment, but maintained the position that these measures should be the subject of a feasibility review. Therefore, although Senator Ozouf 's amendment was not adopted by the Assembly, the Minister for Treasury and Resources is committed to completing the feasibility reviews.

Duty free allowance for Tobacco

Senator Ozouf 's amendment proposed to reduce the inbound duty-free allowance for cigarettes from 200 to 40 sticks (and, for tobacco products, to 50g). The Assembly rejected the amendment on the basis that the Minister for Treasury and Resources agreed to carry out a review into the feasibility of implementing the measure.

Taxation of Class 1 bookmakers

Senator Ozouf 's amendment proposed extending the 10% corporate income tax rate to apply to Class 1 bookmakers on the same basis as "Financial Services Companies" (i.e. without a turnover or profit test). The Assembly again rejected the amendment on the basis that a feasibility review will be undertaken.

Taxation of Large Liquor Vendors

Senator Ozouf 's amendment proposed extending the large corporate retailer tax to apply to all large liquor vendors with the same turnover and profit test. The Assembly again rejected the amendment on the basis that a feasibility review will be carried out.

The remaining reviews (listed below) will be undertaken as a result of amendments adopted by the Assembly during the course of the Budget debate.

Review of VAT charged by UK retailers on goods purchased from the UK

Senator Ozouf lodged the fifth amendment which requested the Minister for Treasury and Resources to undertake a quantification exercise to establish the amount of UK VAT paid by Jersey Residents to HMRC on goods delivered to Jersey; to undertake a programme of engagement and awareness-raising to encourage those businesses to levy the correct sales tax and to report on progress made by 10 April 2018. The Minister for Treasury and Resources lodged an amendment to remove the quantification exercise. The fifth amendment (as amended) was adopted by the Assembly.

Review the feasibility of extending GST to include the supply of digital services into Jersey by businesses with no establishment in Jersey

The sixth amendment, lodged by Senator Ozouf and amended by the Minister for Treasury and Resources, was adopted by the Assembly and has the effect of requesting that the Minister for Treasury and Resources undertake a review into the feasibility of extending the scope of GST to include the supply of digital services into Jersey by businesses with no establishment in Jersey and, subject to the findings of the review, to bring legislation to the Assembly no later than the 2020 Budget.

Review of the principle that profits arising from mutual trading are not taxable

Part (i) of the seventh amendment lodged by Senator Ozouf was adopted by the Assembly and requests that the Minister for Treasury and Resources review the principle that income tax is not due on profits arising from mutual trading activities. The Minister has committed to complete this review so that any legislative changes can be considered in the 2020 Budget.

CICRA inquiry into the on-licence liquor trade

The eighth amendment lodged by Senator Ozouf requests the Chief Minister to request the Channel Islands Competition and Regulatory Authority ("CICRA") to undertake an inquiry into the Island's liquor trade, focusing in particular on the effect on competitiveness of including liquor trade on-licences in the retail tax extension.

Budget Statement 2018 (as amended)

8. Financial and Manpower Implications

Estimated financial implications of 2018 Budget proposals

FIGURE 17 – Estimated financial implications of 2018 Budget proposals compared to IFG forecast

Manpower Implications - The proposals within the Budget Statement will be implemented without an increase to current approved staffing levels.

38

PART C – GROWTH

9. Proposed Central Growth Allocation 2018

Proposals for the Allocation of Growth for 2018

In the debate of the Medium Term Financial Plan Addition (P68/2016) in September 2016, the States agreed a central growth allocation in 2018 and 2019 and indicative allocation to department heads of expenditure for the items in Figure 18.

Figure 18 – Original Central Growth Indicative Allocations for 2018 and 2019

MTFP 2016-2019 Overall Strategy

The MTFP 2016-2019 (P70/2015) agreed an investment in strategic priorities to be funded by a package of expenditure efficiencies and savings, benefit changes and new funding streams. The objective was to establish sustainable investment in priorities which were affordable and delivered broadly balanced budgets by 2019.

Additional Growth Funding as part of the Overall Strategy

Part of the package of expenditure was for all departments to reprioritise existing resources in line with the agreed strategic priorities and to identify where additional funding was required to support the strategic priorities.

The outcome of this work between departments and Treasury produced a range of proposals for additional funding which was then prioritised with Chief Officers and then the Council of Ministers, recognising  the  distributional  impact  assessment  alongside  all  other  expenditure  measures  and proposals.

The 2016 and 2017 additional funding has been allocated to departments as part of the detailed expenditure allocations in the MTFP 2016-2019 (October 2015) and then the MTFP Addition 2017-2019 (September 2016).

