Draft Budget Statement 2018 - Ministerial Response - 25 January 2018

Findings

Comments

1

Finding: The Draft Budget Statement 2018 states that a review of the personal tax system is being conducted. This will seek to address the discrepancies about how similar households are taxed.

A  review  of  the  personal  income  tax  system  is  in progress.  In  particular,  this  review  will  consider alternatives  to  the  current  system  of  "married  man" taxation (under which the joint income of a married couple is assessed on the husband), which would seek to  address  the  discrepancies  in  the  way  similar households are currently taxed.

A modelling tool is being developed that will allow the Treasury  to  model  the  impact  (both  on  general  tax receipts  and groups  of taxpayers) of changes to the personal  income  tax  system.  The  modelling  tool  is currently in final testing and should be  available to policy-makers early in 2018.

In addition, engagement with the Public on the issue of "married man" taxation and potential alternatives has already commenced through the forum of a "chat bot" (see: http://www.apptivism.je/conversations/tax).

Further  engagement  with  the  Public  is  planned throughout the timeline of the review.

2

Finding: The Minister for Treasury and Resources agreed in the public hearing on 7th November that there was a need to review the personal tax system and that this would include modelling both the current system and alternatives for the future.

See above.

3

(Note: The above finding was inadvertently repeated in the Report.)

/

Findings

Comments

4

Finding: The approximate level at which a household becomes a net positive financial contributor (based on income tax, social security and long-term care) is likely to be greater than £34,000.

This is a statement for which no analysis or support was provided. Neither was there a statement to define the term "net positive financial contributor". Whether a family is a net contributor or otherwise will depend on their circumstances and will vary considerably.

5

Finding: Existing high value residents are protected by historical agreements from any increases in tax or any new tax models that may be introduced in the future.

Since 2005 the Island's high value residents ("HVRs") regime has consisted of 2 distinct, but inter-relating, elements:  (i) granting  of  housing  rights  to  an individual  under  the  relevant  Control  of  Housing legislation; and (ii) where those housing rights have been  granted,  access  to  preferential  tax  rates  as specified in the Income Tax legislation.

The  Chief  Minister  grants  housing  rights  to  HVRs where satisfied that such a grant is justified on social or economic grounds (or both) and is in the best interests of the community. The income tax contribution that the applicant is likely to make has been a relevant factor in considering  applications.  The  level  of  the  expected annual minimum income tax contribution utilised by the Chief Minister when considering applications in the recent  past  is  as  follows:  for  those  applying  in  the period from 2005 to 2010 (inclusive) an applicant was expected to have sufficient taxable income in order to generate  an  income  tax  liability  of  £100,000;  from 2011  to  2017  (inclusive)  an  applicant  has  been expected to have sufficient taxable income in order to generate an income tax liability of £125,000.

If the Chief Minister grants the housing rights (until the regime applying for new HVRs from 2018 onwards) the only tax implication was access to preferential tax rates.  In  particular  if  a  HVR  failed  to  meet  their expected  annual  minimum  income  tax  contribution there was no action that could be taken by the Taxes Office; it would be for the Chief Minister to consider withdrawal of the housing rights granted.

It would not be reasonable to reconsider retrospectively grants of housing rights already made using a higher benchmark than originally used.

6

Finding: New high value residents entering the Island will be subject to new taxation arrangements. These arrangements will not be subject to an annual increase but will be reviewed every 5 years.

The new HVR tax regime created in Budget 2018 will apply to those HVRs granted 2(1)(e) entitled status on or after 1st January 2018.

There are a number of elements to the new tax regime. One  element  is  that  the  expected  annual  minimum income  tax  contribution  will  be  subject  to  a revalorisation review on a 5-yearly basis (with the first review being completed in time for any changes to be made  effective  from  the  2023  year  of  assessment).

Findings

Comments

Any increase in the expected annual minimum income tax contribution will be capped by reference to inflation in Jersey and will be subject to a competitive analysis.

7

Finding: There is uncertainty amongst the retail industry surrounding the overall impact of the proposed tax on larger retailers.

