Scrutiny Management Committee 11 June 2026 FULL RECORDING

Okay, good morning everybody for joining us here in St. Martin's Hall. Hope you all got the memo about to be a different location this morning.

So, we're here joined this morning for the uh scrutiny management committee uh hearing or public hearing into the states accounts 2025. It is a parliamentary hearing. Um and so this uh please no questions from the public although public obviously invited to to watch and we will be um it's live streamed on YouTube and there will be a hands transcript uh after this uh at some juncture in the future.

Uh today I'm joined by advocate Peter Harwood and Cla Savage. Uh I'm joined by an an advocate and an accountant and I'm an economist. There's a joke in there somewhere I'm sure. Um and the three of us are here as representatives of the public accounts subcommittee of the scrutiny management committee. There are the other one of the other members of the public account subcommittee in the audience. I shall wave to her now. But uh thank you very much for coming this morning Ellena. Um but we always go with a panel of three.

So um we're here to talk about the accounts uh that will be debated by the states in a little over 10 days if I can do my arithmetic. Maybe it's nine. I'm not sure. It's a week on Tuesday. and we're joined this morning by a a large cast from public and resources and Deputy Dome if I may ask you to introduce your team.

>> Uh good morning. I'm deputy Lindsay Dome. I'm the president of policy and resources and I think they are all very uh capable of introducing themselves. So maybe if we um start at

>> Andy Niles, member of policy and resources,

>> Charles Parkinson, treasurer lead policy and resources.

>> Bethan Haynes, state treasurer.

>> Gareth Fuks, head of finance.

>> Okay. Thank you very much. Uh, and Andy, welcome to I think you're the newest member of PNR. And Charles, I appreciate your treasury lead and obviously Lindsay, you signed off the accounts as lead. Andy, is there any particular areas we should be looking to focus you on? I'm not entirely sure your role in PNR.

>> Um, no. I think you can uh you can ask us the questions. I I don't need to to lead you, I'm sure. Uh, but we're here to answer uh all the questions that you might have. Anything technical, please, Bethanne and Gareth will will answer them for you.

>> Okay. I'll I'll direct questions. What I will say is that we've got we've got quite a few questions this morning. We've only got two hours. We will be taking a break roughly around the halfway point. I will try not to gabble, but I will try and keep proceedings quite fast. I will cut people off if they're uh blathering. I'd like answers that are to the point. And so yeah, if if answers go on past the 35 40 seconds mark, I'm not actually getting to the point, I will ask us to move on. And I'll go for the same for my own side because we have got a lot to um to cover this morning.

Um, one final thing, we do get uh lots of emails from the public asking us questions of the accounts. And what I do intend to do, this is part of this process is follow up. There is a there's also generic emails that we will get as deputies. One of them being public accounts 50 or something like 2025. Uh, and we'll consolidate those questions and forward them on behalf of the public after this and look hopefully to publish those answers um for the public um before the states debate.

So the purpose of the hearing from my perspective or from the committee's perspective I should say is not to reordit the state's accounts obviously uh nor to challenge compliance with the international accounting standards. That's not our role. The purpose for our we've decided is to see if these accounts here have a listen. Yes, that's there we go. Not quite as noisy as this morning, but there's a bit more weight on there, isn't there? um is to enable deputies see if they're fit for purpose and they enable deputies and the public to understand the true financial position of the states because that's really the role of the accounts, isn't it?

We'll examine whether the increasing complexity of the presentation of the the accounts and the financial reporting has improved transparency and accountability or whether it's made the accounts more difficult to follow. Um, we'll also seek to establish the extent which the headline financial results reflect the underlying fiscal position of the uh the states. Um, and the central theme I should you know if I'm not to sort of a spoiler alert but but if they're technically compliant with IPSUs and they may satisfy external audit um but one thing I did notice is that the Treasury report readers are repeatedly referred to away from the headline figures and towards alternative measures of performance and we'll be looking to try and understand that you know why we've got a group surplus of 106 million a core government operating surplus of 45 million an underlying funding gap of 50 million in reduction in countries etc etc because the central question is if informed deputies struggle to identify the true financial position then how can we reasonably expect the public to follow.

So the key objectives sorry the key objectives today we seeking to establish some questions on governance like who's responsible for the preparation of the accounts um and the you know their oversight um looking at the IPS and financial reporting whether it's improved understanding of the accounts and the financial performance which measures are the best uh to follow that should be guided to the public and deputies um and looking in controls and what projects and controls uh are being used uh to understand uh to ensure that proper governance is followed and that writeoffs are transparently recorded and then spending and fiscal sustainability.

So with no further ado, we'll split it up into two parts as I promised. Um our first section we'll before the break we'll do governance and accountability. Um we'll do uh fit for person nature of the accounts. We'll do unrealized gains and IPS and accounting complexity. four topics before the break and I shall move to my colleagues and I'll start with uh Peter if you would like to start uh and and ask your first question around governance and accountability.

>> Thank you. Um could I I'll start at the beginning and I'm I'm before we get into the granularity of the accounts just one or two issues about governance and oversight. U looking at page 51 which is the auditor's sign off auditor certificate. Um just so I can understand that what is the actual internal process within PNR to actually approve the accounts? Do you have an audit audit committee within PNR? Could could you perhaps just comment on the actual internal process whereby we get to the audited accounts?

>> Yeah. No, we don't have an audit committee. We we are a committee of five members and generally we take all decisions together. And in the auditor's uh certificate they say we we communicate with the committee we also provide the committee that is the full committee. So you're all cited of everything. Yes. And the actual sort of decisions if you like in so far as there are decisions have to be taken by the committee as part of the IPSAS process that's taken by the whole committee.

>> Yeah.

>> Okay. Um

>> all meetings or meetings?

>> All meetings are taken by one committee

>> with Yes. meetings with the auditors.

>> Uh yes, the auditors uh came in and spoke to us all.

>> Okay.

>> Yeah. But all meetings aren't covered by the whole committee. There's no subset of individuals that aren't acting as liar.

>> How how often do you actually meet as a full committee then with the auditors?

>> Um we met several times

>> I think. um generally uh at least once for audit planning purposes um once to receive the draft um audit uh findings report and then once when the accounts are signed off.

>> Okay. Okay. Thank you for that clarification. Um what what one of the questions that has been raised and and I think it is it is confu it is conf confusing the report is made solely to the members of the committee on behalf of the states of Gernzi does that mean therefore that I mean we have I think as a committee have tried to get access for example to the management letter in in in common parliament that's not apparently available to anybody other than the your committee

>> to to the what sorry

>> the management letter I this Normally in the audit process there will be a management letter which is prepared by the child you'll know you'll know the bank.

>> Yeah. Well they make their report as they say to the policy and resources committee on behalf of the states of Gernzi. Um, and that's mostly I think about potentially limiting their liability to other third parties who might seek to rely on the accounts.

>> But I mean can can deputies question the the the auditors? Do we do we have

>> uh No, they haven't had that opportunity.

>> We asked to speak to the auditors, didn't we?

>> And we were refused.

>> I I believe that was on a specific issue. Oh,

>> okay.

>> Um

>> was that the one the question on the um pillar two income?

>> Yes. But did we not also ask for a general meeting?

>> No, we asked on two

>> and and the answer was uh no because they haven't audited the pillar two forecast. So that forecast is purely within PNR.

>> Yeah. They they audited the 2025 accounts.

>> Yeah. Okay. Okay. But the P the 2025 accounts do actually contain a an estimate of the pillar

>> of pillar 2 income for 2025. What it does not contain is an estimate of future pillar 2 income. And that was what we understood certainly the question uh to have been to them and which is why they uh declined to to meet on that basis.

>> I mean in the days of old um when we had a public accounts committee as a separate committee that committee had access to the auditors is that something you would perhaps encourage or would you like to encourage that there should be some external committee that can approach the auditors? I think it's certainly something we could uh could look at. I mean, we're we're obviously not in a position to make a decision here and now, but I think it's an interesting suggestion and certainly one that we can discuss.

>> I mean, there is an extent resolution, I think, going back to 2019 or 2018, 2019, which suggests there should be an audit commission, audit committee or audit commission.

>> Yeah, I haven't progressed.

>> I thought that was a um from SMC that was related. I thought the that that was supposed to be a sort of subcommittee of PE of SMC

>> and this well the suggestion has been made. I don't know who's following up on it.

>> You you it's in the report that

>> you will recall that there used to be a public accounts committee

>> and that now is absorbed into SMC as far as I understand.