Additional funding that was prioritised for departments for 2018 and 2019 was allocated to Central Growth for 2018 and 2019 to be proposed in the 2018 and 2019 Budgets.

Setting aside central growth within the overall expenditure limits provided the Council of Ministers and the  States with  flexibility  to  reflect  the  progress on  measures  within  the  overall  strategy  when determining the 2018 and 2019 growth expenditure allocations in respective Budgets.

Progress on Expenditure Measures and Funding Proposals

Figure 19 - Update of the progress on the expenditure and funding measures from the MTFP Addition

The significant investment in funding of the strategic priorities for health, education, promoting economic growth and investing in St. Helier were to be funded by the package of measures proposed in the MTFP Addition.

The original target for the package of measures was £123 million p.a. by 2019, made up of:

• £73 million of efficiencies and savings and £4 million user pays;
• £10 million of benefit changes;
• £11 million of waste charges; and
• £15 million from a Health charge.

This left £10m of other measures, which in the MTFP Addition were made up of £5 million from the Health Insurance Fund (HIF) and £5 million from reducing the central provisions for Restructuring and EPGDP in 2019.

Figure 19 shows the progress of the expenditure measures at the time of lodging this draft Budget, and the revenue raising measures as agreed in the Budget 2018 debate.

Funding measures

The proposed health charge was rejected as part of the MTFP Addition debate (September 2016) and this funding is proposed to be replaced by a number of additional revenue raising measures in this Budget to raise additional revenues of £5.1m in 2018 increasing to £12.3 million in 2019.

Expenditure measures

The £77 million of expenditure measures for efficiencies, savings and user pays and £10 million of benefit changes are largely on track for 2017 and the savings proposals for departments are currently being reviewed for 2018 and 2019, with the intention that these be published in the Update to the MTFP Department Annex for 2018.

This leaves two remaining measures:

• The withdrawal of the transfers from the Health Insurance Fund (HIF) transfers to support health expenditure £5 million p.a.; and
• The deferral of the non-domestic liquid waste charges of £3 million until 2019

The £5 million shortfall in health funding in 2017 has been met from underspends in 2016 carried forward for 2017. The current department forecasts for 2017 suggest that the underspend forecast on social security benefit budgets, coupled with the central AME budget which will not be needed could provide for the £5 million required in each of 2018 and 2019.

The Department for Infrastructure (DfI) net expenditure limit for 2018 of £35.367m assumed that £3 million of new non-domestic liquid waste charges would be raised in that year. The decision regarding the introduction of non-domestic liquid waste charges has been deferred until 2019 which will result in DfI having a £3 million shortfall in 2018. The DfI net expenditure limit also included provision for £0.9 million expenditure for the States payment of rates which, following the majority of the Comité des Connétable s not supporting either the principle of the States paying rates or the specific proposals from the Minister for Treasury and Resources, will no longer be needed. The net effect of these two decisions will mean that DfI will have a shortfall of £2.1 million in its 2018 net expenditure limit.

The Council of Ministers is therefore proposing that £2.1 million is allocated to DfI as a priority from the growth expenditure allocations for 2018, thus managing within the overall expenditure limits and the strategy for balanced budgets.

Review of Original Central Growth Allocations for 2018 and 2019

Treasury has worked with departments to review the original allocations of central growth for 2018 to determine that the original allocations are still required and would be spent in 2018. As a result of the review by departments a number of variations have been identified:

• Health and Social Services – reduce by £1.452m in 2018

• 2% investment requirement is unchanged

• The P82/2012 Programme has been reviewed and rephased such that these programmes reflect the level at which they will actually be delivered in 2018, releasing £1.452 million in 2018 to be reallocated. Which will be replaced in 2019.

• The review also identified that the growth for the Healthy Lifestyles Programme should be allocated to Community and Constitutional Affairs for 2018 onwards, reflecting the transfer of the Strategic Health Unit amounting to £0.265 million in 2018 and £0.273 million for 2019

• Education – reduce by £250k in 2018 and £260k in 2019

• Represents the revenue costs for schemes in the capital programme

• Includes revenue costs for Jersey Archive capital scheme which amounts to £20,000 in 2018 and £25,000 in 2019 which should now be allocated to Economic Development, Tourism, Sport and Culture, reflecting the change in responsibilities

• Completion of Les Quennevais and Grainville schools capital schemes will slip to 2020 allowing these revenue costs to be reallocated.

• Department for Infrastructure – reduce by £340k in 2018, review in 2019

• Original request was to reflect pressures in tipping fees which was on a downward trend in 2015 and also recognising a new private site planned for 2018.

