Six months into 2018, we have been provided with an audited view of the States accounts for 2017. As with the island’s GDP figures, it would be wonderful if we could see such numbers sooner, but better late than later.
As usual the publication is bulky at 293 pages, and to understand it requires some simplification on the key question – the balance of income and expenditure in respect of both revenue and capital accounts. Here is one analyst’s take on this particular issue, and on a handful of other more eye-catching ones:
- The document shows incomings and outgoings in two different ways, but on both these tabulations the accounts show a surplus which is better than in 2016 and better than foreshadowed in the budget for the year. After allowing for known commitments and for allocations to the island’s capital reserve, which funds capital spending, and to its core investment reserve, which covers the severest circumstances, an additional amount (put at £22m) is available for deployment in 2019.
- The financial statements show a “primary” surplus figure of £110m, reflecting the difference between income of £561m (up from £532m) and spending of £450m (essentially unchanged). Key contributors were personal income tax (£253m vs £245m), mainly courtesy of more people working, and company tax (£59m v £47m), reflecting the larger number of entities now caught in the “non-zero” net along with one significant settlement. Document duties also jumped (£17m v £13m), helped by two exceptional transactions worth £3.4m.
- Notwithstanding the overall restraint on the spending side, certain committees overspent their budgets. Education failed to meet savings targets and overspent on salaries. Economic Development’s doubtful debt provision over the fees it controversially paid to the Office of Public Trustee is put at £1m. Also noteworthy: staff pay still accounts for almost half of all revenue spending.
- On the capital front, receipts of £22m were offset by £15m of spending, but the balance was worsened by £4m support for Aurigny, or more accurately Cabernet, the company through which the States owns Aurigny and the near-defunct Anglo-Normandy Engineering. The total of accumulated losses on Cabernet is now just over £31.3m, and likely to rise further in 2018.
- States financial investments. These amounted to £2.2bn, of which £1.8bn is in a long-term investment fund which generated a respectable 11.1% return in 2017, ahead of its target of UK retail prices plus 4%. Some 68% of this fund was invested in equities and alternatives including private equity. Returns of 9% pa over the past five years suggest a high hurdle for investments in the local real economy.
- Bond issue. Of the original amount of £330m raised through the bond issue, loans have been agreed for a total of £190m. These include £39m to Cabernet for the purchase of ATRs and Dorniers, £90m to the Guernsey Housing Association for social housing, and £33m on infrastructure to handle solid waste. Investment of the uncommitted rump has meanwhile generated a handy £15m to help cover future coupon payments in down years.
- States pension scheme for public servants. The deficit on the scheme relative to its future obligations does not form part of the States’ overall balance sheet position, but the document does provide two calculations of the deficit’s size. Under the conventional accounting standard, the £1.43bn fund still covers only 58% of the scheme’s obligations of £2.45bn – a deficit of just over £1bn. Based on more optimistic return assumptions the document says the coverage figure is 93.5%. Results of the most recent full actuarial valuation, based on the end-2016 position, are yet to be reported.
- Guernsey Insurance Fund. Discussed in a separate document from the financial statements, this £770m fund meets obligations towards some 18,000 pensioners. It currently runs an operating deficit, as does the related £122m Guernsey Health Service Fund. However investment returns of 8.4% from these and from the £75m Long-term Care fund more than covered the operating deficits. At the same time compulsory contributions grew following the imposition of increased rates – a development which, along with reduced relief on private pension contributions, enhanced employees’ feeling that Guernsey is no tax haven.
- Grants to various entities. A lengthy list of States grants in 2017 includes: £4.4m to Elizabeth, Ladies and Blancheland Colleges, £1.9m to Guilles-Alles Library and Priaulx Library, £1.2m to Guernsey Finance, £260k to the Channel Islands Brussels Office, £140k to the Competition and Regulatory Authority, £275k to the GTA and £112k to the Guernsey Enterprise Agency. Another £190k went to the Association of Guernsey Charities, £210k to the Sports Commission, £114k to the Arts Commission and £58k to St James. Beyond this, £2.6m went to Overseas aid, £2.5m to the St John Ambulance service, £11m in rent rebates and £1.4m in dairy farm payments.
- The financial statements are described as a “first step” towards compliance with International Public Sector Accounting Standards. As positive as this is, it also means the auditors have had to provide a formulaic “emphasis of matter” saying simply that the accounts are prepared to assist the States in complying with their financial reporting obligations. “As a result,” they say, “the accounts may not be suitable for another purpose.” We have been warned.
In a statement accompanying publication of the accounts, top politician Gavin St Pier steered a middle road. The States could not relax, he said, even though it had recorded a surplus for the second year in a row and control of public spending had been regained.
On the other hand he pointed out that the year’s endeavours meant certain investment-related funds could be replenished to desired levels, and expressed concern at the low level of capital expenditure which had actually occurred.
“We must invest in the island’s infrastructure”, he said, “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….We must invest to enable transformation of how we deliver our services and, increasingly importantly, to facilitate and drive growth in our economy.”
After the austerity-driven mantras of recent years, this may be welcome – and even a surprise.