>> Yes. some of the some of the authorities that originally extended to that public accounts committee got got user back into PNR

>> and you know sort of appointment of of the auditors which used to be a public accounts committee um matters relating to you know interviewing the auditors that again has was taken away from the SMC

>> and just to clarify I just wanted to break that down into there's there's obviously extent resolution 2018 is about creating an audit committee and it's separate to where the auditors are appointed PAC. There's there was two aspects today, isn't there?

>> So, um

>> something I don't want to misspeak, but my understanding is my recollection is that the auditors have always been appointed either by the Treasury Resources Department or the policy.

>> Well, there was certainly some input for the PAC before 2016. I mean,

>> they were accounted they appointed by PAC back in the day. A long time back, but before 2016 changes. Yeah. and it was subsumed back into the central it was centralized and as a halfway measure it was suggested there may be an audit committee and what we have in in effect is the PNR appointing the auditors on behalf of the states and this reporting on behalf of the states but only PNR even get to see the management letter

>> so in terms of governance I'm sure anyone with with a notion of governance would appreciate there's a bit of a conflict in there

>> I mean certainly I don't think anyone's never approached PNR to um uh speak with the auditors ahead of the request to look at uh future pillar 2 estimates but we'd be more than um happy to have uh fielded any such um uh requests but also it's probably worth pointing out that there is an internal audit team as well uh who who come back the last few months haven't they

>> um so we've dealt then with the internal process which as we understand is the full committee is meets with the auditors the full committee then approves and and and engages with the auditors essentially. Um, the so so I think that is clear. Can I understand the other issue I think we have is the timing of the pre of the publication of the the accounts. I mean the there's they were signed off obviously by the auditors on the 2nd of June 2026 and I noted actually saw that the they were signed off by on the bottom of the consolidated statement to financial position there's a typographical appeared to be signed on 2nd of June 2025 um but beyond that uh do can we understand what are the time constraints on the preparation of the audit because I mean it's already been mentioned that there will be a debate on the audit audit accounts within the next 10 days. There haven't been much time actually for publication and for and and for consideration. What are the major time constraints on the preparation of the accounts?

>> I think you can probably

>> um so I I I guess the complication in in finalizing the accounts um is the group consolidation

>> and of course

>> it relates to the consolidation aspect.

>> Yes. Each each entity has to complete their year-end processes by the end of March.

>> Yeah. And then we have the consolidation work which is complex and um and takes the rest of the time basically.

>> Any I mean obviously I I know you've had a closer involvement with the the accounts in the past if you anything anything to add to that I mean I I think you know is there any way we can progress we we any way you can actually encourage the auditors

>> you know to to a more speedy approach? Well, we've adopted IPSAS uh accounting standards and that means uh we have to strip out for example intra group transactions

>> uh which is uh a colossal task in itself. So in consolidating the accounts uh there's a lot more work now than there used to be.

>> Right. And that's down to IPSAS really.

>> Yeah. Um

>> and we may come back to IPSAS later. I think there's some further follow on questions about about the effectiveness and whether it's been worthwhile actually adopting it.

>> Um, can I just then so is it I think the point has already been made. I mean from your perspective would you favor having an a separate audit committee to actually to to to scrutinize the accounts rather than just relying upon I mean at the moment we can't scrutinize in full because we don't know the management letter for example and we've had no engagement with the auditors. So we are approaching this with one hand tied behind our back. I I don't see any um harm in I mean if you're talking about a kind of revived public accounts committee

>> um you I've often said that uh we we should consider adopting an auditor general the way Jersey has

>> um because I think um greater scrutiny of of public finances would be uh sensible.

>> Okay. But uh I don't think there's any point in uh PNR subdividing itself into an audit committee and a you know whatever

>> committ but you'd favor a separate struct a separate entity.

>> Yeah. I I would welcome more oversight if you like over the um accounts process. Can I ask Deputy Niles as a new newcomer to the to the to the process both as a new me new de and a new member of PNR what is your observation? So, one of the first meetings that I had with PNR was to meet with the auditors and to go through the accounts uh page by page and line by line uh trying to understand the various component parts and um it was a lot. It it was a a meeting that took the best part of the day. Um and and you can imagine that we we got to the end end of of of this. Um and there was numerous questions that we had asked and we we asked um the our support team to be able to liaz with the auditors to to make certain provisions and changes within the accounts. But it it is a lot for for the committee to do. and and in in relation to the the management letter uh that I I can remember specifically asking the auditors as to whether there was anything that they wanted to point out to us uh and and that there wasn't anything particularly but but it as as quite rightly you you ask as a newcomer looking at the the scale of the task uh in that short period of time it's a lot. So you appreciate that if you've had the benefit of a whole day with the auditors, you know how it is very difficult for anybody else to even be able to scratch the surface of scrutinizing these numbers? Um, and I've got a question for you, which is you're based in finance, you know, would you expect a listed company of of similar size not to have an audit committee?

>> Well, I I think following up from

>> just a straight yes or no, we'll do

>> I'd say that they they would have an audit committee. Yes. Um,

>> but they'd also have a much bigger board.

>> Yeah, possibly.

>> It's also worth pointing out, I mean, Deputy Niles is has uh described his experience. Um, but what he didn't he was particularly dumped in the deep end because he hadn't had the benefit of the previous uh conversations and the previous work that we had uh had.

>> You only had three meetings.

>> Sorry.

>> You only had three meetings with the auditors. uh with with with the auditors. I as I say I'm I'm not aware that we've had any that PNR has been approached uh by anyone to uh have that conversation bar the quite recent uh request from the SMC about that specific question of pillar 2. I'm not aware that there's been any request to meet with them up until now. It's certainly something that

>> okay we're very we're very happy to explore. Obviously our letter must have been one of our many plethora of letters must have not been written but

>> but I think

>> but we going forward next year we'll ensure that that occurs then Tom thank you very much for the invitation and we will ensure that the public and you'll encourage the auditors to engage with this committee

>> we shall we should we move on

>> move on yeah okay I'm uh I think it's me now I believe and looking at the numbers so um like I said in my introduction there's lots of numbers in here uh there are let's have a look now is it 400 I can't remember how many pages a lot of pages of numbers there's in the treasury summary there's a group surplus of 106 million there's an operating surplus of 68 million there's a core government surplus of 45 million there's a funding gap of approximately 50 million and there's a cash reduction of 9 million there's lots more numbers in there but can I just ask therefore uh and I Charles or Beth don't mind if you wish. Uh which figure which single figure should deputies focus on when assessing the state's financial position?

>> Well, um the the accounts as a whole paint paint the picture uh of of the numbers that you've quoted. I think um the uh consolidated surplus of 106 million is the headline figure.

>> So 106 million is our a surplus is the one figure we really should focus on. Well, you you should focus on all of the figures in the accounts. It's a it's a complex story and uh there's a lot of detail which adds color to that. But if you wanted a single uh headline from the from that uh report, I would say focus on the consolidated uh surplus.

>> Okay. Thank you. So I think your your answer alludes to one of my questions is in terms of the accounts um what I'm trying to understand is are the accounts primarily written for experts or they primarily written for the public for this or the citizens or deputies who's the primary audience

>> if if they were the accounts of a public company they'd be written for the shareholders. So uh I suppose you could say the shareholders in this case are the people of Gernzi. Um, but they're addressed to policy and resources on behalf of the states of Gerny.

>> So deputies public probably their intended audience if if it's in a bit of an indirect one.

>> Yeah, I think everybody uh should be informed by these accounts.

>> Okay. Because we had some questions in the in the there are some sort of thought processes that we had which is it was very difficult for us to look at a consolidated picture of core non-core and get an idea of what every£100 of taxation is spent on and you know that you see in the UK and such. So has any consideration been given to providing that sort of information within the accounts? Are you sort of talking about a sort of pie chart showing uh

>> you know what your percentage goes on health what percentage goes on

>> yeah we have got v various charts that that sort of do that I mean I think you know the important thing about the accounts is they are prepared in accordance with the relevant standard which is important because that allows comparability um with other places that use the same standard for example but of course we do have the public in mind. And so there is narrative as well. Um, and actually one of the uh Deputy Niles will probably attest to this. One of the um one of the big uh areas of focus when we were going through was to make sure that actually the narrative was as accessible as it could be. I mean it's a pretty dry subject and we're realistic. We don't think a huge number of islanders are going to be pouring through the accounts, but it's important that they're there uh for anyone who does want to. And it's also important that we keep that language accessible. um uh you know whilst um whilst um aligning with the the relevant standards that the states has directed us to to adopt.

