OPINION: ‘Everyone must play their part’

‘ANNUAL income twenty pounds, annual expenditure nineteen pounds, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.’

The words are attributed to Wilkins Micawber, who was a clerk in Charles Dickens’ 1850 novel David Copperfield.

He held steadfastly onto the belief that ‘something would turn up’.

The stated goal of Messrs Ferbrache, Helyar, Roffey et al is to steer our island’s economy away from the rocks of Micawberish misery and, in the words of some of them published in these pages last week, ‘secure the best outcome for Guernsey’s future and in particular for the next generation of islanders.

‘If we don’t act now we will be putting them in an impossible situation where they have no hope of funding the sorts of services we think of as essential’.

‘Acting now’ means doing the unpopular stuff and cutting spending now, not just thinking about it. Putting up taxes is the easy bit – cutting the suit according to the cloth you have is vital, but far more difficult.

The cost of providing those services is greater than the total tax raised – they say the gap is some £58m., but we at Guernsey Policy & Economics Group (Gpeg) estimate it to be beyond £100m. and heading towards £200m.-worth of Micawberish misery at a frightening rate of knots. And that’s without the States meeting its £30m. additional commitment to Insurance and Social Security funds.

The States are selling off the family silver (or ‘living off our savings’, as the politicians put it) to fund this situation.

Some of those elected to serve us (but by no means all) clearly believe maxing out the island’s credit card is actually a policy worth pursuing. Eating the seed corn while ‘waiting for something to turn up’ has been the result of policies of those of certain political persuasions the world over for a long, long time – and they always end in tears, with those who can’t afford it ending up paying the long-term bill and ‘the next generation of islanders’ inheriting an unqualified mess.

So we must applaud the current crop for at least girding their loins and addressing the problem as they see fit and undertaking the thankless task of, as Abraham Lincoln observed, attempting the impossible of pleasing all of the people all of the time. It is just a shame that, in my view, they are going the wrong way about it.

In the ruthless world of global competitiveness, where there is many an economy, many an investment destination, many an immigration location not only ready to eat our lunch but our dinner as well, we simply cannot afford to lose a single round in our magazine in the constant battle that is globalisation. We are one of the very few economies left in the northern hemisphere that has no tax levied on consumption. We are thankfully known for being ‘VAT-free’. Why on earth we would look at Jersey, our larger, more business-attuned local but GST-beleaguered rival and voluntarily remove a current competitive advantage over them is beyond me.

Own goal or what?

Jersey’s on-going furore over GST is evidence of the consequences of its imposition with the worsening of inflation and loss of competitiveness.

If you want to diminish the long-term chances of Guernsey competing in the world’s race for success, just introduce GST. And once embedded, the rate won’t stop at 5%. It’s political heaven – business is the unpaid tax-collector, you can nudge it up every so often – and they’re even bribing the less well-off with their own money to accept it.

Raising £75m. and then handing back £25m. of it is a novel way of delivering (Robin) Hoodenomics. Horribly inflationary (at precisely the time when it should be all hands to the pump to curb inflation, not willingly increase the disease). Increasing the administrative burden in (especially small) business. Reducing sales as families tighten their belts because everything’s gone up 5%. Taxing food? Children’s clothes? Medical provision? Surely not – the inhabitants of Sherwood Forest didn’t see that coming.

Moreover, all those public servants enjoying a form of index-linking in their pensions will be immune personally from its effects, yet the consequent increases in pension costs (some £40m. annually just to fund the index-linking on public sector pensions required by the inflationary effect of the imposition of GST at 5%) will only serve to widen the Micawber journey to misery.

Surely the first step should be a root and branch look at the cost of the provision of public services. Just 5% saved there (which is not at all in alarmist ‘close a school or a hospital ward’ territory) would produce annual savings of, and thus close that gap by, £30m.

No witch-hunt of civil servants, no attack on front-line services but firmly blowing the wind of change through structure, process and delivery mechanisms. And if we are serious about embedding change for the benefit of the next generation, fundamental change to public-sector pension provision has to be a nettle that some politicians must eventually grasp. The long-term savings of our (and our children’s) money would be substantial. But then, one rarely finds turkeys voting for the 25th of this month.

Let there be an immediate and widespread introduction of means-testing. I hear that Deputy Peter Roffey is against this, but if that is right, I don’t understand why. If you can advocate a lower rate of income tax for people who earn below a certain figure, surely you can attach the same principle to benefits. Prescriptions, bus fares ... yes, even State pensions. There are thousands of Guernsey residents who frankly do not need (an important word that – ‘need’ as opposed to ‘nice to have’) the taxpayer to pay out for them. It would all go to deliver Mr Micawber’s happiness.

But if we are to keep Guernsey away from the voracious, eternally-grabbing maw of GST then we must have the swift implementation of other measures to get the gap funded. A slimmed down, restructured public sector (properly delivered and not just talked about as ‘a good thing’) cannot do it on its own. So let us consider:

• An increase in income tax to a maximum rate of 25%, starting at 22% for all those earning over £50k pa and increasing in bands to the top rate. The better-off would pay the most, which would not only please certain politicians but would be fair, and at a rate which should not reduce the number of these essential, wealth-generative members of our community.

• The introduction of corporation tax at 10% for non-finance sector businesses. There would be a micro business exemption and also a cap on the total annual amount that would be paid. This would not be popular with the business community but all parts of our society must play their part and hopefully the effect of this would not be so large as to cause businesses to leave.

Of course the 0% rate is currently, in certain circumstances, only a loan from the States which crystallises if the business is sold.

• The extension of the 10% tax on finance sector profits to include more companies.

• Consideration should be given to introducing an annual fee for resident and non-resident private investment companies active on-island

No new 15% band, no additional administration costs for the States, no burden on business for collecting GST and suffering a reduction in sales revenues. Every aspect of Guernsey playing its part.

Do not underestimate the cost of this to previously untouched businesses. They will, and will be seen to, make a significant contribution in plugging that gap. Only business creates wealth – the tax on profits, the employment of people who pay tax, picking up the bill for the public sector who then pay tax themselves... all this starts with businesses making money. Those who are ideologically against the concept of profit tend to forget this essential aspect of life on our island. We can only ask businesses to rise to this challenge if they see the public sector meeting them halfway. Speedy and meaningful restructuring, fundamental pension reform, the introduction of means-testing, a good look at the who and the what of the social benefit system. Everyone must play their part.

In a brutally competitive global environment, attracting the best, providing a safe, secure, decent home for the wealth creators is Route One to plugging that gap. While statistics will tell you how many came and how many left, you will never know how many didn’t even make an enquiry, put off by the headlines of GST or an anti-wealth culture or not living within our means.

We must now meet Mr Micawber’s choice of happiness or misery head on. We have run out of road down which to kick the can. But bribing parts of our community with its own money is not the way to go.