Appendix 11  to  the  Draft  Budget  Statement  2018 contains economic and distributional impact analysis of the  proposed  changes  to  the  taxation  of  "large corporate retailers" contained in the 2018 Budget.

8

Finding: Companies trading in the provision of credit/finance to customers are operating in an unregulated marketplace.

Currently,  not  all  businesses  that  provide  consumer credit/finance  in  the  Island  are  subject  to  specific regulation within Jersey.

There is, however, a voluntary Code of Practice for Consumer Lending which has the key aims of –

• enabling Jersey consumers to be fully aware of, and  understand, the terms  under which they are borrowing money;

• enabling  Jersey  lenders,  brokers  and  financial advisers to obtain the right information to ensure that credit is not advanced where the ability to meet repayment might be in doubt;

• promoting responsible lending.

Further details on the Code of Practice for Consumer Lending  (including  details  of  businesses  which  are subscribers to this Code) can be found on www.gov.je.1

9

Finding: The broadening of the definition of a "financial services company" for the purposes of the 10% income tax rate, will raise £3 million additional annual income.

As outlined on page 18 of the Draft Budget Statement, based on the data available to the Taxes Office it is estimated  that  the  widening  of  the  definition  of "financial  services  company"  proposed  in  the 2018 Budget should raise an additional £3 million per annum from the 2018 year of assessment onwards (this additional income will be first recognised in the States accounts for 2019).

10

Finding: The finance industry has expressed concern at the impact of the broadening of the definition of a "financial services company", for the purposes of the 10% income tax rate, on the Island's competitive position.

The Minister is surprised by this finding. The proposals to  broaden  the  definition  of  "financial  services company" were discussed, on a confidential basis, with representatives of the financial services industry on a number  of  occasions  in  advance  of  the  Budget proposals being lodged. These discussions influenced the  legislative  proposals  ultimately  lodged  with  the States Assembly.

In  addition,  during  the  8-week  lodging  period,  the Minister  received  no  comment  from  businesses impacted by the proposed changes.

Findings

Comments

Finally, it is also noted that for the majority of the "broadening", the changes more closely align Jersey's 0/10 regime with Guernsey's 0/10 regime (i.e. most of the  companies  brought  within  the  definition  of "financial services company" would already be subject to tax at 10% if they were located in Guernsey).

11

Finding: The Minister for Treasury and Resources has stated that the likely impact of the ending of the deduction of rates by landlords renting property in Jersey, is that tenants will pay more.

The decision to make landlord rates non-tax deductible was made in Budget 2017, following an amendment from Deputy S.Y. Mézec of St. Helier that was agreed by  the  States  Assembly.[2]  Budget  2018  simply introduces the legislative changes required to make that decision effective.

Prima facie the decision to make landlord rates non- tax-deductible will increase the income tax payable by landlords; there is a risk that landlords will seek to pass on this additional cost to tenants in increased rents.

It  has  previously  been estimated  that the  total rates payable on an average family home are approximately £300 per annum. Assuming half of the total relates to the owners' rates element, the additional tax payable under this measure is estimated at £30 per year.

12

Finding: An anomaly in Stamp Duty legislation means that certain properties, including in particular commercial offices, at present are not liable to stamp duty.

The transfer of the ownership of Jersey real estate is a transaction that must pass through the Royal Court, and hence the relevant contract is subject to the stamp duty chargeable by reference to Part 1 of the Schedule to the Stamp Duties and Fees (Jersey) Law 1998. Company

share  transfer  transactions  do  not  pass  through  the Royal Court and hence are not subject to stamp duty. Furthermore,  land  transaction  tax  only  applies  in specific circumstances – as outlined in Article 3 of the Taxation (Land Transactions) (Jersey) Law 2009.

Therefore there are circumstances where the ownership of  "enveloped"  Jersey  real  estate  can  be  changed through a transfer of company shares, incurring neither a stamp duty charge nor land transaction tax – these circumstances  relate  almost  exclusively  to  Jersey commercial real estate.

