We take a detailed look at the States report and accounts for 2014
IT takes a strong stomach indeed to digest all 233 pages of the States 2014 report and accounts (plus a 300-page annex) at one sitting.
‘Even after the funding shortfalls of 2014, the States balance sheet is in a strong position.’
States Treasurer Richard Bell
‘The States of Jersey has continued to feel the effects of the challenging global economic climate in 2014 and this is reflected in the income performance for the year… these are not challenges that are unique to Jersey, but with a heavy reliance on our finance industry and, specifically, the banking sector, increases in revenues have not occurred as strongly as previously forecast.’
Treasury Minister Alan Maclean
Even seasoned accountants who spend all day, every day looking at numbers have baulked at the suggestion.
At a basic level, though, what members of the public most want to know is what has happened to the money we paid out in taxes.
And in all fairness, the report brings together information that is rarely spelled out anywhere else, names those responsible for the various areas of the public purse and how much they are paid and, most importantly, sets out how much cash is in the kitty – something that tends to have a knock-on effect, at some point, on the taxes and charges we are asked to pay.
As reported last week, States departments spent £25 million more last year than the income received from taxes, duties and the like.
But in addition, the States also gain income from a raft of investment funds and oversees public sector pension pots.
States services where the money came from
General revenue income: 2014, £649m (2013, £636.7m), 5.5% under budget
This is income mainly paid for directly by taxpayers and includes income tax, GST, impôts duty, stamp duty and the Island rate.
Last year the revenue gained a boost of £13.6 million from the new States housing company, Andium Homes – without which the Treasury would have been left with a £39m operating deficit. Stamp duty, mainly from the sale of higher-value properties, was £9m higher than in 2013 but company tax was £15m down because of a one-off settlement in 2013 and a reduction in profits from the finance sector.
Breakdown of general revenue income:
Personal income tax – £354m (2013, £353m)
Companies tax – £83m (2013, £99m)
GST – £80m (2013, £78m)
Impôts duty – £54m (2013, £54m)
Stamp duty – £26m (2013, £17m)
Island rate – £12m (2013, £12m)
Fines and other income (including £13.6m from Andium Homes) – £40m (2013, £24m)
How much did they spend?
Departments’ revenue expenditure: 2014, £674m ( 2013, £636m)
This is the money that comes from the ‘consolidated’ fund and is used for day-to-day expenses, rather than one-off capital projects. The most cash-hungry department is Health (£196.7m), closely followed by Social Security (£179.4m) and Education, Sport and Culture (£113.5m). In terms of benefits, Social Security paid out a total of £347m last year, up from £333m in 2013, including £14.8m for long-term incapacity allowance, £73m for weekly benefit and £18m on pharmaceutical benefit.
Rather surprisingly, at the end of last year departments failed to spend £28m of the funds that had been approved. £15m of that money has been carried forward to this year and the remainder returned to the consolidated fund.
Capital expenditure: £51.7m
Money from the consolidated fund was used to fund specific approved projects, including health facilities (£7.3m), housing (£8.7m), education facilities (£10.5m) and waste infrastructure (£19.5m).
For example: Sludge thickener project (£6.2m) – to replace current plant at Bellozanne.
St Martin’s School (£3.4m of total £7.7m budget) – the new 180-place school, which has solar panels, rainwater harvesting and grey water toilet flushing, will replace the ageing parish building.
Oncology (£719,000 of £3.3m budget) – an upgrade to bring together oncology and haematology, which were previously on sites at opposite ends of the hospital.
Police relocation (£1.7m of £24m budget) – construction of the first purpose-built police headquarters.
Prison improvement (£463,000 of £9.8m project) – combined workshop/stores for engineering, with underfloor heating, offices above and storage.
Future hospital (£1.3m of £10m budget) – single and dual site options appraisal.
Capital expenditure – trading operations: £13.7m
This includes Jersey Airport (£3.8m) and Jersey Harbours (£7.1m), both of which are now incorporated as Ports of Jersey; Jersey Car Parking (£1.1m); and Jersey Fleet Management (£1.7m).
Anything left over?
Operating deficit: 2014, £25m short (compared to 2013, when there was a surplus of £502,000)
Ideally, the income should cover the spending. Last year it did not.
But without the cash boost from Andium Homes, it could have been worse.
The problem for the States is that this deficit is set to grow year on year if spending continues at its current rate. That is why the public sector reform programme is seen as key, with the aim of cutting £60m from the payroll through voluntary redundancies, combining departments and cutting duplication.
What about investments?
Yes, the States does have investments, specifically the Common Investment Fund (total value £2.9 billion), plus £167.5m invested outside of the CIF.
In 2014 equities made the largest contribution (62%) to the overall rate of return of 10.2%.
However, investment income was £131m lower than in the ‘exceptional’ year of 2013 which saw impressive stock market gains following an upturn from the recession.
As well as the consolidated fund and trading operations, the States also has 19 ‘special funds’, including the Drug Trafficking Confiscation Fund, the Housing Development Fund, the Agricultural Loans Fund and the Channel Islands Lottery Fund.
Two of the largest are singled out in the report:
Strategic Reserve (rainy day fund) – increased by £43.4m last year, to £786.5m, with £10m transferred out for the planning of the new hospital.
Social Security Funds – the balance of the four funds all increased last year, notably the reserve fund, which grew by £95.5m, to £1.3bn.
And pensions?
The two main public sector final-salary pension schemes, the Public Employee Contributory Retirement Scheme (PECRS) and the Jersey Teachers Superannuation Fund, are said to affect an estimated one in three households in the Island.
The current service liabilities of the main schemes – which increased by £43.8m last year, following revaluation – are the responsibility of the scheme members and not the employer.
In March 2013 the States Employment Board agreed to introduce a Career Average Revalued Earnings (CARE) scheme and bring in a higher employee contribution rate. The regulations were passed by the Privy Council in July last year and are due for States debate this year, to start on 1 January 2016 for new employees and in 2019 for existing employees. Changes to the teachers’ scheme are expected to follow in due course.
- PECRS pre-1987 debt: £275m
- JTSF pre-2007 debt: £105m
Any borrowings?
Unlike many other governments, the States of Jersey has traditionally been extremely cautious about borrowings and remains virtually debt-free.
However, a public bond for £250m was issued in 2014, to be repaid at a fixed rate of 3.75%. Jersey’s international credit rating by Standard and Poor’s was reaffirmed in May at AA+.
Whats the bottom line?
Last year total revenue income, including funds and trading operations, was £1,158,308m, against total expenditure of £1,151,886m.
Total net surplus was £6.4m, compared to £279m in 2013 – a not insignificant difference. But States Treasurer Richard Bell says that this large disparity is due to the exceptional gains made in 2013 and that during 2014 States investments continued to outperform the markets.
The States overall owns fixed assets worth £3.3bn, including substantial property assets. In addition, the value of strategic investments in utility companies now totals £317m:
- Jersey Electricity £75m
- Jersey Water £36m
- JT £180m
- Jersey Post £27m
Heritage assets held by the States:
- Castles, towers, forts, the Opera House and St James.
- Rare books valued at £254,000.
- Antique cannon at Fort Regent.
- Organs and pianos, including a rare chapel organ at Highlands College.
- The Bailiffs mace and Royal Seal.
What next?
The Council of Ministers are currently preparing for the next Medium Term Financial Plan, which will apply from 2016 to 2019.
This is due to be presented to Members at the end of this month.
