Please could you give a bit more detail on the claim that most people won’t be worse off under these proposals?
LDS: The headline bit that everyone clearly focuses on is the fact that we are proposing to introduce a GST at a rate of 3% but actually the bit that hasn’t got nearly as much attention is the fact that we’re also proposing quite a significant reduction in taxes, in specifically income tax and social security.
For someone who earns median wage, which at the moment is £42,600 odd, that person under the new tax package would actually pay £1,250 less in terms of income tax and social security contributions, so even though they might be paying more on GST, it still won’t be anything near as much as the reduction in taxes.
GST wouldn’t apply to absolutely everything, it wouldn’t be applied to household costs, rent or a mortgage, which tends to be the bulk of a lot of household expenditure, it also wouldn’t apply to healthcare or childcare.
Are you concerned about the high cost of living being pushed even higher as businesses need to pass on GST charges to customers?
LDS: Yes. This was one of our chief concerns and why we’ve reduced the headline rate in our proposals from the original 5% that was agreed back in 2024 to 3% GST. We do recognise that Guernsey is an expensive place to live, and we were really worried about inflation pushing the cost of living higher. For average and lower income workers, they will be able to take home more of their pay than they will need to expend on additional cost caused by GST. It becomes proportionately less beneficial once you’re above average, but basically there is, for the vast majority of people, unless you’re a very high earner, there is still going to be a benefit.
Costs won’t necessarily go up by 3%, we’ve planned for the fact that they might, but we know that there are certain retailers who operate across Guernsey and Jersey, where their prices are the same, irrespective of GST in one island and not in the other. It’s not necessarily the case that all costs are going to rise, we estimate, based on really good data, because Jersey has already been through this for us, that the inflationary impact of introducing GST at 3% is likely to be 1.9% overall.’
Legislation is in place so that GST cannot just be increased. There will be a review in 2030, and if the rate was to increase, the mitigations on people of lower and middle incomes would also increase. They said that nothing about the package is designed to make people worse off.
How can the taxpayer trust you to use their taxes effectively and efficiently before you increase the burden on people who are already struggling?
LDS: We’ve had a big crackdown, effectively on expenditure around consultants being used by the States, and we have also been rolling out a programme of something called priority-based budgeting for all committees. We’re starting in a few, a few specific areas, but when we build budgets, it means that those budgets are built from the ground up and committees will have a much better opportunity to challenge every single pound of taxpayers’ money that is being directed into public services to make sure that we are getting really good value for money and that we are channelling that resource into the areas where actually the community most needs it.
The States has already agreed a programme of accruing savings, say 1% each for 2027, 2028 and 2029 so by 2029 that baseline will have reduced by 3% which might not sound like a lot to people listening, but in terms of savings, it’s really difficult, because we’ve already been through so many savings programmes.
AN: For States trading assets, all of the utilities that we run and own, we’ve already implemented the requirement for them to put 1% savings in across their operating businesses. Something that we’re also giving thought to now, at least the president of Health & Social Care is doing, is to try to identify what a sustainable healthcare system looks like and that’s probably the biggest component part of what we can do, and how we can change. We don’t know what that looks like in the future, but it’s something that’s actively being done.
What we’re talking about at the moment is a policy that’s in front of us, but also the words that we’re putting into it and the actions we’re trying to take because trust and government don’t always go hand in hand.
YB: What’s happened in the age of social media is a lot of things get legs that aren’t actually true, and people get very angry because they read them and assume that they’re true. It’s become even harder on this trust issue because we’re also fighting an awful lot of things which are simply not true.
Where do you honestly think the wealthy are spending their money? It’s not here
YB: If people who can afford it are going on very lavish holidays off the island, then clearly that money doesn’t get spent here, except for perhaps the travel, if it’s with our own airline. Wealthy people tend to spend an awful lot more on food than the average person, they spend in restaurants, if they import goods they will pay GST at the border, there is a significant amount of GST that will come from that kind of spending.