• Current position is that tipping fees exceeded budget in 2016, and is forecast to continue to exceed budget in 2017 and 2018.

• Additional funding for 2018 can be reallocated with 2019 funding reviewed ahead of the 2019 Budget.

• States Assembly – remove £58k in 2018 and £100k in 2019

• Following a communication from Chairman of Privileges and Procedures, confirmed by the Greffier, it is unlikely that a proposal to introduce a States Members pension scheme will be brought forward in this MTFP

• This funding can be reallocated for both 2018 and 2019

The review of central growth for 2018 has therefore identified sufficient funding of £2.1 million to reallocate to DfI to offset the net shortfall in the department's 2018 expenditure limit for one year.

Proposals for the Allocation of Growth Expenditure in 2018 and the full year effect in 2019 The proposals for the allocations of growth expenditure for 2018 are shown in Figure 20 Figure 20 – Proposed allocations for growth expenditure for 2018 and 2019

In accordance with the provisions of Articles 10(3)(c) and 11(3) of the Public Finances (Jersey) Law 2005 the proposed allocation to revenue heads of expenditure also includes the full year recurring effect of the 2018 proposals in 2019 amounting to £9.400 million shown in Figure 20. The full year recurring effect of the 2018 proposals in 2019 is reduced by the one-off allocation of £2.1 million to offset the shortfall in DfI expenditure limit in 2018 only.

Proposals for the Allocation of Growth Expenditure in 2019

After the allocation of growth expenditure to departments in 2018 and the full year effect for 2019, there remains £11.133 million to be allocated in the Budget 2019.

At this time, the Council of Ministers is recommending that the allocation of any new growth expenditure for 2019 should be deferred until the Budget 2019 and be subject to the prior approval of at least £11.85 million of non-domestic waste charges or equivalent expenditure measures to be consistent with the overall MTFP strategy and objective of broadly balanced budgets by 2019.

The Amendment of the Connétable St. Helier and the associated Amendment to this Amendment from the Comité des Connétable s were approved by the States. As a result the review of Central Growth allocations for 2019 would need to consider the allocation of funding for the States payment of the Island Wide Rate, estimated to be £916,000 in 2019.

Narratives for Proposed Growth Expenditure in 2018

Health and Social services

HSS 2% investment in Service Standards and Healthcare Inflation

The 2% funding for Health and Social Services is provided to help the department respond to changes in standards of care recommended by the Royal Colleges and other professional bodies; to maintain services at a comparable standard to neighbouring jurisdictions; provide for increases in demand for specific care, meet healthcare specific inflation costs (e.g. drugs) and make new drugs, treatments and therapies available to islanders where appropriate. Therefore, the exact allocation of this funding each year is variable and dependent on factors outside the control of the department.

HSS White Paper funding – P.82/2012 Health Transformation

Programme management and rephrasing allowing proposed reduction of £1.452m in 2018

The total additional 2018 funding allocated for P.82/2012 Health Transformation is £8.9m, comprising of £3.9m, allocated in the MTFP Addition, and being the full year effect of 2017 spend and £5.0m being the part year cost of new initiatives planned for 2018. It has been agreed that through re-planning and re-phasing the implementation of 2018 proposals, funding of £1.452m can be released in 2018.

HSS Acute Services Strategy  

Acute services are being redesigned to ensure that we avoid hospital attendance, reduce hospital admissions and reduce the length of stay of those who do require admission.

Priority investments in ambulatory emergency services' are needed to provide enough capacity until the opening of the Future Hospital. Patient pathways need to be redesigned to reduce hospital length of stay and ensure only those needing an inpatient stay are admitted. This work will be underpinned by the ongoing process of workforce redesign to ensure best value is obtained from these posts and that they are appropriate for a future where care will be wrapped around the needs of patients.

Making these essential changes to the models of care is critical in order to deliver the proposed Future Hospital.

HSS Healthy Lifestyles – Transferred to Community and Constitutional Affairs HSS Mental Health Services

One in four people will experience a mental health problem at some point in their lifetime and one in six adults has a mental health problem at any one time. One in ten children aged between five and 16 years has a mental health problem, and many continue to have mental health problems into adulthood. Mental health problems can have a wide ranging impact including: obtaining housing, participating in education and training, physical health and relationships with family and friends. Investment has already been made to improve and develop services but more is needed. This will result in an integrated service (spanning both mental health and physical health needs), incorporating specialist expertise for individuals with alcohol and/or drug dependency, dual diagnosis', learning disability, autism, a new recovery model, investment in more community services and improved medium and low secure facilities.

