XVII 2018 BILLET D’ÉTAT th TUESDAY, 26 JUNE, 2018 BUSINESS OF THE MEETING 1. The States of Guernsey Accounts 2017, P.2018/45 BILLET D’ÉTAT TO THE MEMBERS OF THE STATES OF THE ISLAND OF GUERNSEY I hereby give notice that a Meeting of the States of Deliberation will be held at THE ROYAL COURT HOUSE, on TUESDAY, the 26th June, 2018 at 9.30 a.m., to consider the item listed in this Billet d’État which has been submitted for debate. R. J. COLLAS Bailiff and Presiding Officer The Royal Court House Guernsey th 4 June, 2018 THE STATES OF DELIBERATION of the ISLAND OF GUERNSEY POLICY & RESOURCES COMMITTEE THE STATES OF GUERNSEY ACCOUNTS 2017 The States are asked to decide: Whether, after consideration of the reports, statements and notes relating to the respective Accounts, they are of the opinion: 1. To approve the States of Guernsey Accounts 2017 2. To approve the following 2017 Accounts: i. Ports ii. Guernsey Water iii. Guernsey Dairy iv. States Works 3. To note the following Accounts: i. Social Security Contributory Funds ii. Elizabeth College iii. Ladies’ College iv. States of Alderney The above Propositions have been submitted to Her Majesty’s Procureur for advice on any legal or constitutional implications. CONTENTS Page States of Guernsey Accounts 1 States’ Trading Supervisory Board – Ports 84 States’ Trading Supervisory Board – Guernsey Water 122 States’ Trading Supervisory Board – Guernsey Dairy 153 States’ Trading Supervisory Board – States Works 180 Social Security Contributory Funds 207 Elizabeth College 248 Ladies’ College 261 States of Alderney 275 STATES OF GUERNSEY ACCOUNTS CONTENTS Page President’s Foreword 2 States Treasurer’s Report 4 Statement of Responsibilities 19 Statement of Internal Financial Controls 19 Independent Auditor’s Report 20 Primary Accounts Statement of Financial Performance 23 Movement in Reserves Statement 24 Statement of Financial Position 25 Cash Flow Statement 26 Notes to the Accounts 27 Appendix I – Glossary 69 Appendix II – Segmental Analysis 71 Appendix III – Analysis of Pay Costs and FTE Totals 72 Appendix IV – Capital Reserve Expenditure 73 Appendix V – Consolidated Health and Social Care Accounts 74 Appendix VI – Analysis of Income and Expenditure Attributable to Alderney 75 Appendix VII – Use of Delegated Financial Authority 80 1 PRESIDENT’S FOREWORD This year’s Accounts are the first step in the journey towards a full set of International Public Sector Accounting Standards (IPSAS) compliant financial statements. These are the first substantial changes made to the Accounts since 2008 when there was an overhaul of their presentation. I am pleased that the Auditor’s Report gives the opinion that “the accounts for the year ended 31 December 2017 are prepared, in all material respects, in accordance with the accounting policies stated in note 1 to the accounts.” The overall surplus for 2017 was £113.9m which was attributable to the following reserves: General Reserve - £69m; Capital Reserve - £28.5m; and Core Investment Reserve – £16.3m. In respect of the General Reserve the surplus, after adjusting items, was £67.9m which is £33.1m higher than originally budgeted and £17.9m more than the revised forecast included in the 2018 Budget Report. These figures indicate the strength in our economy with growth in earnings and an increase in the number employed leading to higher income tax receipts, coupled with 2017 being a strong year for document duty receipts with a substantial increase in the volume of transactions. Therefore, after allowing for appropriations to the Capital Reserve and Core Investment Reserve; providing for Cabernet Limited’s 2018 projected losses and restoration of the General Revenue Account Reserve to 5% of revenue income (£24m), there is £22.1m of surplus available for appropriation. The 2019 Budget Report will include proposals for use of this surplus, taking into account the projected financial position for 2018 and 2019. The options for use of this surplus include: Further rebuilding of the Core Investment Reserve which was depleted in the years in which deficits were recorded; Replenish the Future Guernsey Economic Fund to enable greater support for future economic development initiatives; Help delivery of agreed policy priorities in the Policy & Resource Plan by enabling the acceleration of transformation; and Funding increases in personal income tax allowances. The Capital Reserve had a balance of £240.2m at the end of 2017, an increase of £81m comprising £28.5m of the overall surplus and £52.5m of transfers from the General Reserve. Whilst it is pleasing that transfers to the Capital Reserve were sufficient to meet the target of being able to spend an average of 3% of GDP per annum on capital expenditure in the medium- term, it is a concern that actual expenditure incurred on programmes and projects in 2017 was only £8.2m. If we are to deliver the vision of Future Guernsey – great today, better tomorrow, we must invest in the island’s infrastructure and capital plans should be accelerated where possible to ensure that our public services have the infrastructure they need and our economy benefits from this investment. It is vital that we do not merely maintain and replace existing assets, but we must invest to enable transformation of how we deliver our services and, increasingly importantly, to facilitate and drive growth in our economy. 