13

Finding: The potential income not collected due to the current anomaly in Stamp Duty legislation on commercial properties could be substantial.

The  transfer  of  shares  of  companies  which  envelop Jersey real estate is not currently recorded; therefore it is  not  currently  possible  to  estimate  the  amount  of stamp duty being "lost" as a consequence of the fact that the ownership of enveloped Jersey real estate can be changed through a transfer of shares.

Findings

Comments

14

Finding: The revised cost of the Grainville school capital project is 50 per cent higher than originally estimated, increasing by £5.3 million to £15.5 million.

In summary, the increase in the estimated cost of the project comprises –

Original Budget

£10.2 million

Updated pupil number modelling increasing classroom and circulation space requirements

£1.3 million

Building Bye-law changes

£1.1 million

New 10% consequential improvement requirements

£1.0 million

Inflation above assumptions and impact of timings

£1.0 million

Demolition costs (not required in previous refurbishment scheme)

£0.9 million

Revised Cost

£15.5 million

The proportionately large movement in the estimated cost was largely driven by the evolution of the project to  accommodate  changing  service  needs;  changing regulatory  conditions;  and  further  detail  revealed through  feasibility  work,  including  identifying  some difficult site conditions that were not anticipated. This was  further  exacerbated  by  the  construction  market conditions causing additional inflation.

Cost estimates are prepared on an out-turn cost basis using  informed  assumptions  around  future  year inflation. In some cases, such as Grainville, the project is included in the capital programme to recognise the service  priority,  whilst  acknowledging  that  further work is required to finalise the detail of the scheme.

Developing an accurate forecast for capital projects in an inflationary climate is difficult. The underlying rate impact may not be known until sufficient works have been tendered to provide a robust dataset, by which time future project budgets have been set on the basis of  contemporary  forecasts  for  current  and  future inflation.

15

Finding: The capital project to build the new Les Quennevais School has increased by approximately 14%, from

£40 million to £45.6 million.

There are 3 drivers to the upward movement –

• A delay resulting from the need to resubmit for planning permission following the outcome of the planning inquiry. As an estimate based on recent experience, a 9-month delay would result in a cost increase of £1.5 million – £2.0 million.

• The  amendments  required  to  address  the  Jersey Architecture Commission comments has resulted in

Findings

Comments

an  increase  in  floor  area  of  468 m.2  due  to  the separate Sports Hall . The impact is estimated to be £1.5 million on works costs, which is amplified by inflation,  fees  and  contingency  sums  that  are determined as a percentage of cost.

 The  inflation  sum  has  also  been  recalculated  to take  account  of  more  recent  experience  from tendering medium- to large-scale building works to the local market, which suggests that construction inflation is currently running at higher than general inflation.

16

Finding: Treasury officials have stated that they are identifying methods to change the way that capital projects are budgeted, so that more of the feasibility planning is done earlier, and therefore better estimates are provided.

The current MTFP established a sustainable provision for  capital  funding,  which  enables  more  effective prioritisation of capital investment. Where necessary and  appropriate,  advanced  funding  will  be  made available  from  the  Central  Planning  Vote  to  enable feasibility, planning and  design work to progress in order that the project is better placed to proceed on a timely basis and with a more robust cost estimate once full funding is approved in the Budget.

Further changes are planned to the way capital funding is allocated, which will align the budget allocation with the spend profile of the project. Controls will remain in place  to  ensure  that  the  whole  project  costs  are provided for, but the annual allocation will be based upon  spend  profile,  which  will  reduce  the  level  of unspent  capital  and  allow  more  effective  cash management.

17

Finding: The Minister for Treasury and Resources has stated that the 2018 Budget is a mechanism for dealing with short-term funding issues up

to 2019, and not providing long- term funding solutions.

The Minister stated that the revenue-raising measures in the 2018 Budget are intending to deal with the short- and long-term issue of the States not agreeing to the £15 million that would have been raised by the Health charge. The Minister also said that the issue of long- term sustainable funding for health will continue to be worked on.