The Mental Health Strategy has been produced with Islanders, carers and service users and prioritises investment in crisis, recovery, early intervention and criminal justice. This work will build on what has already been achieved in 2013-2015 when P82 funding was used to establish Jersey Talking Therapies, providing accessible services for individuals with anxiety and depression in non-stigmatised, local settings. Furthermore in 2015 the Department opened new, safe facilities on Robin Ward for children and young people with mental health problems.

HSS Out of Hospital Services

In the 30 years from 2010 to 2040 the numbers of Islanders aged over 65 is projected to rise by 95%; in the period to 2020 the increase is projected to be 35%. This demographic change will create a surge in demand for health and social care services which would overwhelm the current capacity of existing services.

The current capacity in community services will be inadequate to meet demand. Investment has been made in out of hospital' services during MTFP 1, such as the rapid Response and Reablement service; these have had a positive impact on hospital demand, choice and patient experience. These services need to be expanded in the coming years, to ensure Islanders can be cared for in their own homes rather than in hospital or long term residential settings.

Investment in the care needs of the whole person will be prioritised rather than in silo-based specific conditions or diseases. This will ensure that individuals receive the relevant blend of physical and mental health care, and will help to improve outcomes for individuals and for the whole system. Needs will be proactively identified, and care co-ordination provided by the most appropriate professional. The aim of this investment is to manage care effectively and so reduce crises, the need for ED attendances and hospital admissions. Care will be provided in partnership across the system (including Primary Care and the voluntary sector), and with patients, carers and families themselves.

International evidence demonstrates that IT is an important enabler for integrated health and social care and the delivery of safe, effective services for patients. Investment, including IT integration, will support a single care record, and facilitate teams working closely together (including Primary Care and the voluntary sector) to meet the needs of Islanders.

HSS Services for Children (Early Interventions)

Investment in early intervention can have a profound impact on a broad range of socio-economic, health and wellbeing factors. This includes future development, learning, behaviour, health and the ability to build positive, secure attachments. It can also affect truancy, conduct disorder and risk-taking behaviours such as substance misuse and mental illness. UK studies have shown that each child with untreated behavioural problems costs statutory services an average of £70,000 a year by the time they reach 28 years old, the average cost of an individual spending a lifetime on benefits is £430,000 not including lost tax revenue. Returns of up to 3 to 7 times the original investment can be achieved by the time the young person is 21 years old. Investment in 2013 – 2015 was targeted in this way, with funding for new services such as Sustained Home Visiting, and increased services such as Mellow Parenting.

Investment in service redesign is needed in order to:

• Discharge the States' statutory obligation to safeguard and promote the welfare of children
• Prevent breakdown of families where children are in need and have a range of complex needs
• Improve outcomes for the most vulnerable and at risk children
• Minimise the risks of young people's suicide and increase treatment options for children and young people with mental ill health
• Deliver timely and high quality child protection services to prevent further and/or more significant harm
• Provide quality services to looked after children
• Intervene with pregnant women with a range of risk factors likely to impact on their parenting abilities

Community and Constitutional Affairs

CCA Healthy Lifestyles – Transferred from Health and Social Services

Further investment in health promotion programmes has been phased in order to reduce costs in 2016 and 2017. From 2018 additional investment is planned to introduce targeted programmes on key initiatives, such as weight management programmes introduced through schools and referral schemes through primary care. Prevention and early intervention is more efficient and effective in the longer term than treatment and will help to reduce the incidence of long term conditions. Investment will enable health and social care professionals to focus on health promotion activities, thereby improving health outcomes for Islanders.

Education

EDU Revenue consequences of capital schemes – New schools

New premises cost more to run than previous premises due to increased footprint and/or additional facilities provided. Additional non-staff revenue budgets of £90,000 in 2018 increasing to £115,000 in 2019 are required for the capital projects that provided additional primary classrooms, St Martin's school and St James Youth service facilities.

The revenues costs associated with the Archive project are transferred to Economic Development, Tourism, Sport and Culture who now have responsibility for Jersey Heritage.

The  provisions  originally set  aside  for Les  Quennevais  and  Grainville  School are  re-allocated  as a contribution to offset the deferred waste charges for 2018, but there will be a funding provision required in the next MTFP, once these education capital projects are completed.

Department for Infrastructure

DfI Contribution towards deferred non-domestic liquid waste charges in 2018

The department originally requested growth funding to reflect pressures in tipping fees which were on a downward trend in 2015 and also recognising a new private site planned for 2018. The current position is that tipping fees exceeded budget in 2016, and are forecast to exceed budget in 2017 and 2018. Potential delays in the alternative private site further reduces pressures on this area of the budget.

