Taxing matters

I have been rather amused by the sudden realisation by the middle class of Jersey that their so wonderfully effective and efficient low taxing government is costing them more in tax than if they lived in the UK.  It has long been thus for some lower earners.  Actually it has also been the case for many who save and invest personally too  - if they had taken advantage of the UK's (now defunct) PEP's and still going  ISA's.  There are indeed a few who have amassed a tax free million pot.  See How to be an ISA millionaire Even at the FTSE100 dividend yield of  around. 3.5% that's £35,000 income  tax free.  Of course Jersey has no equivalent to these tax efficient saving and investing schemes


For lower earners the problem is the Jersey government's inability to comprehend that  increasing tax thresholds don't help those who fall somewhat below the thresholds.  In the  UK many equivalents of child allowances etc are credits - paid items, not exemptions.  In effect they boost income rather than allow a reduced tax bill.  It makes a difference because of course in Jersey once you are a 0 rate tax payer that's the end of the benefit.  So if like me your income is  below the thresholds by more than  a child's allowance, that allowance is worthless. That situation  does not occur in the UK where tax credits are paid.


Nor is it the case that such people will be  cushioned by having social security benefits.  The ability to claim those is quickly eroded by the  impact of capital  the potential claimant may have.  And this is not just theoretical stuff.


Each government department in Jersey  has a different perception about what is and isn't in need of assistance.  Equally each appears to think any income or assets you might have can be applied to offset any help you might get from their department alone. You can lose several times over as the same capital or income is used against you by each department  that might otherwise help.  It is a fine example of the inconsistent approach of a piecemeal  non-system without any common coherent thinking.  It is unsurprising given we elect individuals who have between them  no coherent strategy and each policy is a cobbled together compromise of individualist  foibles and interests. There is no plan or design or underpining philosophy here.


Thus it is quite possible to be in the situation I find myself.  No income tax, health charge or care charge to pay because our income falls way short of the threshold in marginal taxation.  Since I am not an employee I don't pay class 1 social security.  I am theoretically liable to play full class 2 social security ( ~£6,000 per year!), but even they have realised you cannot get blood from a stone.  Asking people with income  significantly below the tax threshold to pay that sort of money is madness.  So I have an exception. Of course I'm not entitled to most benefits and not building my pension contribution.


You might have the picture from the foregoing that we are not exactly rolling in it.  But the Education Department would disagree.  If either of my bright children want to go to university in a few years time I am, according to them, so well off that we wouldn't get a penny in help with the living costs or tuition fees.


I'll leave it to you dear reader to figure out the logic of how you can be so poor as to not be liable for tax or social security payments but simultaneously be so well off you can be expected to find £60,000 plus for each child to go to university. 

No, Ministers

There is a consultation out on pay, technically actually remuneration, for Ministers. Ministers are post holders - usually such people are not paid for work, they are remunerated. (The same is often true for directors of companies, but the Manpower returns seem unable to grasp the essence of post holders are not employees).  It isn't a States consultation, but the States Member's Remuneration Body.  The details are at States Members Remuneration beyond 2018.pdf


The consultation quite explicitly asks about the Chief Minister's  remuneration because they have more responsibilities.  "In the first instance we suggest that pay differentiation should apply only to the Chief Minister, who undoubtedly has significant additional responsibilities when compared with other members. In our view, a supplement of 15% of salary (in other words £7,000 (after rounding) at the present level of salary) would be appropriate. This would apply from the election of the Chief Minister in 2018".

A lot in that proposal rests on what is meant or understood by responsibility.  For the longest time in politics generally to be responsible meant to be answerable for , to be held accountable for.   Especially in the British parliamentary system , the Ministers were the temporary public face while the unseen unheard civil service was the  semi permanent advisory and implementation mechanism.  If things went wrong in their department, the Minister was held responsible, could lose their post, though more likely would  be expected to resign. It may not even be  mal administration,  just error of judgement. 

In theory the tough sanction on the Minister puts  proper focus on them properly and fully scrutinising what happens in their department.  Ignorance is no defence.  There is a feeling these days that far from taking responsibility, Ministers are inclined to try to defend the failings.


It is arguable under such a system when working as intended more responsibility, ie more things to  take the flak, and possible lose your position for, deserves a higher remuneration to compensate for the higher risks.

The question now is are Jersey's Ministers, including the Chief Minister, really responsible, accountable for anything?  Just last night we saw civil service officers being put up in front of camera to defend policy, not the minister. When was the last time a Jersey Minister resigned over failings in their  department?  Are they accountable, really?  I'd say not, and if not, the argument for increased remuneration is  faulty.