18

Finding: The Minister for Treasury and Resources has stated that he will be making an announcement about higher education funding alongside the budget, and that he will be lodging funding proposals before the May 2018 election.

The  Minister  announced  proposals  in  his  Budget speech.

Findings

Comments

19

Finding: The Panel's advisers have raised concerns that the standard of living in Jersey, relative to that of the UK, is falling.

This  has  been  apparent  for  some  time  in  the  data published  by  the  Statistics  Unit.  GVA  per  head  in Jersey fell significantly between 2007 and 2013, driven by the fall in GVA in the financial services sector; and in particular the impact of low interest rates on banking profitability and GVA. Since 2014, GVA per capita has been essentially flat in real terms in Jersey. In the UK GVA per head did fall between 2007 and 2013, but to a lesser  degree,  as  the  financial  services  sector  is  a smaller proportion of the economy in the UK and was not impacted in the same way by lower interest rates. Since 2014 there has also been a gradual improvement in GVA per head in the UK.

20

Finding: The productivity of Jersey's economy (based on GVA per FTE) is not increasing in line with the population.

Jersey's  productivity  trends  have  also  been  well- documented by the Statistics Unit and commented on by  the  FPP.  It  is  not  clear  why  this  finding  is particularly relevant. Productivity is a measure of GVA per  (full-time)  person  employed,  and  growth  in productivity will be determined by the relative change in  GVA  and  those  employed.  Whether  productivity moves in line or out of line with population trends is not particularly informative.

21

Finding: The figures for the income tax forecast in 2018 and 2019 have been increased by £8 million to £10 million each year, because of an accounting adjustment.

The  changes  for  accounting  for  current  year  basis (CYB)  taxation  is  in  accordance  with  accounting standards  and  represents  real  income  sitting  in  the States' bank account. The adjustment to the forecasting is needed simply because the forecasting model works on the basis that all income is prior year basis (PYB).

Appendices to the Budget 2018 clearly illustrate the breakdown of income tax forecasts.

22

Finding: By 2021, on present projections there will have been little or no growth of real-term earnings of Islanders in the last decade.

The squeeze on real earnings experienced in Jersey in the immediate aftermath of the global financial crisis was common across other economies and was driven by factors outside the Island's control. However, real earnings have increased in each of the last 5 years. FPP economic assumptions for 2019 and beyond are only trend  assumptions  rather  than  indicators  of performance in each year. Even if these are taken as forecasts of earnings and inflation in each year, real earnings  in  the  10 years  including  2021  will  have increased slightly.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

1

Recommendation: The review of the personal tax system, which is currently underway, should be completed before the 2019 Budget is lodged.

T&R

Rejected for this target date

The review of the personal income tax system is  a  major  review  which  might  ultimately result  in  recommendations  to  make fundamental changes in the personal income tax  system.  To  complete  this  review (including full public consultation) and bring forward  legislative  changes  in  the 2019 Budget  (lodged  in  autumn  2018)  is unrealistic, particularly in light of the election timetable.

Proposals  will  be  brought  forward  for consultation  by  Budget  2019  to  be implemented by Budget 2020.

2

Recommendation: The review of the personal tax system, which is currently underway, needs to include modelling for variances to the marginal and standard rates of tax.

T&R

Accept

The review of the personal income tax system will include modelling the impact changes to the marginal and standard rates of tax.

December 2018

3

Recommendation: The threshold at which a person becomes a net positive financial contributor should be assessed, as part of the calculations that the Minister for Treasury and Resources has agreed to conduct as part of reviewing the personal tax system and model. This should also take into account any subsidies towards State pension contributions and the impact of any future population policy.

T&R

Reject

As part of the review of the personal income tax  system,  the  interaction  between  the benefits system and the income tax system will  be  considered  to  help  analyse  what allowances  might  be  appropriate  to  be included within an updated personal income tax system.