As a result, this additional funding for 2018 can be reallocated along with the monies identified by Health and Social Services, Education and States Assembly to provide the £2.1 million needed for the shortfall in the department's net expenditure limit for 2018.

The tipping fees budget will be reviewed ahead of the 2019 Budget to determine if the £0.8m in 2019 is required for that purpose.

PART D – PROGRAMME OF CAPITAL PROJECTS

10. Approved Capital Programme 2018 and Indicative Capital Programme 2019

Introduction

A Long Term Capital Plan ("LTCP") was developed in advance of the first Medium Term Financial Plan ("MTFP") to identify capital project requirements over a 25 year planning horizon. This allowed sight of the States capital requirements to enable financial and operational planning and to manage affordability and the impact on the local economy. The LTCP forms the basis for the capital programmes of MTFPs.

The LTCP is currently under review and is now proposed to cover the next 20 years, equivalent to 5 MTFPs, which is a similar period to the Strategic Vision and in line with many other jurisdictions. The Treasury is working with all departments with the review offering the opportunity to evaluate the scope, format and processes to ensure that the States asset management and replacement programmes are in line with the long term vision, strategic priorities and demographic and legislative changes. The review is also considering best practice from the UK and elsewhere to ensure the LTCP provides an appropriate framework for long term asset management, capital funding and the treatment of surplus assets.

The MTFP 2016-2019 set out the indicative capital programme for each of the years 2016-2019 and the debate on the MTFP approved the total capital allocations for each of these years. The annual Budget for each of these years then approves the detailed list of projects. To comply with the Public Finances (Jersey) Law 2005, therefore, the States is asked to approve the detailed list of capital projects for 2018 as set out in this document.

The MTFP 2016 – 2019 approved a total allocation in 2018 of £43,233,000 and £32,975,000 in 2019, based on an indicative programme, with 2018 including £8,233,000 for the Prison Phase 6 project which was subject to a sufficient balance in the Criminal Offences Confiscation Fund being available. That conditionality was required as previously the balance in the Consolidated Fund was forecasted to be insufficient. There are now sufficient balances to fund £43,233,000 from the Consolidated Fund and it is proposed to do so.

As part of the annual Budget process the previously presented indicative programme is subject to confirmation by departments, including the submission of supporting documentation to the Treasury and Resources Department to support the proposals. Departments also consider any new strategic priorities requiring capital funding and any capital heads of expenditure required to align budget approvals with accounting treatment.

As a result of the updated 2018/2019 submissions from departments, the cost estimates for a number of projects already in the MTFP indicative capital programme were increased by £10,003,000 in 2018 and £1,598,000 in 2019. Departments have also identified a number of projects to be funded from within existing  resources  but  where  there will  be  an  element of capital  expenditure  in  accordance  with accounting rules. In these instances, a capital head of expenditure is required to enable budgets to be aligned with accounting treatment. There are also examples of projects being newly identified as separate requirements where departments are reprioritising existing resources to enable them to proceed.  The  proposed  creation  of  new  capital  heads  of  expenditure  with  funding  from  existing resources total £4,650,000 in 2018 and £600,000 in 2019.

Combined,  the  above  variations  to  the  indicative  programme  included  in  the  MTFP  amount  to £14,653,000 in 2018 and £2,198,000 in 2019, bringing the total capital programme to £57,886,000 in 2018 and £35,173,000 in 2019.

Updates since MTFP - Projects

Below is a list of the changes from the indicative capital programme identified in the MTFP to that submitted by departments most recently for the Budget 2018.

FIGURE 21 – Changes from the MTFP Indicative Capital Programme to Budget 2018

The two biggest movements are on the Les Quennevais and Grainville School projects where the estimated total cost of the projects has increased by £5.6 million (to £45.6 million) and £5.3 million (to £15.5 million) respectively.

In the case of Grainville, this was following the detailed feasibility study with an additional £4.0 million required in 2018 and £1.3 million in 2019. This is clearly a significant increase which has prompted Treasury to work with the Education Department and Jersey Property Holdings to ascertain the key reasons for the change.

In summary, the cost increases are the result of inflation in the period from the bid originally being identified and costed a number of years ago to the more detailed work being done in the feasibility study in 2017. Due to the pressure on the capital programme in recent years, the time elapsed between original submission and inclusion in the capital programme was longer than would conventionally be the case. The movement was also exacerbated by the exceptional levels of inflation experienced in the construction sector over the last year. More detailed work on the project has also identified complications to the site and construction programme that were not fully anticipated when the initial cost estimate was compiled.