2 PRESIDENT’S FOREWORD In respect of the Core Investment Reserve, the investment return of £16.3m, together with the transfer of £5m from the General Reserve (the first such transfer in over a decade), means that the balance of the Core Investment Reserve has now increased to 39% of the 2018 General Revenue income budget. This is a small but significant step towards the target of having a full year’s revenue income in that Reserve as it adds further resilience to our overall financial strength and contributes to ensuring sustainable public finances. Whilst the financial position recorded in 2017 is undoubtedly very pleasing and positive, reflecting improvements in the fiscal and economic cycle, there were a number of non- recurring items which contributed towards the increased surplus including exceptionally strong investment returns. The current Medium Term Financial Plan set out a fiscal strategy designed to ensure the finances of the States can support the delivery of the outcomes set out in the Policy & Resource Plan. Delivery of the Plan will ensure that the States are able to achieve and maintain a balanced budget before moving into a sustainable surplus enabling the re-building of reserves and the investment in future public services in support of achieving the agreed outcomes. There remains a requirement to increase revenues and reduce the costs of public services on a sustainable and recurring basis if this Plan is to be achieved which will require financial discipline to be maintained. 3 STATES TREASURER’S REPORT 1. Introduction 1.1. Guernsey is a separate crown dependency situated in the Bay of St. Malo west of the Normandy coast, with its own laws and customs based originally on Norman practice. Effectively independent, yet coming under the protective wing of the British Government, Guernsey is a part of the British Isles but not the United Kingdom. The UK Government is responsible only for the Bailiwick's international representation and defence. 1.2. The Parliament is referred to as the States of Deliberation, and has the power to raise taxation, determine expenditure and pass legislation within the Bailiwick. The States of Guernsey (States) refers to the function of government. 1.3. In 2012 (Billet d’État V, 2012), the States agreed to establish a States Review Committee to undertake a comprehensive review of the structure and functions of the legislature and government in Guernsey and to make any recommendations for reform which it considered necessary to provide for the highest possible standards of good governance. Following consideration of a series of Policy Letters from the States’ Review Committee, the States approved reform of the Machinery of Government which was introduced in May 2016. This resulted in the establishment of a number of Committees, Authorities and Boards, each of which is independently responsible to the States of Deliberation for the policies, decisions and administration of those functions of government which it has been allocated. The Policy & Resources Committee is the senior Committee of the States and has responsibility to advise the States and to develop and implement policies and programmes relating to: leadership and co-ordination of the work of the States; fiscal policy, economic affairs and the financial and other resources of the States; external relations and international and constitutional affairs; and other matters which have been delegated to the Committee. 1.4. There is an annual budget process through which individual Committees1 are allocated a Cash Limit from which they provide services such as education, law enforcement and the majority of health and social care services. 2. Scope 2.1. The income and expenditure of the States contained within this Report is for ‘General Revenue’ only (i.e. the income accruing from general taxation and the expenditure funded therefrom), and does not include all government income and expenditure. 2.2. Income does not include revenues from Social Security contributions paid into the Social Security Funds or contributory benefits and pensions paid from these Funds. The consolidated accounts of the Social Security Funds are