>> That's a good question. I mean you you sort of say about the the narrative. One thing that did strike me uh particularly in the treasur's report was obviously if we're reporting to an IPS standard and their various um headline numbers uh produced is how much the narrative said well don't look at the numbers don't look at the numbers really um I'm trying to remember uh how it looked um if we go to let's have a H4. Yes. So the group report a net surf of 160 million. It's 106 million Charles say but that's enough to allow for 190 million investment investment gains most of which have not yet been resol realized. Okay that's fine.

>> Um, the income tax revenue increased by 110 million. Um, but an estimated 39 this is kind of P2 in a further 34. So that not expected to recur in future years. Um, and it goes although income increased by 14% and the reported surplus improved by 86 million compared to 24 much of this improvement is driven by one-off items. So there's a lot of actually don't look at the numbers you need to understand a bit more behind the numbers than there is in that summary. I I I think that we encourage the the treasurer when when uh in in our discussions, it's an interpretation of of the the cold hard numbers that that are very clearly in the accounts. And we wanted an explanation for people to understand um how we got to um the the the the discussion of the the shortfall or the deficit in in what we want to achieve uh versus what the numbers are being reported. And so I think her narrative quite helpfully does that. I think um just to put a little bit more color on what Deputy Niles has explained um because uh especially because of the focus on tax reform proposals and the funding gap um we wanted to articulate clearly the difference between the accounts and the structural financial position because there is an important distinction to be drawn between those two things. And we were worried uh that without a little bit of narrative around that people might conflate the two. So obviously the accounts is um a retrospective look at a snapshot of a financial position but when we're looking at structural longerterm financial position. uh we we it's a especially when we're looking at projections that's obviously forward-looking and we thought especially because of the increased focus on the financial position at the moment because of the upcoming tax debate we thought it was important to clearly articulate the difference between those two things so that people didn't confuse the numbers in the accounts uh uh or or use them or interpret them in a way that would have been inaccurate in another context.

>> Yeah, I think you make my point for me actually that you were saying actually the accounts which are nice and transparent and should be useful to useful to know because they meet international standards need to be explained to give you the numbers that we want you to focus on as opposed to 106 million operating circles which is the one that you said was the the main number.

>> Yeah. And you you introduced the concept Lindsay of the uh 50 million sorry deputy summary of the 50 million funding gap right and I okay well where is that concept come from out of the accounts and I would like somebody just to point to me the table of how you work that out because it's not explained in in the tables

>> not explaining the accounts because the accounts are in relation to the 2025 financial performance of the states so What what we've tried to do in in this report is focus on the performance in 2025, but as as the members have said, um explain some of the numbers that help understand that that it's not just a headline. You can't just look at a headline number and and determine that everything's everything's good. You you need to look below those numbers. And that's what

>> you can't just trust the presentation of the accounts to understand them. you need somebody to provide a narrative on the front to get to the preferred narrative.

>> Um, all counts have a narrative that explains the numbers.

>> And I think, you know, this standard public, we are trying to aid, you know, we're not trying to um just produce reams of numbers that might not make sense to people. The whole uh fundamental principle here is making them more understandable to people who might want to look at.

>> Peter has a question. I Peter stop there, but before Peter has a question, I just want to just wrap this one off. So, in terms of making it understandable for everybody, could you go through these accounts and take me through line by line how you get to the 50 million funding gap? Just talk me through it.

>> Set out that set out in the um tax review.

>> No, no, I'm not asking for the tax. I'm asking how do you do it in here? How do you do it. How do you get there?

>> How do you get to it from these accounts? Talk me through it now. Sorry.

>> Talk me through it. How you get to the 50 million funding gap from these accounts? It's not set out in those accounts.

>> Well, talk me through how the the calculation is done. Talk me through go me table by table.

>> So, sorry. What exactly is your question? Is it

>> how do I derive the funding gap using these accounts?

>> So, the funding gap takes into account a number. Okay, I'm I'm just explaining for you. It takes into account uh the accounts look at certain things and it is a snapshot of 2025 quality when we're looking at the funding gap. We take into account to talk me through how you get to the 50 million funding gap using these accounts.

>> Well, it's not set out in those accounts tax review policy letter which

>> but you must get take the numbers from here. Show me your working show me how you

>> So, a funding gap is not a snapshot. It is a long-term thing. And actually one of the most useful shows was one that you which number you add in which number do you take off?

>> It is explained in the treasuries I think in page one of the treasury.

>> It's it's not justified. It doesn't talk you through it.

>> It it it's referred to

>> it quite clearly says that you take the 106 uh surplus. You you then reduce that by the uh the investment gains and then you reduce it again by the one-off tax position to get to the 50 million. uh and that that 50 million uh is a is a composite of requiring 2% of GDP to be invested um

>> yearly in infrastructure

>> which is something that actually um was helpfully articulated in a report that you authored with a different hat on. say

>> yeah no is as you'll know it's referred to extensively uh in the fiscal policy panel review paper

>> but I think the fundamental point is the funding gap is a longer term issue you know that takes a long-term view uh of the public finances whereas the accounts by their very nature is a snapshot of a specific year so I think that's the fundamental difference and we were just concerned uh that people might not necessarily understand the difference between them which is why we have uh added a bit of explanation in there but as Charles says you know it's not the job of the accounts um to go into that that particular issue we just want to make sure that the accounts aren't confusing people in that respect but uh in terms of um the analysis on the funding gap uh we have provided information in a policy letter that was uh published on Monday

>> um I was just going to add that all of The numbers that take you from the uh surplus to the underlying funding gap are in the accounts

>> and um I can I can talk you through them if that would be helpful.

>> So the net surplus is 113 million

>> which is

>> talking about uh which is in the um treasur's report.

>> I thought it was 106 million. Well, that's for the group. We're actually we're talking about core core government now because that is what our um taxes are are driving. So, we we've excluded the trading entities.

>> So, a surplus of 113. Um, the investment gains um which are obviously paper gains have been removed for 119 million. the income that did not relate to um 2025, so related to previous years, uh that's been removed. That's 34 million. There's been an adjustment just to um uh between what we're charging as depreciation and what the state policy is of 2% of GDP being spent on capex. That's a further 20 million. And then we've also removed the provision um which has been made for the PAS um clearup at the um airport um because that's not part of our underlying position. That's 10 million. So that takes you to a 50 million pound um funding gap in 2025. And we do summarize that by saying with one-off items and unrealized investment valuation excluded and after adjusting for the long-term capital investment requirement brackets 2% of GDP close brackets, the underlying financial position of the group had a funding gap to close uh to close of some 50 million in 2025.

>> So remind me show me which page is that because I I have lost track of it.

>> Yeah, I've just got that as an isolated on page one.

>> Yeah, I think it is somewhere very near the beginning.

>> Page four.

>> Page

>> page four.

>> Page four.

>> Well, page four, page one of the marit

>> just above where it says NAS assets.

>> Yeah, page four.

>> So that it's under the summary on the summary page.

>> First page of the report.

>> Okay. I mean to my point that that's like a narrative and explanation. It's not actually you have to infer that from the numbers and my question is is that clear for the public. I I struggle to see that it is. Peter, did you have that question?

>> No, just really just following up on on on CLA's uh questions. Um Deputy Parkinson, you said that the benefit of EPSAS was obviously greater transparency and I having said that, yes, it it makes the council more complex to go through. Um, and and and I agree with you, IFRS and all these other international standards have exactly the same effect. I mean, whether they make it simpler for anybody to understand the council is probably questionable. um deputy somary mentioned that one advantage of EPSAs was was comparability be able to to judge comparability now I think we've heard actually and I think it was sort of Beth and Haynes who said that actually there were a lot of jurisdictions which aren't really comp operating on a comparable basis so is comparability really much of a benefit

>> well I said that they are operating on a comparable basis

>> somebody mentioned IFRS

>> I said that IFRS and IPSS are very very similar okay

>> so the compar They're not exactly the same um but there are there's sufficient comparability and that's what I was trying to say

>> and more and more jurisdictions are I believe moving to us as well. So obviously that's of benefit for example in terms of the rating agencies um you know when I going back to when I was treasury minister and before uh we got the states to agree to adopt IPSS the auditor's reports of the states of Gernzi accounts didn't say that they presented a true and fair view

>> and all it said was they were prepared in accordance with the accounting policies adopted by the states which could have meant anything. So uh you know essentially uh if you were an external agency looking at Gernzi in those days what comfort did you get from that account from that report?

>> No I I I I agree. Can can I ask Beth and Haynes I mean you have been in the position I mean politicians come and go you you you were there 2012 when states adopted the resolution to adopt IPSASS. Looking back with benefit of of hindsight, do you think it was a wise move?

>> I do actually.

>> And the journey you've gone through has been the pain that you've all endured.