It should also be noted that the Jersey Music Service facility is no longer being provided as part of the proposed Grainville scheme due to the additional cost and complication of doing so identified in the feasibility study. The Education Department is considering alternative options for the provision of this facility which will have to be brought forward as part of future funding requests.

The increase in the estimated cost of the Les Quennevais School project is largely the inflationary impact of the delay plus the design changes required following the outcome of the planning inquiry.

The increase in the St Mary's School estimated cost reflects the anticipated inflationary impact on the cost of the project from the point it was fully costed based on provisional design work. Once committed, more detailed design and procurement work will be done to confirm the outturn cost.

Provisions have also been included for:

• Work to relocate the Orchard House facility which forms part of the wider St Saviour's Hospital site. This will provide an appropriate facility for adult acute mental health patients with the preferred option to co-locate with the Clinique Pinel facility on the other side of the road.

• Public consultation and feasibility work around the future of the Haute de la Garenne building in recognition of the commitment to the recommendation made in the Independent Jersey Care Inquiry report.

Updates since the MTFP - Summary

Funding from the Consolidated Fund has been increased to the total amount available to allocate, as approved in the MTFP, of £43.2 million in 2018 and £33.0 million in 2019. Further capital allocations in respect of increased cost estimates for existing projects, reprioritisation of spend and aligning budget allocations with accounting treatment have been enabled by utilising existing resources. The revised requests and requirement for capital heads of expenditure result in an allocation shortfall of £14.7 million in 2018 and £2.2 million in 2019 per below.

FIGURE 22 – Summary of Identified Capital Requirements for 2018 and 2019 Compared to MTFP 2016 – 2019 Indicative Programme

Balancing the 2018/2019 Capital Programme Using the Criminal Offences Confiscation Fund (COCF)

The MTFP 2016 – 2019 introduced the concept of applying funds confiscated and held in the COCF to contribute towards the cost of the Prison Phase 6 capital project. At that point it was proposed that the entire £8.2 million cost of the project be funded from the COCF subject to a sufficient balance being available.

Following initial consultation with the Attorney General and confirmation of the available balance, a formal request has been submitted to the Attorney General to confirm his approval to apply £6.5 million from the COCF towards the Prison Phase 6 capital project. This transfer will happen in 2018 as a grant via the Community and Constitutional Affairs Department rather than as envisaged in the MTFP 2016 – 2019.

By transferring this funding to the Prison project, plus the transfer of £1,360,000 from unspent capital and revenue allocations as identified in the following sections, this reduces the allocation required in the capital programme to £1,202,000. It also reduces the oversubscription to the capital allocations down to £8.2 million in 2018 and £2.2 million in 2019 whilst enabling this high priority project to continue.

FIGURE 23 – Balancing the Capital Programme – Transfer from the Criminal Offences Confiscation Fund

Total  2018 2019 Balancing 2018 - 2019 Budget Allocation £'000 £'000 £'000

MTFP Approved Capital Allocation 43,233 32,975 Revised Programme 57,886 35,173

Total Capital Allocation Shortfall (16,851) (14,653) (2,198) Transfer from COCF 6,500

Prison Phase 6 (6,500) 6,500

Balance of COCF to Allocate -

Remaining Shortfall b/fwd (8,153) (2,198)

Proposed Transfer from Anticipated Unspent Contingencies to be Carried Forward

The estimated cost of the St Mary's School project included in the MTFP 2016 – 2019 was based on 2015 prices and more detailed work will be required through the standard design and tendering process to refresh that estimate in advance of tenders being returned. In light of the levels of inflation experienced in the construction industry over the past few years, it is recognised that the 2015 estimate is likely to be insufficient to complete the project as required. To address that, it is proposed that a provision is made against anticipated unspent Contingencies to be carried forward. Subject to the estimate being revised, a request will be submitted to transfer up to £1,000,000 from Central Contingencies carried forward to manage this pressure.

Transferring £1,000,000 from anticipated unspent Central Contingencies carried forward reduces the oversubscription to the capital allocations down to £7.2 million in 2018 and £2.2 million in 2019 whilst enabling this high priority project to continue.

FIGURE  24  –  Balancing  the  Capital  Programme  –  Transfer  from  Anticipated  Unspent  Central Contingencies to be Carried Forward

Total  2018 2019 Balancing 2018 - 2019 Budget Allocation £'000 £'000 £'000 Remaining Shortfall b/fwd (8,153) (2,198)

Transfer from Anticipated Contingencies C/fwd 1,000

St Mary's School (1,000) 1,000 Balance of Contingencies C/fwd to Allocate -

Remaining Shortfall b/fwd (7,153) (2,198)

Unspent Capital Allocations

As part of the quarterly monitoring of capital project spend which is reported back to the Corporate Management Board and the Council of Ministers, departments are asked to identify any unspent allocations and those no longer required for the purpose they were approved for.