The scope of the review does not extend to social  security  contributions,  which  are currently subject to a review by the Minister for Social Security.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

4

Recommendation: The Minister for Treasury and Resources should identify a mechanism in time for the 2019 Budget, whereby historical agreements with high value residents are renegotiated to introduce a minimum increase in taxation, in line with RPI.

T&R

Reject

As indicated above, this recommendation is based  on  a  finding  which  misunderstands how  the  HVR  regime  has  operated historically. It would not be: (i) reasonable to reconsider  grants  of  housing  rights  already made  using  a  higher  benchmark  than originally  used;  or  (ii) legally  advisable  to force  existing  HVRs  into  the  tax  regime applying for new HVRs from 2018 onwards, when  the  expected  minimum  income  tax liability  may  increase  periodically  and  an income tax top-up mechanism will apply to ensure  that  the  expected  annual  minimum income tax contribution is paid, even where their actual taxable income is insufficient to generate that level of income tax.

5

Recommendation: The Minister for Treasury and Resources should recommend to the Council of Ministers, that they should urgently address the lack of regulation for companies trading in the provision of credit/finance to customers.

T&R

Accept

It is recognised that legislation and regulation in  this  area  would  benefit  from  being updated.  Financial  Services  staff  have  met with  the  Consumer  Council  and  interested parties,  with  a  view  to  strengthening  their existing  voluntary  code,  noting  that  some providers are not signed up. Further resource will be devoted to this area during the second half of 2018.

December 2018

6

Recommendation: The Minister for Treasury and Resources should publish the full assessment undertaken as to the impact of the change to the definition of "financial services company".

T&R

Accept – already done

Appendix 11 of the 2018 Budget Statement contains economic and distributional impact analysis of the widening of the definition of "financial  services  company"  contained within the 2017 Budget.

Complete

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

7

Recommendation: The Minister for Treasury and Resources should accelerate the work being done on correcting the anomaly in Stamp Duty legislation, and ensure that this anomaly is addressed with effect from

1st July 2018.

T&R

Rejected for this target date

Recommendations  for  possible  changes regarding "enveloped" Jersey real estate will be prepared in time to be considered by the new Minister for Treasury and Resources in advance of the lodging of the 2019 Budget (lodged  in  autumn  2018).  It  is  unrealistic, particularly in light of the election timetable, to  complete  the  review,  draft  and  lodge legislation, and have the changes enacted, by 1st July 2018.

Budget 2019

8

Recommendation: Given that Jersey's tax system is traditionally seen as "low, broad and simple", the Minister for Treasury and Resources should be mindful of the dangers of complicating the tax system in his review of the personal tax system.

T&R

Accept

The long-term tax policy principles agreed by the  States  Assembly  in  the  Strategic  Plan 2015–2018 are –

• Taxation  must  be  necessary,  justifiable and sustainable.

• Taxes should be low, broad, simple and fair.

• Everyone  should  make  an  appropriate contribution  to  the  cost  of  providing services, while those on the lowest income are protected.

• Taxes must be internationally competitive.

• Taxation  should  support  economic, environmental and social policy.

The Minister considers and balances each of the  policy  principles  when  considering making changes to the Island's tax system.

December 2018

9

Recommendation: The Minister for Treasury and Resources should examine options for bringing those of the taxpaying population currently on a prior- year basis of taxation, onto a current-year basis of taxation.

T&R

Accept

Steps  have  already  been  taken  to  move personal  taxpayers  between  the  prior-year payment  basis  cohort  and  the  current-year payment  basis  cohort.  Most  clearly  a legislative  change  was  included  in Budget 2017,  which  moved  a  number  of personal  taxpayers  on  to  the  current-year payment  basis  (see  page 16  of  the  Draft Budget Statement 2017[3]).

During 2018 the Taxes Office will review a number of options for encouraging personal taxpayers  to  move  from  the  prior-year payment  basis  to  the  current-year  payment basis voluntarily.

December 2018

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

10

Recommendation: The Minister for Treasury and Resources should explore the possibility of fixed, long-term impôts duties on tobacco.