>> Look, I think that um the accounts now are incomparable to what I walked into in 2008. Um we didn't even have a balance sheet at the time. Um so we've we've made huge progress. Um I do think that h adopting international standards is a worthwhile exercise and I do think the transparency um that that provides is is very valuable. Um do I think that there are still improvements that we could make to the account? Always. And

I think that there will always be improvements being made, and we've got to ensure that there's a balance struck between, um, good quality accounts that disclose the financial position and narrative that helps the user of the accounts to understand them. And the narrative is yours, essentially. The Treasurer's.

Yes. At the moment, yes. It's your narrative.

Yes. Okay. A couple of questions related to that, and then we'll take a quick break. But actually, in terms of the purpose of the accounts, I'm quite interested in the economic reality of it as opposed to, you know, just the financial performance. But it's interesting when you said that about the comparability and the ease to understand. What concerns me a little bit is that we have these accounts that are quite lengthy, at great, much greater cost in terms of persons and resources, in terms of externals, and then the narrative says, "Ignore that bit, look at the non-core."

No. My question is, you go through all of that, why, why are we doing this core, non-core, if the narrative says, "Look at the non-core"? I'm sorry, "Look at the core, that's the important bit." And as when I talk about the economic reality, to me, I'm concerned about Guernsey's overall fiscal position. That's the only really bit I'm interested in, in terms of the fiscal position. And that's what you're alluding to there, isn't it? That's why the core is what you're asking people to focus on.

We, I don't think we say anywhere in the accounts, "Ignore any of the numbers." We set out the numbers. Focus on the core.

No, that that summary. I'm asking Beth, Beth, this in terms of the Treasury report. Why you, you point to look at the core? The core is the important bit to look at. I don't think that's, I don't agree with the deputy's summary. I don't think the Treasurer's report says that. I think the Treasurer's report tries to report on the group performance, and then it splits it down into core and, as of course, the, um, the other entities have a section in these Treasurer's report as well, on page five.

So we try, we try to break it down, conse, um, throughout the report to, to get to, um, the numbers that people want to understand.

So the report on page five, it says, "The report will outline the performance of the group as a whole, but focuses on the States of Guernsey core government performance, and this is a key interest of the users of the financial statements."

So, yeah, I think the key difference is that, um, the core is, is, is what taxpayers, uh, are primarily interested in. There is obviously a lot of interrelationship between that and the, uh, the wider group. But if, to your earlier point, you know, I think you suggested it was a very interesting suggestion, you know, do we set out anywhere what your taxpayers' dollars are doing? And I think really, this is exactly what the Treasurer's report is, is trying to help with.

I'm not entirely sure it does, if it's trying to. That's one. So in terms of the report, sorry, the, understand the economic reality, and we've touched on this earlier, and, and Deputy Park and Deputy Nars was talking about this. We include unrealized gains in the headline surplus.

Yeah.

Yeah.

Do you think that's a good thing?

Deputy Sloan, I, I'm really struggling to hear you. Do you think you could say that again?

I said, well, Deputy Niles and Deputy Parkinson nodded. So we include unrealized gains within the headline surplus.

Yes. Could look, to me, the distinction is, is not that significant. We could have bed and breakfasted. Do you understand that term?

Yeah. Explain it for me.

We could have bed and breakfasted, which means sold and purchased back every marketable security on the 31st of December 2025, in which case all those unrealized gains would be realized gains. I don't think economically the substance would have changed by one iota. So the, the, the, you know, what there is there is the position is with the investment, uh, assets. Some of them are quite illiquid, and you can't, uh, trade them in that way. Uh, we, we will wait for years, per, potentially, for the money to be realized, but most of them are marketable securities. So the gains are, are gains, but the language, but, and I'll refer to what else said previously about the unrealized gains, that you need, you only look at the realized gains for the underlying performance attributable to the 400 million pounds that you earn. So the overall unrealized gains, they, they're not relevant to the 50 million structural gap.

I think they're just gains, and I don't, the distinction, when you're talking about marketable securities, I think the distinction between realized and unrealized gains is ephemeral, because you could have crystallized the gains if you had wanted to. But why would you incur the trading costs of doing that when essentially you're not changing the economic substance by one iota?

Deputy NS, you agree?

I, I, I, I think that, um, the gains in a portfolio are, are just a moment in time that is useful for the taxpayer to understand, uh, the state of our overall, uh, fiscal position. In terms of, I, if, if equally, we were in the middle of a financial crisis and we had seen a 30% loss on our, uh, on our portfolio, it, the general public would be interested to understand that there's been a, a, a negative performance on our portfolio. But that's, that's just what it is. It's, it's a valuation report versus the previous year to understand what the overall effect is. How it's, um, how wealthy we feel as a, as a nation state at that time. Uh, but it's no more than that. We, it, it's not something that lands in our bank account at the end of the year, and, and we either accrue for it in our, uh, in our cash accounting or, or we, we take it as an overdraft. It's just a revaluation.

Yeah. The balance sheet, any balance sheet will be a snapshot in time.

So, but in statement of finance performance, you include unrealized gains in a, as a line item. The, the, uh, and to get to that operating surplus, it's included as a line item. Is it not?

To get to the overall surplus? Yes. As required by the overall surplus is the headline. But you're saying that,

If the unrealized gain had been 100 million negative, that would have changed the,

Yes. We, we would, we would be showing a negative.

Yeah.

So would you have had a different position? Does it help including unrealized gains because you take it off to get to your funding gap? Does it, does it help you understand the underlying position of the state's fiscal position by including unrealized gains?

The, the, we include the unrealized gains in the accounts because the accounting policies require us to do so.

Does it help transparency of underlying?

To some people who are interested in it? Yes. If, if you're considering the different question of what, what is the state's financial position going forward, the International Monetary Fund encourages us not to include investment income beyond dividends and interest. We don't have.

That's the Jersey treatment, isn't it? That's how they treat it.

So, it's, uh, we don't have to follow IMF principles, but nevertheless, that is what they encourage us to do. So they would say, well, ignore the investment gains because we don't encourage you to include them.

And that's what the, the Treasury report suggests we do, doesn't it? We don't. You say you want to take out the unrealized gains to understand the the underlying position.

Yeah, that's what it says.

That's what it says, doesn't it?

So does the IPS reporting standard help us if we're, the narrative is saying, "Yes, these are the numbers, but actually take that out because it doesn't help you understand the underlying position." It, it's, it's because it's looking at a slightly different thing, isn't it?

Exactly. So, so our mandate to invest in infrastructure at, at a certain rate of, uh, a percentage of GDP is, is not something that, uh, IPSS requires us to, to adopt as part of their accounting standards. Yeah. It, it is, to answer your question, it is helpful because it is compliant with the IPSAS standard that we have adopted, and therefore it gives us the benefits that we referred to earlier in terms of international comparability, uh, and better transparency. So yes, it is helpful in terms of the accounts, but what you're alluding to is a slightly different question, which I don't think should be wholly conflated with the accounts. So where it is useful, and where it is a discipline, if I may, um, is, I, if, if you look at the, uh, a trading asset such as ports, on an accrual basis, because we understand now with greater granularity how much the removal of PAS is going to cost, the discipline has forced us to accrue, um, 9.6 million pounds for that in, in the accounts this year, which has had a, a significant effect. And so, it's, it's IPSAS requires us, on an accrual basis, to, to adopt these disciplines.

Yes, I appreciate that. But go to something to my point. I appreciate international comparability to the no other jurisdiction that reports to an standard is important. But my point is that when we started, these are accounts effectively for the public and for deputies. And the narrative is asking you to discount the presentation of the accounts to understand it.

It, it doesn't. So my, my hypothetical question back to Deputy Niles would be, if the, uh, markets had had a poor year last year, and there wasn't 100 million, whatever unrealized gains, it was actually 100 million unrealized loss. What would that impact have on our operating position, which is the headline number that Deputy Parkinson said should be the the main focus?

Well, we, we would be reporting a loss or a very, very reduced increase. But you're look, we're looking at 2025. This is a.

I'm looking at the story the accounts is telling us, and not actually what we're concerned about next year's performance. I'm saying, look, from the accounts.

Yeah.

Yeah. The accounts, the.

The accounts would show a loss in that situation.

Yes.

Would that change the underlying fiscal position of the States?

No. In terms of the, a separate question of what is our long-term deficit or surplus going forward? No.

I'm asking. No.

So, so, so in answer to your question, simply, it wouldn't. It would not. Would it?

It would not affect it at all.

And it is noise in terms of understanding position.

Because the, the underlying fiscal position is interpreted from the amount of revenue we receive, the amount of expenses we pay, and the amount of investment we choose to make.