Any unrequired balances are either returned to the Consolidated Fund or can be reallocated to manage priorities. The last review in advance of preparing this report identified £5.8 million across a number of existing capital project allocations shown below to be reallocated.

FIGURE 25 – Balancing the Capital Programme – Existing Unspent Capital Allocations for Re-allocation

Transferring these balances to the projects identified below reduces the oversubscription to the capital allocations down to £3.0 million in 2018 and £0.6 million in 2019 whilst also enabling these high priority projects to continue.

FIGURE 26 – Balancing the Capital Programme – Re-allocating Unspent Capital

Total  2018 2019 Balancing 2018 - 2019 Budget Allocation £'000 £'000 £'000 Remaining Shortfall b/fwd (7,153) (2,198)

Unspent Capital Budget to Reallocate to: 5,756

Haute de la Garenne (50) 50 - Autism Jersey (1,000) 1,000 - Orchard House (2,000) 2,000 - DoE Minor Capital (68) - 68 Fisheries Vessels (96) 71 25 DVS Systems (300) 300 - Grainville School Phase 5 (1,906) 401 1,505 Prison Phase 6 (336) 336

Balance of Unspent Available to Allocate -

Remaining Shortfall b/fwd (2,995) (600)

With the exception of £1.0 million for the Limes Upgrade project, which was a conditional contribution from the Le Seelleur Trust in the Budget 2013 and will therefore be returned to the Fund, the balances in Figure 25 above will be transferred to Central Contingencies for onward allocation to the capital projects identified in the above table, subject to their approval in this capital programme where relevant.

The largest unspent balance being returned is from the Adult Care Homes project which was originally allocated £4.0 million in the Budget 2013. This project was going to deliver a number of residential and day services for adults with significant and complex needs. Whilst one element of the project was delivered in conjunction with Andium Homes Limited, more detailed work by Jersey Property Holdings to develop a costed preferred solution identified a requirement for significant further funding. The Health and Social Services Department also reviewed its priorities which confirmed the requirement for work on Orchard House. A feasibility study has been undertaken by Jersey Property Holdings identifying a preferred site option with estimated costings for Orchard House as included above.

The original allocation brief for Adult Care Homes included the development of appropriate day time services for people on the autistic spectrum of £800,000. From the balance of the £3.8 million to be returned, £1.0 million will be reallocated to a new specific head of expenditure with a view to providing Autism Jersey with enhanced funding for this purpose. Autism Jersey are also raising their own funds to contribute to the facility.

Transfer of Revenue Budgets

Departments receive net revenue budgets annually which they must prioritise in order to deliver services in the most efficient and effective way and in line with strategic priorities. Revenue budgets can include specific growth, carry forward and contingencies allocations that have been agreed in order to manage identified pressures. It is recognised that departments must have sufficient flexibility to prioritise those budgets in the way they deem best delivers their service objectives and the priorities agreed by the States Assembly whilst operating within the financial controls in place. This is particularly important during a period of service redesign and organisational reform. In some instances, that may mean revenue budgets are used for projects where the expenditure will have to be recognised as capital under

accounting rules and end up creating an asset.

To facilitate this in the most transparent way, the Budget 2018 includes a number of projects where capital expenditure is required and a capital head of expenditure must therefore be set up in accordance with the Public Finances (Jersey) Law 2005 but where funding already exists within departmental revenue budgets to fund the projects. The table below identifies those projects as well as contributions from revenue budgets to Les Quennevais School and the Prison Phase 6 projects which were included in previous programmes.

It is also important that in instances where a funding pressure materialises in a department, the department has the ability to look across all available resources under its control to manage that pressure before seeking additional funding. In the case of the Les Quennevais School project where the estimated  cost  has  increased  beyond  the  amount  allocated  in  previous  capital  programmes,  the Education Department will transfer £1.5 million from their 2017 revenue budget which is forecast to be underspent as at the end of 2017 to manage the pressure.

Transferring these balances to the projects identified below reduces the net additional contribution from the Consolidated Fund to the overall programme in 2018 and 2019 to within the allocation envelope agreed in the MTFP.