T&R

Accept

One  of  the  action  points  arising  from  the States of Jersey Tobacco Strategy 2017–2022 (R.129/2016) is to: "Agree with the Treasury and  Resources  Department  an  appropriate minimum  annual  above  inflation  price/tax escalator over the next five years.". The issue of  a  tobacco  duty  escalator  should  be considered by the new Minister for Treasury and  Resources  as  part  of  the  process  of putting  together  the  next  Medium  Term Financial Plan.

Consider ahead of Budget 2019

11

Recommendation: The Minister for Treasury and Resources should commence planning for the loss of road fuel duty revenue due to the increase in the number of electric and hybrid vehicles.

T&R

Accept

The  Minister  for  Treasury  and  Resources acknowledges  that  the  increasing  purchase/ usage  of  electric  and  hybrid  vehicles  will ultimately result in reducing road fuel duty revenue  at  some  point  in  the  future.  The Minister for Treasury and Resources agrees with the Corporate Services Scrutiny Panel and  recommends  that  the  next  Council  of Ministers  commences  planning  for the  fact that  road  fuel  duty  revenues  will  start  to reduce at some point in the future as part of the  process  of  putting  together  the  next Medium Term Financial Plan.

Consider for MTFP3

12

Recommendation: Planning for the eventual loss of road fuel duty should include considerations for a phased removal of revenue (for example over a 10 year period) for the purposes of estimating revenue receipts for budgetary and planning purposes.

T&R

Accept

The  Minister  for  Treasury  and  Resources agrees that as part of the planning process noted above, work will need to be undertaken to estimate the future profile of road fuel duty revenue.

Consider for MTFP3

13

Recommendation: The Minister for Treasury and Resources should examine other means of measurement for Vehicle Emissions

T&R

Accept in principle

The  aim  of  Vehicle  Emissions  Duty  is  to lever  car-purchasing  behaviour  towards vehicles  that  emit  lower  carbon  dioxide emissions. VED focus on emissions of carbon dioxide (CO2) as these are potent greenhouse gases  that  cause  anthropogenic  climate change.  Jersey  has  committed  to  reducing

December 2018

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

Duty, to ensure that CO2 is still the most effective means of taxation in relation to the health effects of car emissions on the population.

CO2 emissions by requesting the extension of the  International  Convention  on  Climate Change to Jersey through the UK, and by the adoption of Kyoto Protocol carbon reduction targets. These are translated into local actions in Energy Plan for Jersey: Pathway 2050', (P.38/2014), adopted by the States Assembly in 2014, which aims to reduce the Island's carbon dioxide emissions by 80% by 2050, compared  to  a  1990  baseline.  Action Statements 11–15 in the Energy Plan outline the policy levers designed to reduce carbon emission  from  vehicles,  and  VED  is  an important one of these. The Energy Plan will continue  to  focus  on  the  delivery  of  these Action  Statements  to  achieve  our  carbon reduction  objectives.  The  health  effects  of traffic are less attributable to carbon dioxide emissions,  the  focus  of VED,  but  more  to particulates  and  other  gases  like  carbon monoxide and NOx which also arise from the combustion of hydrocarbon – diesel vehicles being especially problematic in this regard.

VED does partially contribute to reducing the emissions responsible for reducing air quality as ultra-low (carbon) emissions vehicles are either  very  fuel  efficient  (so  have  fewer overall emissions), or are partially or fully electric,  thus  avoiding  the  particulate  and other emissions arising from the combustion of  hydrocarbons.  By  switching  to  electric vehicles rather than petrol or diesel vehicles, both the carbon and air quality objectives can be fulfilled. However, to address the negative health effects of traffic emissions in the short term,  other  policy  levers  must  be  pursued alongside VED. There is work underway in the  Department  of  the  Environment  to accurately monitor air quality and to identify and monitor specific air quality blackspots'. The Department for Infrastructure continue to address  the  congestion  and  travel  patterns which  can  exacerbate  the  build-up  of particulates or other emissions which lower air quality. To address the health impacts of traffic emissions, the most immediate policy levers are a combination of cleaner vehicles' (incentivised through VED), better transport