Okay. Agree. And that is it. And on that note of harmony, please.

Can I just.

I do want to conclude because we are on the hour. So.

Well, can I just a quick one?

Be quick.

Deputy Parkinson, you mentioned that obviously you could do a bed and breakfast at the end of the year. As I read the accounts, and particularly the summary produced by the Treasurer, actually, you did realize investments during the course of the year and you use them for spending purposes.

Yeah. Yeah. The sound. So despite reporting, so investment assets appreciated by only 13 million in real terms, a reduction of 22.5%, while investment appreciation of 119 million was recorded. They were offsetting withdrawals during the year. So the only way that actually the, the States are going to the core government is meeting its cash requirements is by having to realize assets.

Yes, we. The portfolio is diminishing. We're drawing from reserves to, uh, invest in capital assets.

Exactly. So, so some of the, some of the investment return has already been utilized.

Yes. Uh, yes, of course. The, the total return for the year will be partly, uh, realized gains. Yeah.

But partly based on the valuation on the 31st of December. Some of the gains would have been unrealized. So of the 400 million which is available, the, the core invest, how much of that was actually realized during the year, do you know?

Uh, do we know? Come back. I think it's around 120. It's in the investment section of the Treasurer.

Thank you. We'll come back. Okay. We will come. Break for five to seven minutes. Just say comfort break for people. It's there if they need it. And we'll start again in a few minutes. We're good. Okay. Welcome back. Um, part two of the Public Accounts Subcommittee hearing on the States Accounts 2025. Uh, we're starting the second session. Hope you had a nice break, took a comfort break if you needed one. And we'll kick off with, um, a discussion. And the next topic we'd like to cover is, uh, in terms of internal controls and assurance. Um, so over again to, uh, Peter.

Thank you. Um, can I, really focusing on pages 45 and pages 50. Um, the statement of internal financial controls is produced by the Policy Resources Committee. Um, can I just pick up a couple of points there? References made, and I think you have already alluded to the internal audit function. Can you advise how, how large is that function? I mean, how many people are actually engaged, and how many formal internal audit reports did you receive during 2025?

Don't know the answer.

So, um, in terms of the internal audit function, um, I, I'm, I'm not certain on the number. There's around four to five people in that function, and they cover, um, all aspects of internal audit. They have engagement with the auditors, um, through this, through this process, um, and the auditors review any, um, any, uh, reports from that, um, from that function through the year as well. So that will be reports on, on governance and risk and process management across the organization. So the auditors have access to that and utilize it.

Would they have been, would the internal audit have had any input or, or any, any ability to, to, to, to flag up the issues about the MyGov expenditure issue?

Um, I don't know the answer to that, that question. When,

They were involved.

They were very involved.

In that, were, yes, but was that sort of ex post facto after, after Miss Smiley's report? They were involved in the investigation undertaken by the Chief Executive Officer.

But, but, but during the course of 2025, would they have had any sight of the issue about the MyGov,

Being closed, the project?

Um, yes, I think they would have done, because, uh, the Chief Executive, um, instigated a review of what had happened during 2025. But I, but just to that point, I think MyGov program had been closed down before, prior to.

It was closed in 2023, I think.

Why was there some expenditure used? Were we, your committee, or sorry, you, or your predecessor committee used, used, um, the ability, actually approved about a 4.25, 25 million spend on MyGov during 2025, if it, if it had been closed off in, as early as you said?

There was a separate, there have been two separate MyGov programs. Um, so the original one was closed in 2023. A successor, um, program has been initiated, and that's the funding that's been approved in the more recent past.

That's MyGov Two.

How much of the MyGov expenditure, sorry, I mean, we're struggling to find out exactly how you. We've been, we know there's a figure of about 20 odd million to, to be written off. How much of that was actually capitalized, or was it purely expended out of revenue?

None. None of it. So the original MYGV was all expensed in the year in which it was occurred.

So none of it was capitalized. There was no sort of formal write-off in the.

There's no write-off. No.

Okay. Okay. Just going back to, to internal audit and the responsibility for internal controls, that rests with the Policy and Resources Committee. Can I ask, generally, those members of the, of the committee, are you satisfied that there is the adequacy of your internal controls?

Um, I think probably that, uh, function is under-resourced, um, but, uh, it's actually done a lot of sterling work in 2025 and 2026. And just on the governance, um, point, uh, they do, I believe they report directly into the Chief Exec and Head of Public Service, but we also made, um, make very clear to them that they have a direct line to the committee whenever they need that.

Yeah. Um, it's interesting, actually, your comment about about the resource, because I mean, you've got the accounts show that you've recruited an extra 30 people to do with HR.

Perhaps some of those should have been used to, to, to buttress up your, your HR, your, your internal audit.

Those are operational decisions for the Chief Executive.

But a very nice. Yes. Yes. Increase by 30 would have surely come to PNR, wouldn't it?

That wouldn't have been, I'm pretty sure it would have been a paper to PNR for that.

Yes, it was, it was agreed by the previous PNR, and obviously the funding for it was approved by the States as part of the budget. But I think it's, um, it's reflective, isn't it, of the changing size and shape of the organization, and all in response to changing demand for public services, in response to, uh, changing demographics, uh, in, in part, or that's probably the main driver. So I think most of, um, most of the increase in, uh, staff overall has come from Health and Social Care, and then you obviously need more people in the HR function in order to, um, uh, uh, sufficiently carry out your employer responsibilities.

How many people do you have in your HR function? I mean, you got an extra 30 which you were recruited last year, but what, what's the total?

I'd need to double check. I don't want to give them numbers.

I just make the point, it seems to me.

Sorry about.

Scores.

Okay. I, I just make the point, I mean, from an external perspective, internal controls where you're reliant upon just four people, there's a mismatch. Yeah.

Um, and, and just to make the point, I mean, obviously the auditors in their note on page 50, um, you know, they, we also obtain an understanding of internal control relevant to the audit and audit to design audit procedures, but we're not for the purpose of expressing an opinion on the effectiveness of the group's internal control. So the only way we can have a view about the effectiveness of the, the group's internal control is by the reliance upon PNR itself. So you are the ones who are signing off that you're, you're satisfied there's, we have effective internal controls.

Well, I think Charles has said we, you know, believe there to be under-resourced. It is a conversation, and, and part of the benefit of this kind of process is that, you know, uh, if you've got any recommendations, then we're, we're all in.

Yeah. Okay. Um, I think that's probably actually all I need to do at the moment.

Okay. So, um, if we move on to the next area of cash and reserves. Although I make a point in terms of the HR and the numbers, um, you do say this, this States has grown in size and complexity, because actually, Charles, when the, the first accounts that we, well, I was a member of staff, and you remember your Treasury Minister, that I recall was the 2008, and we had 4,540 FTEs, and in 2026, it's now 6,83. Now, I know there's, I think there's a re-in included in there and a couple of other entities, but that's quite significant, if I paraphrase, yes, Minister, isn't it? It's only, if only the private sector could, uh, match this sort of growth, um, we'd be in a completely different fiscal position, I assume.

Yeah, I mean, it's absolutely, it's demand, demand for public services is the main driver.

Can I just go back to one point?

Okay. Which also relates back to, to, to MyGov, possibly also to Agilis. Um, there's, there's a post-balance sheet note on page 228 of the accounts, which I've lost now. Oh, here it is. Which it talks about, well, is events after reporting date. And the only thing they note there is on 13th March 2025, which I think actually probably came within the reporting period, was was a an extension to revolving credit facility. There's no reference there made to Agilis. There's no reference made to MyGov. Don't you think it would have been appropriate for some mention to be made after the events, especially if you were writing off, well, query whether you actually are writing off the MyGov expenditure, or is that just, you just acknowledge that expenditure which was made, spent, and not going to be recovered? But what about the Agilis? Was there any issue about that?

Well, um, the MyGov, MyGov one, if I can call it that, was closed in 2023, so, uh, that wouldn't have been, uh, had any effect on these accounts.

Um, but the decision to write it off, was that taken in 2023?

The, the expenditure was written off as it, in the years it was incurred. None of it was capitalized.

Okay.

So, can I, I, look, I'll hold my hands up. I can't follow the accounts very readily.

So be, bear in mind that's the motivation for the question. Where in the accounts was the expenditure on Agilis? What's the line that was there? Where, where would that have come from?

It would have been in contracted out services.

It would have been in, in support services within, uh, when you look in the consolidated.

So which page am I looking at then?

Uh, about note six. No, sorry, probably note seven.