FIGURE 27 – Balancing the Capital Programme – Transfer of Revenue Budgets

Total  2018 2019 Balancing 2018 - 2019 Budget Allocation £'000 £'000 £'000 Remaining Shortfall b/fwd (2,995) (600)

Transfer of Revenue 3,595 Source of Revenue

Education Department 2017 Les Quennevais School (1,500) 1,500 Revenue Budget

Health and Social Services Digital Care Strategy (1,450) 850 600 Revenue Budget

DVS Systems (250) 250 Department for Infrastructure La Collette Fire Systems (200) 200 Revenue Budget

Community and Constitutional Prison Phase 6 (195) 195 Affairs 2017 Revenue Budget Balance of Revenue to Allocate -

Remaining Shortfall b/fwd - -

Summary of Proposals to Balance the 2018 and 2019 Capital Programmes

The table below summarises the changes to the 2018 and 2019 proposed capital programmes and the proposals to fund those projects whilst maintaining the overall capital allocation envelope for 2018 and 2019 set in the MTFP.

FIGURE 28 – Balancing the Capital Programme – Summary

The proposed 2018 programme continues to allocate funding into the priority services agreed in the Strategic Plan for Jersey with over £20 million for work on Grainville, St Mary's and Les Quennevais Schools and £7 million across Health and Social Services projects. Nearly £20 million will also be invested in the Island's infrastructure.

It is important to stress that this programme excludes the funding requirements for the Future Hospital and Office Consolidation Project, for which options are under separate consideration and will require separate approval, including the source of funding. There are also no further allocations directly to the Liquid Waste Strategy (Sewage Treatment Works) project as the remaining funding required in the period, after the pending transfer from Central Contingencies in respect of the Clinical Waste Incinerator, is being managed by the Department for Infrastructure through their Infrastructure Rolling Vote.

The financial planning assumptions within the existing MTFP include depreciation in assessing whether budgets are balanced. By doing so a provision for capital spend can be established which is linked to the recognised cost of using existing assets. On that basis, a provisional funding allocation of £55 million for 2020 and £55 million for 2021 is estimated which will form part of the next MTFP.

FIGURE 29 – Approved 2018 Programme and Indicative Capital Programme 2019

Proposed  Proposed  ** Other  Transfers  Transfers  Consolidated  Consolidated Programme Programme Transfers from Unspent from Unspent  Fund  Fund (Gross) (Gross) Capital Revenue Allocation Allocation

Capital Head of Expenditure (Net) (Net)

£'000 £'000 £'000 £'000 £'000 £'000 £'000 2018 2019 2018 2019

Chief Minister's

Desktop Upgrades - 1,000 - - - - 1,000 Corporate Web Platform Refresh Cycle 326 500 - - - 326 500 Content management system refresh (SharePoint Upgrades) - 100 - - - - 100 Hardware Refresh 201 281 - - - 201 281 Open Data 53 77 - - - 53 77 Data Warehouse Platform  647 80 - - - 647 80 CRM Platform Renewal 396 80 - - - 396 80 Replacement Assets - CMD 200 1,050 - - - 200 1,050 Corporate Data Platforms Upgrade 500 500 - - - 500 500 Chief Minister's Total 2,323 3,668 - - - 2,323 3,668

Education

Grainville School Phase 5 * 8,458 3,778 - (1,906) - 8,057 2,273 St Mary's School * 6,500 - (1,000) - - 5,500 - Les Quennevais School * 5,600 - - - (1,500) 4,100 - Replacement Assets and Minor Capital - EDU 200 250 - - - 200 250 Education Total 20,758 4,028 (1,000) (1,906) (1,500) 17,857 2,523

Health & Social Services

Replacement Assets (Various) 2,351 1,073 - - - 2,351 1,073 Barrier Washer Extractor 229 - - - - 229 - Ironer Line 420 - - - - 420 - Child Health IT System - 202 - - - - 202 Replacement Assets RIS / PACS IT assets - 1,900 - - - - 1,900 CT Scanner - 2,225 - - - - 2,225 Digital Care Strategy 850 600 - - (1,450) - - Autism Jersey Facility* 1,000 - - (1,000) - - - Orchard House * 2,000 - - (2,000) - - - Health & Social Services Total 6,850 6,000 - (3,000) (1,450) 3,000 5,400

Department for Infrastructure

Replacement Assets 2,250 2,000 - - - 2,250 2,000 Infrastructure Rolling Vote 14,003 18,188 - - - 14,003 18,188 La Collette Waste Site Development 2,500 500 - - - 2,500 500 DVS Systems 550 - - (300) (250) - - Haute De La Garenne* 50 - - (50) - - - La Collette Fire Equipment 200 - - - (200) - - Department for Infrastructure Total 19,553 20,688 - (350) (450) 18,753 20,688