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

planning  and  spatial  planning  to  reduce vehicle use; lower congestion; and thus idling times to mitigate the impact of the resulting emissions  on  pedestrians.  The  Minister  for the  Environment  commits  to  meeting  the Minister for Infrastructure in 2018 to discuss the range of policy levers being implemented across both Departments, and to assess where action  should  be  prioritised.  A  particular challenge that has been identified is that of small  engine  diesel  vehicles,  which  are especially polluting because their filters are less effective on short local journeys. It may be that VED (or other policy levers like fuel duty) can be better targeted to disincentivise diesel  cars  in  particular,  and  this  will  be explored.

14

Recommendation: The Minister for Treasury and Resources should propose new, more accurate ways, by which to calculate the funding required for capital projects, before the

2019 Budget.

T&R

Accept

The Minister shares the importance placed on understanding  the  difficulties  of  estimating capital  project  costs  in  the  current  market conditions, and the government continues to look  at  innovative  construction  and procurement  techniques,  such  as  modular builds where pre-fabricated materials can be imported, thereby reducing costs.

Where necessary, off-Island providers will be considered in order to ensure value for money for the taxpayer.

The  Sewage  Treatment  Works  and  Future Hospital projects demonstrate an evolution in approach to align budget allocations with the cash-flow requirements of the projects.

Proposed  changes  to  the  Public  Finances (Jersey)  Law  2005,  and  how  capital allocations are to be managed, will help with lowering the levels of unspent capital at the end of each year, working more on a cash- flow  model  rather  than  allocating  the  full requirements in Year 1.

December 2018

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

15

Recommendation: The Minister for Treasury and Resources should make public, where possible, the preparatory work being conducted in anticipation of Brexit and its effect on future Budgets.

T&R

Accept

Almost £2 million has been allocated, and a further  £1.4 million  is  currently  earmarked to 2019, to ensure that the interests of Jersey are protected through this uncertain period. The  Treasury  Department  and  the  Minister for Treasury and Resources are fully engaged with  activity  being  undertaken  by  the Ministry of External Relations, and across the States, regarding Brexit, which is receiving a whole-government policy response.

In government, regular updates are provided to the Council of Ministers and the Financial Services  and  External  Relations  Advisory Group. Additionally, the Minister participates in the work of the Brexit Ministerial Group, which provides co-ordinated consideration of the  potential  implications  of  the  UK's decision  to  withdraw  from  the  EU,  while senior  Treasury  officials  participate  in  the Brexit  Working  Group,  which  is  the  main government-wide  co-ordination  forum  for officials for all matters relating to Brexit.

Elsewhere,  the  States  are  provided  with regular  flows  of  information,  and  have received 3 Brexit-dedicated Reports (one of which accompanied a Proposition) –

• R.72/2016, presented to the States on 27th June 2016;

• P.7/2017,  lodged  au Greffe  on 31st January 2017 and adopted by the States on 15th February 2017; and

• R.87/2017, presented to the States on 18th July 2017,

and have received numerous briefing sessions on  matters  central  to  Brexit.  Wider stakeholder engagement has also taken place through  the  ongoing  Let's  Talk  Brexit campaign,  which  has  included  surveys  of Jersey residents and businesses.

Ongoing

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

16

Recommendation: The Minister for Treasury and Resources should produce income figures for the period of the MTFP2 which removes all accounting adjustments and all budget measures introduced during that period, in order to demonstrate the underlying trend of changes in income.

T&R

Reject

The changes for accounting for current year basis  taxation  is  in  accordance  with accounting  standards  and  represents  real income  sitting in the  States' bank account. The adjustment to the forecasting is needed simply because the forecasting model works on  the  basis  that  all  income  is  prior-year basis. It affects every year and therefore is not masking any underlying trend.

Appendices  to  the  Budget  2018  clearly illustrate  the  breakdown  of  income  tax forecasts, and are sufficient to understand the changes  over  the  period.  Therefore  the recommendation is unnecessary.