Uh, so on page 70, note 9A, support services, um, that has contracted out work. Um, so that covers a, a number of items within there. Um, and most of the Agilis cost, um, would have been, been within there. Um, there would have also been some within, uh, within services in note 9B, um, as well.

And then.

And projects.

Yes.

And projects. Yeah. And also there's a pay impact from, um, when the Agilis contract, uh, was, uh, terminated in 2025, there was an impact on the number of people that needed to be brought, uh, into the States to, um, compensate for that.

Okay. So that contracted out work and services. So there's 93 million, that's correct, isn't it, in 9A, and 99 million in 9B? Now, I'm not saying that's all Agilis.

But they're referring to two different amounts of expenditure.

They're, it's the nature of the expenditure. Correct.

Uh, so the notes are, see, you could have, it's double counting the same, that's the same 90 odd million quid, just the count.

No, it's, it's two, it's two separate numbers. Um, so contracted out work will, will be more when we are, um, getting that work done by a third party. So, uh, another example of contracted out work maybe within MSG is a good one. MSG. Yeah.

Um, and then services are more when we are buying a, a product or, or something like that from another party.

So it's the nature of spend, which is how things are broken down in the notes, um, and how things are broken down in the, um, in, uh, statement of financial performance.

Okay. Because spending on support services, now you mentioned, has gone up quite significantly over the course of the year, 14 million, 14 and a.5 million.

Correct. Um, I would need to look back. That is commented on, I think, in the Treasurer's report.

And advertising and marketing up by 800,000.

Quite a significant source of growth of expenditure, which presumably isn't demand for services. It's support services. That's internal costs.

Uh, I would need to take those away and give, give you the details.

So that's where the Agilis numbers in. But to Peter's question on the MYOV number then, what's the MGV number separate then? If Agilis were doing the MGOV?

Sorry. Sorry, I'm struggling to hear. Sorry. I said, what's the MyGov number referring to, if Agilis is out of the contracted out work?

The MyGov, that's referred to later in the.

My.

Capital votes. What's that referring to?

That's what we call MyGov 2, which is paused.

Um, which was, I think, basically, um, uh, an attempt to see whether any any value could be salvaged from, uh, the work done under MyGov. So 4.2 million was spent on that.

MyGov 2.

I believe.

In 2025.

There's a figure here.

So, and Agilis would have been here for six months. That is, that is that our expenditure on our own internal 4.2 million, or is that Agilis 4.2 million?

No, I don't think Agilis were involved in MyGov 2, actually.

4.2 million of our expenditure.

No, it would have been expenditure with third parties, mainly, but it's the total project costs.

We, we would need to look at the breakdown of that, but that would be the total project cost. Some of it with third parties.

But it is separate to this support services number. We're not.

Yes, we're not double counting anywhere. No.

He's not double count. We're not looking at notes that are referring to the same cash but classified in a different way. It's additional cash that's been spent there.

They're separate, those notes. So page 25 of the Treasurer's report discusses the key changes in support services and supplies and services. Um, so support services, um, insurance costs increased by 4.2 million, um, secondary care on island by 1.2 million, and, um, project expenditure, so that directly expense project expenditure across a range of projects was three and a half million higher than the prior year. So that will fluctuate. And in terms of supplies and services, um, off-island healthcare was one and a half million of that, and pharmacy costs were 1.9 million. So the Treasurer's report pulls out the, the key areas, obviously within that note, you've seen that is the group. So there will be a number of other things, um, and it discusses in, um, the, uh, component entities, other drivers of cost as well.

Okay. Because if you go to the page 24 previously, you get just the general sense of the costs. We're, we're straying a little bit there. You got the, all the little, all the little triangles up 4.8% up 4.1, up 37.7, 34.7, up 8.5, up 7, up 6.1. So that's the, the general trend of costs. But sorry for that segue, but that was related to the MyGov/Agilis and trying to figure out where in the accounts is accounting for the cash. But speaking of cash, Clay, you had some questions on cash.

Um, yeah, I think it would be helpful to explore the picture around, um, the cash and reserves as, um, presented in the accounts. So, um, could you maybe describe how, um, we go from a 160 million surplus to a 9 million pound reduction in cash, just for a layman, not an accountant, to an accountant, but how would you explain it?

Um, so there's two, there's, there's two changes in this. One is around the, um, the increase in debtors. Um, so tax debtors particularly have have increased, and, and that's twofold. One is, is the, is the Pillar Two part, which is a, um, a due amount, but as we've, as we've noted, it won't start to be collected until 2027. So that's increased, um, debtors by, uh, by 39 million. Um, and the other part where we've seen those, those prior year taxable, um, impacts coming in of 34 million. Yeah.

Um, then not all of those have been collected at, at the end of the year. Um, within Q1, um, a further, um, just between, I think it's about 16 million was, was collected. So those are due and coming in. So we saw tax debtors increase overall by about 90 million.

Okay.

Within that. Um, and the other part is, um, our direct, um, cash spending, our sort of cash capex, um, was, um, was around 80 million, but the depreciation, um, is, uh, is much lower. Um, I just need to pull out the number.

Um, the depreciation is much lower, which is obviously.

50 million.

50. Yeah. Thank you. Um, so, so those two are, are contributing to a large portion of that. Obviously, there's a number of other movements within there, but if I pick the two largest elements, they would be that.

I think within those, um, the tax debtors, as I said, with Pillar Two, we're going to see all of next year in there as well. So we're going to see an increase in, in that, and that is probably a change in our structural working capital.

For that.

Um, and then investment, um, you know, we are obviously looking to, to invest ahead of what we have previously. So again, we'll, we'll see that part there. So we're likely to see an ongoing position where our surplus to cash balance, um, on a structural basis has that gap.

Okay. So in terms of, um, the cash balances, it's showing in the notes that we've gone from, um, a positive balance of 4.9 million down to a negative balance of 4.4 million. So at the end of 2025, we were funding day-to-day operations through an overdraft in overdraft.

Sorry, which, can you just confirm?

I'm just looking at note 32B.

Which is on page.

Uh, 100.

So that is across the, uh, across the group.

It's across the group. Yeah. Um, so you can see that we have, um, cash and bank balances of 11 million and an overdraft of 15, 15.6.

Yeah.

Um, if we look down in the segmental analysis, we would see more information. Don't have that to hand.

Yeah. Okay.

I think within, um, within obviously within core government, when we look at that, there is the investment portfolio when we manage cash on a, on a daily and regular basis. Um, and as we talked about, this is a, a snapshot point in time. So you'll see those cash balances.

Move significantly. Yeah. Obviously, in, uh, when we receive tax income through ETI, we get significant increases, and if we have capital expenditure, which will be at various points in time, it changes as well.

Yeah.

Yeah. So we, we manage a cash pool, um, that basically goes from roughly plus 50 to minus 50, and then, um, and we will, based on our cash flow forecasting, we will manage the size of that cash pool, and if we need to sell investments in order to, um, to, you know, to manage our cash position, then we do so.

Okay. But this is saying that there was a net overdrawn position at the end of 2025.

Yeah. I, I don't think that was in core government, but we'll, we'll double check.

Okay. So, what would the position look like now on a comparable basis?

We don't have, we don't have, we've got an RCF, which we use for managing our, um, uh, sort of shortfall and cash requirements, and it's not drawn at the moment.

Okay. A revolving credit facility.

Yeah. And it wasn't drawn at the end of the year either.

Right.

Which is why I think that that balance was, um, other group entities. So, so how much cash are we generating from, um, uh, day-to-day operational activities? So, we collect in all our tax, we pay all our, our service costs. What, what are we, what are we left with in terms of cash flow from operating activities?

Need to double check that. Sorry. I mean, I think the, the, the part that we know is, is that most of the income is, um, is, is direct cash and collected within, within the year, or, or within the year plus a quarter. So when we look at obviously income tax, yeah, um, that's mainly collected in the year or the year plus quarter. So with with ETI collections, social security follows the same thing. Um, in, uh, other taxes and duties. So customs duties obviously paid, paid at point, as is document duty and TRP is, is collected through that year cycle.

Yeah.

So what, what we, what we do know is that the, the vast majority of, of the income is cashable in the year or very close to, um, I think that's where.

And we're generally cash positive.

Okay.

We're not, we're not, um, the operating position is, is positive. The, the, the one, um, variation to that now, as, as, um, Gareth mentioned previously, was the Pillar Two income. Okay.

We won't see any income from until the middle of 2027 at the earliest, and so we'll have, um, two and a half full years of accruals, if you like, which is a cash draw, effectively. So.

Yeah.