There are other arguments for not increasing, or actually decreasing, Minister's pay relating to research on performance and incentives.  See https://www.youtube.com/watch?v=u6XAPnuFjJc
But that's a different debate and not one the SMRRB is ever likely to want to consider - being composed largely of the very people who would under such  logic be paid less.....

Not good enough to be true?

It is often said that if an investment looks too good to be true it probably is.  I read in  the  report of the winding up of  Lumiere Wealth that investors were being offered 14% return on their money from a couple of Brazilian investments.  See http://jerseyeveningpost.com/news/2016/10/05/nvestors-face-losing-life-savings-in-lumiere-closure/  That may well sound too good to be true in the current low interest rate environment.

It is of course very sad that people have lost significant sums of money in the scheme .  However it is not really fair to say the investors were being unrealistic in hoping for a 14% return.  To add great insult to injury, the Brazilian stock market index has gone from 45,000 in  October 2015 to around 60,000 today - a gain of 33%. See brazil stock-market

No stamp of approval

Jersey likes to crow about the various companies based here, everything it seems from African mining to international arms traders. Here's one that many people have heard of, Stanley Gibbons.   But I'm guessing this wont make the headlines of the local commerce friendly media.

 

 

The board of directors are listed https://subscriptions.stanleygibbons.com/stanleygibbons/view/content/sg_page_whos_who You might recognise a few local names, a former chairman of the JFSC, and another former chairman of CI Traders. . It has been going 150 years, though was only brought to Jersey about 5 years ago as I recall.

Nothing dodgy there, surely a sound investment prospect?

So here's the annual report out today. Not good.

http://www.lse.co.uk/share-regulatory-news.asp?shareprice=SGI&ArticleCode=u1j69tl8&ArticleHeadline=Final_Results

Most of the directors listed on their web site stood down over the year it seems. Rats jumping the sinking ship is the metophor that springs to mind. Actually the company appears to me to have come within a day or so of being suspened from AIM for not producing the report on time. Here are a few snippets.

Litigation

Following its acquisition of Mallett plc in October 2014, the Company learned that government regulators in the United States were investigating transactions that had occurred since 1 January 2010 involving a former client of Mallett Inc., Mallett's New York-based subsidiary. The former client is not a related person or affiliate of the Group. This issue had not been disclosed to the Company by the directors of Mallett plc during the due diligence process prior to the acquisition.

Buy back

In fact, whilst the new management team has already acted swiftly to resolve the first two cash outflows detailed above, it is the last element which has both proved more complex to isolate and represents a more fundamental deterioration in the Groups core business. It is now clear that the non-cash sale/reinvestment profile of the Stanley Gibbons Investment division`s investment contracts, sold between 2005 and 2013, which also retained an element of contractual buy-back, also fuelled the worsening net debt position. The Group no longer offers investment plans with contractual buy back options of any kind .

 

 A number of the Groups previous investment contracts, Guaranteed Minimum Return Contract ("GMRC" and the Capital Protection Growth Plan ("CPGP") both were contracts that had an element of contractual buyback. The contractual buy backs within the CPGPs were at a level of the original purchase price and within the GMRCs were above the purchase price to include a finance charge. This finance charge is recognised in the profit and loss throughout the period of the contract. These contracts were sold between 2005 and 2013 and have resulted in a restatement of prior year earnings relating to open contracts as at April 2014, as described in note 31b).  The GMRC and CPGP contracts ceased to be sold in April 2011 and December 2013 respectively.

 

Revenue recognition

 The Board has revisited the accounting treatment previously adopted in connection with certain transactions and has concluded that it was not in accordance with the applicable accounting standards. Accordingly the Board has decided to adopt some, significantly changed, accounting policies in the presentation of the accounts. These have resulted in a restatement of prior years' results and a substantial write-down of balance sheet assets. These changes stem largely from fundamental errors in the accounting treatment previously adopted, most notably of investment product "sales" recognised in previous years. 

 

Comments from the  auditors 

 Matters on which we are required to report by exception

In respect solely of the limitation on our work relating to the matters identified above in the Basis of Qualified opinion paragraph:

    we have not received all the information and explanations we require for our audit; and

   we were unable to determine whether proper accounting records have been kept.

We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:

    proper returns adequate for our audit have not been received from branches not visited by us; and

   the financial statements are not in agreement with the accounting records and returns.