LDS: Not to mention the people that they also employ, say quite often if they’ve got a large house, a large garden, they might have a housekeeper and gardeners, and so, yeah, there is a cohort of the community that do tend to spend a lot, and a significant proportion of that on-island, and at the moment the point is we’re not getting any direct benefit from them at all.
They do pay taxes, but there are some people who don’t pay very much income tax because they don’t have a high income, but they are very wealthy. It’s those people that we would be getting more of a direct contribution from that we do not currently capture.
Why do we not have a hiring freeze in place for civil servants?
AN: We have to differentiate the terminology between what is a civil servant and what is a public sector worker. We look at total numbers that are employed by the States of Guernsey and we view them all as civil servants and they’re clearly not, there are people that work in our uniformed services and across healthcare. We own all of our utilities 100% and employ directly or indirectly all of the people who man the positions.
There is also a core of civil servants who administer all of the various components, the interface between the public and the States of Guernsey, and they do administrate, but as to why, as to how or why we would be able to implement a freeze, we do put as much pressure as possible on our chief executive that runs all of the public sector to ensure that everything is as efficient as possible.
We also have to acknowledge that our population expect a certain level of service to be given to them, and that they won’t accept when things go wrong that we don’t do things in a timely manner, and so we do end up having to hire people, perhaps when we wouldn’t normally expect.
YB: We have had hiring freezes in place in the past, but what was really useful on this is something that the chief executive, Boley Smillie, has done, where we are changing some of the structure to have to go back to a system of chief officers, and so that’s having a senior civil servant on each committee that is responsible for just that committee, whereas for some years now, eight or nine years, we’ve had a system where we have a whole group that float across different committees.
This is not going to be an increase in the number of people, this is redeployment. Sometimes putting a system in, and this certainly happened last time, of a straightforward freeze can be a very blunt instrument that doesn’t respond to the flexibility of the needs that we have at any given time to keep things running as they should.
LDS: Sometimes it costs more if you have a hiring freeze, like in healthcare if you’re not employing people in-house, you’re using agency staff instead, which can be a much more expensive solution.
Does this mean that GST will be put on all incoming goods from the likes of Amazon, Hello Fresh, Moonpig etc? How will this be administered?
YB: 90% of the goods that come in from online purchases are already in a system where the GST will be automatic, so won’t even result in us having to do anything, and the remaining 10% from smaller companies who are not part of that system will be applied at the border.
Have you thought you might be driving young people out of the island?
LDS: Housing costs is a really big component of that, but actually, just generally, the cost of living in Guernsey, as well as the opportunities we can afford them here, all combined, determine to what extent it’s a place where they can see their futures, and actually it’s a really big factor in why we need to make some changes at all.
We’re very, very dependent on income-based taxation, so over three quarters of our income comes from income-based taxation, and the vast majority of that falls on the shoulders of the working age groups, and young people.
We’ve got a demographic change, which means that more and more tax burden is falling on a fewer number of shoulders, and those shoulders include our younger generations, and if we get to the point where they just feel as though the tax burden is untenable, they are going to leave, and that is going to have profound negative impacts in terms of economic impacts, but also on us as an island community socially and our sustainability going forward.
Why not just raise income tax?
LDS: 77% of the income that we raise comes from people, the majority of whom are working, and basically this creates something called a concentration risk, and raising income tax would actually increase that proportion and make us less resilient than we would like to be. The problem with having so much of our revenue coming from a single type of source means that we’re very over-dependent on that one particular source.
To explain how that compares to other places, the average is actually about half and half, so most other places will only raise about 50% of their tax from income-based taxation, and one of the reasons this makes us vulnerable, apart from the problem of making it increasingly unfair on the working age population, it also actually makes us vulnerable to any shocks to our employment landscape.
YB: We would need to put between 2p and 3p on income tax to raise what this package is raising, if we were going to do that as an alternative, and that’s going to really penalise people on low incomes.
I made it quite clear in my manifesto that I can’t support any change to a tax system which makes people on lower and middle incomes worse off.
I don’t even have to think beyond that to the macro reasons that have been given here very well by Lindsay. It’s simply a case that it would really have a very negative effect.
You need to be logged in to comment.