But if, okay, you say cash positive, that's in the, after investments have been liquidated, presumably, because if, if we funded, we liquidated, however, over 100 million of assets to fund activities, that wouldn't have been done if we were generating sufficient cash for our expenditure, would we? So the cash positive is including liquidations.

Not to fund day. So to fund day-to-day expenditure, we, we, we're cash positive. To fund, um, major projects, that's where the States have decided to draw on reserves, and that's why we're having to realize assets in order to fund the investment in those projects.

Okay.

Yeah. Because it does say in one of the notes that you've realized net cash from sale of investments of like 107 million, and then we've invested 87 million. So we're actually realizing assets to, uh, realizing investments to afford the new assets.

Yeah. Exactly. Yeah.

Is that sustainable?

That's why we've got a funding gap.

So, can we just have a quick look at the reserves? Um, in our balance sheet, we've got 4.1 billion. Um, but then in the Treasurer's report, we say much of these reserves are not realized, realizable, or, or that they're allocated for specific purposes, and that we therefore reduce that down to 47 million of accounting unallocated balances. Could you just elaborate on that a little bit and explain it for.

Do you want me to take that?

Yeah. Um, so the net assets of, of four billion. So 1.7 billion of that, yeah.

Is what we call our, um, accounting, uh, adjustments reserve, effectively. All of the work that we've done to, to do to IPSS and to, um, value our assets and so forth, that every accounting entry has got two sides. Yeah.

And so that's what's created that. It's a.

And that's not a realizable reserve, then?

No.

No. Um, likewise, the investment in the trading entities is the, um, valuation, but book valuation of those, of those assets, again, not realizable. So we come down to 1.7 billion of what we'd call distributable reserves.

But then a number of those are earmarked for specific purposes, either by policy or by legislation. Okay. So the majority of that is the Social Security Funds, which is about a billion, uh, pounds. Um, then there's the Core Investment Reserve, which is effectively the States' rainy day fund, which can't be touched other than for major, um, sort of shocks. That's 200 million. Um, the Guernsey Health Reserve is 100 million, just under 100 million, and then there are a few other smaller earmarked funds. So when you remove those, they are, they are real reserves, but they're not distributable in the way that, um, the States can't use them to fund, um, expenditure. So that's when we come down to 47 million.

Okay. And then we then go, this is page 27, if you're wanting to follow. Um, we then go on to say that in practice, that balance of 407 million is used to support the capital investment portfolio. So in reality, how much of that 407 is available?

Well, it's pretty much all been, um, earmarked for capex. So, and again, it's an accounting thing because if we're then treating unrealized gains in our operating position, but none of that capital is actually free, is it? In the returns aren't really available to us of any of that money. How helpful is the presentation of the accounts to that, to that particular position? It's not, is it?

The accounts are the accounts. So, we have to report the accounts. We appreciate that the things that you're interested in, which we're also very interested in, are a slightly different question, which is why we've been keen to articulate the differences between them. I mean.

I know, but the answer to the accounts, the accounts is not particularly helpful to people saying that if they want to use the accounts to understand the government's underlying position.

That's what they're supposed to be able to do. That's what the public is supposed to be able to do. We have a tax debate coming up. We've just published the accounts. It should be clear from the accounts what the underlying fiscal position.

No.

Well, not in entirety. Yeah. This is exactly the point, isn't it? So, the, the 2025 accounts give us a, a clear understanding of what took place and what the, what the situation was in 2025. But what we've been saying consistently throughout this, and what the Treasurer's report says.

But I think the point is, is that they don't, because of all of this caveats and explanations that need to be provided.

I'm not challenging whether the accounts have conformed to an international standard. I'm saying whether actually, once you've done that, it's particularly helpful to understand what our underlying fiscal position is. And I don't think it is, not when, and we've just had that conversation, using unrealized gains in the accounting treatment, as our, to generate our overall operating position, and yet, as the Treasurer has just nodded, none of those reserves are actually available to, to be attributable for anything, really.

Uh, look, we've said that there's 400 million of reserves available to the States of Guernsey. Our plans for capital investment would absorb most of that money. But obviously, we haven't made those investments yet.

If the States could decide not to invest in capital,

We'd still, we'd have 400 million available. We all, we're saying is there's 400 million. We've earmarked that for future capital investment.

In the accounting realization, in the, in the unrealized gains in the accounts, the unrealized gains in the accounts also includes the unrealized gains according to the Social Security Funds, the other funds, and all the, all the hypothecated funds as a number. An unrealized gain from the 400 million might be a more appropriate figure for to give you a sense of what might be available in terms of revenues that that particular year. But not the overall number. And I'm not saying that the accounts themselves are wrong. I'm saying you are following them to an international standard. Point is, is that it is not a helpful.

Picture. It has to be explained.

So, so the accounts, I'm, I'm really glad that you recognize that the accounts are not wrong. That's, that's reassuring to hear, and the accounts give us a certain, um, understanding of what happened at a particular point in time. What we basically, the answer to your question, if you take a high-level view at it, is the answer to your question is answered in different, uh, in different documents other than the accounts. So the issue about the long-term, uh, financial position and what we're going to need in future is something that we put more detail around in the tax reform policy letter. So they are looking at, they are two different issues. The accounts have to be accurate, uh, for the year of 2025. But when we're looking at future investment, that is something that obviously isn't included in the scope of the 2025 accounts. And therefore, your question is answered by not this document, but a different document, but informed by the information in the accounts.

I will go back and check exactly what you said to understand the answer to that. That you make my point for me in that I understand the accounts are a snapshot in time.

You know, I might be an economist, but I have some accounting qualifications.

That is not my point. My point is, is the presentation, the manner in which they are presented, is not helpful to understanding the underlying fiscal position. Okay. Can I? Yeah. So, so if, if we come back to page four again, in, in the report, uh, very helpfully, the Treasurer, uh, pointed out, uh, what, what the, what where the disparity is that you're looking at as to, what we need to do, or, or what, in order to fund the investments that we want, what, what the funding gap will be, and, and there's a rationale behind that. And if, if you looked at, we, we discussed earlier, if, if you looked at, uh, an equivalent, uh, public private sector company, that would do that, that the private sector company would, the accounts would present exactly the same position, but you would have a chairman's report at the, at the front of it, that would say, what is the future of the company, and what do we need to do, and what investments do we need to make, and, and that's an equivalence. So, so our funding gap, and what we need to have in order to fund the investments we want to make, and to ensure that we just not very much more than stand still, is where we're going with the fiscal tax reform.

So, so what would be a target for, um, the freely available reserves? If 400 feels inadequate, what figure would you be happy with?

Are you, are you talking about the longer-term financial planning? So things like the medium-term financial planning?

Yeah, I guess it is longer-term financial planning. Yes, because we've got 407 now. What would we like it to be? Which is looking into the future.

That's a, we, we will be producing a medium-term financial plan by the end of this year. Before then, we think we need the States to agree, uh, the fiscal policy framework to say what the objectives of the States should be, and then within the context of the agreed fiscal policy framework, we will produce a medium-term financial plan.

Which again, is a matter for the States to decide. So we, we might propose something, the States may, uh, decide to, uh, adjust it through amendments. So, um, these are, these are questions we, we're, you know.

Those are two fairly key documents.

Exactly. Exactly. And it, it really underscores the difference between, um, that forward-looking financial planning and, uh, the accounts. So the information contained within the accounts is really useful. I would say not just the 2025 accounts. What really gives us a good sense of, um, longer-term trends is when you look at previous sets of accounts as well, so that you can understand, uh, directions of travel, and that all feeds into the forward-looking, uh, projections and some of the decisions that the States will be asked to make through the FPF and the medium-term financial plan.

We've only really got one set of accounts that are comparable though, to look back at, haven't we? The 2024 accounts.

Yeah. Okay.

Yeah. A very close to silence. Is going to want first. We have only got about 10, 10 more minutes. But see, I think the exact, my personal experience, it's almost like trying to help you here in terms of the, the, the picture from the accounts is not clear. And if I go to, you know, I'm not talking about the future, I'm talking about actually what happened in 2025, is not clear. Now, what we won't come on to is capital, finally, to understand where capital expenditure is accounted for in the accounts. But I'll just give a to, to leave this unrealized gains thing to bed. The final comment on page 26, the general investment portfolio, which holds the group's long-term investments, generated net returns of 118.9 million in 2025. That's our unrealized gain.

Some of it will be realized.

Some of it will be realized.

But well, not in the, there's an accounting number. The unrealized gain in the accounting number, when you come back, all of it will be realized at the end of the 2025. The value of the portfolio remained broadly unchanged at 1.73 billion. This reflects net withdrawals of 122.5 million during the year to fund capital investment and other commitments. So actually, this unrealized gain was well, effectively charged, but net net, it was all realized. Some of it was realized. I've just been saying.

