States of Guernsey 2013 Accounts

Below is my speech in the July 2013 States meeting on the States accounts. In it I make reference to the concerns of the Public Accounts Committee on the fall of income tax receipts and consideration of a review.


Firstly, as Chair of the Public Accounts Committee,  I’d like to make Members aware that the Committee has been concerned by the delay in bringing these accounts to this Assembly. The Committee has monitored the situation over the last few months and our audit panel has received regular updates from the auditors. PAC appreciates that the implementation of SAP has led to additional complications in the production of these accounts.

The Committee is concerned that SAP implementation will impact even more heavily on the 2013 accounts and we would therefore recommend that Treasury & Resources focus resources in this area.

The information in these accounts will be reviewed as part of the Committee’s work generally and will form a basis of future reviews.

The information in these accounts will be reviewed as part of the Committee’s work generally and will form a basis of future reviews.

Now, most of the talk during this debate has been on expenditure. This is probably understandable. There is more information on the outputs and that has been the focus of the FTP. However, I would like to concentrate on the top line – income, and more specifically income tax.

The States Treasurer in her report rightly comments that income tax receipts from individuals showed real terms growth of 1.3% and a nominal increase of £9.4m. At first glance this would appear to be great news.

Now the term ‘individual’ can be misleading. Whilst many will think this means employees, it also includes those who are self-employed and hence represents profits they take out of the business.

The fact that there has been a real terms rise surprises me, as well as the fact that it is 1.5% the total authorised figure.

It would be surprising if this was down to pay rises, unless we believe that everything in the economic garden is rosy and employers have been giving their staff above inflation pay rises over the last few years or that there has been a substantial net increase in jobs.

Neither of those sound very plausible to me. Neither do I believe, based on Chamber of Commerce surveys, and other economic data available, that businesses have become more profitable over the last few years. The growing cost base from indirect taxes like TRP and the high costs of broadband, mixed with a difficult trading environment, make it even more unlikely that our income tax receipts have grown.

Then what could have caused it?

Well, One clue may come from an answer to the Rule 6 question asked by Deputy Fallaize in March this year relating to the backlog in processing income tax returns.

In that answer, the Minister of T&R gave the Department’s explanations for the backlog. Taking out the cyclical nature of the returns process, it was acknowledged there had been increase arising from the change of the tax regime in 2008. The tax computations of many companies contained errors and took a significant amount of time and correspondence to resolve these issues. The complexities of the deemed distribution regime also led to a knock on effect of owners of companies until the companies’ affairs and deemed distribution were agreed.

Of course, in addition to this we  have had the introduction of a new charging regime that has resulted in a rush of returns being sent into the tax office. I welcome the introduction of this new regime and believe it is long overdue.

However, we must be aware that this will have had an effect on the income tax figure recorded in the accounts as a consequence of the accounting policy of recognising cash received and the amounts accrued based on assessments due for collection as at 31 January the following calendar year.

If this is the case, then I have a genuine concern that there is a no real understanding of what our year on year position on income tax take should be. Also importantly the recommendations from the tax and benefits review could be based on misleading figures.

In this situation, Members might like to be advised that the Public Accounts Committee is currently considering undertaking a review into the accuracy of the reported position on income tax.

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