The net number was all realized because you had a gain of 118.9 million, and net withdrawals were 122.5 million. So it was more than that. The net position there was more realizations than not, you know, the net number was, it was a net realization from.

Right. But our operating surplus of whatever 8 million it was, is using unrealized gains to present a picture of a big surplus. That's what it does.

I'm struggling to see what the, uh, what the.

Contradiction is. Uh, basically, we took out whatever the number was, 118 million or something, to invest in capital, and at the end of the day, the reserves were roughly the same as they were at the start. So the reserves went down. Well, all of that, all of the 7% expenditure, 7.4% reserve return, was effectively spent. And I'll say only 400 million of that 1.7 billion was supposedly generating returns that was available to us. So we've used up all the returns of cash that was actually assets that were hypothecated for other purposes. We spent the returns that should have been attributed to the social security funds, effectively. That's what we've done. We spent assets. Yeah. Withdrawn from the general revenue reserve. We might have took it from there, but the actual returns that we have used were somebody else's, which I don't think that's correct, and that was the way I'd describe it.

Now, can you explain to me though, how do you trace capital expenditure through the accounts? Just a completely right, a layperson. I've got this. Where do I start? How do I understand it? Because it's not a line item in the statement of financial performance. I just want to understand. Notes on fixed assets. Where? And it's not a trick question. I just don't understand how you're supposed to follow it.

So, there are there are notes on, um, on fixed assets. So, so you can, um, you can start. You can always start from the primary financial statements. So, within within the balance sheet, there is, um, fixed assets, PP&E, and intangible assets. So you can always look on your statement of financial position on, uh, on page 56.

Okay. So we start on page 56.

Um, so, so within there, you can see the very first line, property, plant, and equipment. Yeah. Which is, um, tangible fixed assets, um, in operational use. So everything from roads to hospitals to to aircraft, um, is within there. Um, there is also intangible assets.

No. Okay. So this is consol. Am I looking at the consolidated statement of financial position?

Correct. That is that is consolidated.

Um, am I, and again, I'm not an accountant. Isn't this effectively a balance sheet?

Is this? This is a balance sheet.

Okay. So, so that is the the the net value of of those. Um, they are all, um, all of our operational assets are valued at cost less depreciation. Um, so obviously, an accounting accounting point, and there's a policy that describes the length of depreciation. Um, so that is all of the fixed, the tangible fixed assets. We also talk about intangible assets, which are software licenses and internally developed, um, items. Um, the the next area to go to, which gives more detail, is the, uh, the note on page 77. Um, and, uh, and it has 77 and 78. Um, and this breaks down, uh, 77 is current year, 78 is prior year, and this then breaks down those, um, those PP and E by land, buildings, um, and, and you can see the the other parts there, and it gives you. So when we look, it breaks it into sections. So the cost at January 2025 was just shy of of three billion. There was 82 million or 82 and a half million of additions. Um, there was just shy of 15 million of disposals, and there's a reclassifications and transfers line that you you always see. And then the next section shows depreciation and impairment. Um, and then you have one for the the comparable year. So that allows you to track the.

So, if to help you there, on the final column on page 77, on page 7, yeah, page 77, where it says total PPE on percent, 1, 2, 3, the second number down, 82454, that is a capital invest, that's additional expenditure on capital. It's addition. That's where that number is. That's it. There it is.

Yeah. So that's where our capital expenditure is hidden on page 77. And that number, and I'll make this point, is the big number that apparently, going forward, is our funding gap, but it's very difficult to find. So I think it's this, this is where interpretation and use. So any set of accounts under FRS, FRS IPSS, etc., will have this note, and it will look the same. So yes, you have to be an accountant or used to it, but anyone would know to go here for the, the change in that valuation and to look in the, uh, cash flow statement for the cash part.

And to Charles's earlier point, the amount that we're going to spend in future on, uh, you know, infrastructure, etc., is ultimately a political decision and and one that will be made through other, uh, states debates. Okay, that number is 82 million though. Yeah. Now, we're talking about capital expenditure of 2 million, and we've, we've missed. Actually, we've got, we had lots of little questions about capital, but we ran out of time. 82 million, if our GDP is 3.5 billion roughly, I can't remember the last time we published it, but give or take 2% of that is about 70 million. Is that right?

So, I'm looking at 82 million. That's broadly there already, isn't it? Yeah. So this is one of the first times in recent history that we've we've met our target.

So, that, so we're actually spending, that's it. Around 2%.

So, in terms of a, lot of them are under, the 2025 position then, on its own, should be able to reflect our under our general over under underlying position, shouldn't it? If, if you follow my logic through, sorry about this, if you follow my logic through, the 2025 accounts should be a reflection of our ongoing underlying position for that year. But the, no, no, doesn't matter for that. That's the 2% for the 2025. That should reflect, given that our capital expenditure is roughly about the 2%. So we should be able to look at the snapshot of the accounts and figure it out.

I would say that if we were doing cash accounting, yes, that would be the case. But we don't do cash accounting. We do accruals accounting, and so we put, we develop our assets, we put them on our balance sheet, and then we depreciate them over their useful life. So the statement of financial performance includes the depreciation amount, which reflects our historic investment in capex. So yes, on a cash, on a cash basis, um, you're correct. Um, but on an accounting basis, that's not the case. Um.

Yeah, to get to the longer term position, first of all, we stripped out investment gains. Secondly, there's this adjustment between actual capex and depreciation. Depreciation is, if you like, a measure of capital consumption. It's not a, it doesn't create a sinking fund to enable us to buy stuff. Right? So it, in effect, we add back depreciation and then subtract the 2% of GDP target to get to, uh, the long-term funding deficit or whatever you want to call it.

And the other factor that I think is important to bear in mind when we're looking forward is that the baseline isn't a static baseline. So demand, um, uh, uh, may need to change, GDP may change over time, etc. So, uh, a single year is very useful, um, but it's not the same thing as looking forward as projections of that funding gap going forward.

Well, I think you've got an expenditure in here that reflects, purportedly, the underlying position, that therefore that should be useful enough to as a guide for this year. Yeah. For that year. But this year is clearly the expenditure is representative of the overall position. Yes. Of what's been described as our future.

But it won't be apples and apples next year necessarily, because some of the baselines. 25 numbers really are all, all you should need to understand. You don't need to go for it. It's in it's in there.

Yeah. Any appreciate that we've really, well, we haven't digressed, but we we've run out of time. And thank you very much for that. Uh, and on that note, in terms of our what we set out, I we do feel that there's no dispute that these are to an international accounting standard. There's no dispute that they're accurate in terms of understanding what they're saying. I think it's more difficult to interpret than when I came when Charles, when it was in 2018. I could pretty much follow those accounts pretty easily, actually. Nowadays, it's a little bit more difficult, and there has to be that narrative to explain what they, no, the numbers might say this, but look at this to get the underlying position. I would say that the accounts that we used to look at in the 2008, 2012 term were opaque to the point of complete impenetrability, and so, and as Beth said, they didn't even, they didn't even include a balance sheet. I know.

And, uh, you know, when I, when I asked, uh, for example, at that time, as a treasury minister, can you give me a list of the list of our property, the properties, the states owned? The answer was no. Yes. The state had no record.

Oh, for those simple days.

Yeah. But, but, but I would agree with you, uh, Deputy Sloan, that, and also with Deputy Parkinson, that that we've got to a level of international standard in our accounts now, but it doesn't necessarily help us to articulate exactly what we need, uh, in the coming years, and so that's going to be another task for us. And on following on from that, um, we are, as ever, very interested in any feedback and suggestions that you might have about how we can improve. This is only the second year that we have reported, uh, to this standard and in this way. Um, and, uh, we're we're very, uh, hopeful that we can continue to improve it. So, um, we very much welcome, uh, any suggestions, uh, from your committee, um, to to help us do that for future reporting.

Thank you much. Actually, you do remind me. We did, we did exchange conversations about the quarterly reporting, um, about the template reporting. I think we're due the second template of the quarterly reporting because we we've given you some suggestions and PN come back to us and said, yes, very good. I think we're probably a bit overdue on that. So, I look very much looking forward to that. I know that you've got a million and one things to be doing. But, uh, on that note of harmony, um, thank you ever so much. Thanks to my panelists Claire, Peter, and also the rest of the PAC that helped to put together that briefing for us. And we'll look forward to the debate a week on Tuesday. I should imagine it's shorter, probably shorter than this session, to be quite frank. And the debate on which they, well, the debate this will feed into, um, of the other report that was published this week. Thank you very much.