Matt Fallaize: You joined P&R only in May. You had been prepared to back the tax package approved by the previous States, GST-plus, which included GST at 5%. Since joining the committee, have you come to see 5% as unnecessary or are you going along with 3% for the sake of committee unity?
Deputy Andrew Niles: It’s a combination of the two. My initial thinking around 5% GST was that Guernsey needs a broader tax base. We’re too reliant on income-based taxes, and that has now been backed up by very good, professional advice that we should look at introducing a GST to broaden the base. I also understand there is opposition to that. Life is a series of compromises to get to what’s useful and settled for our community. For P&R, introducing GST at 3% looked reasonable. The real question is whether the entire package gets us to where we need to go. I think the combination of reducing general taxation for the working population is useful and fair and together with a consumption tax broadens the base into the wider economy, taking in those who don’t work for a living. I looked at it and thought it was a fair compromise and something we should do.
The policy letter from P&R says its tax package addresses some of the key concerns around the GST-plus scheme agreed in 2024. How, and is this package better?
Look at the reduction in the standard rate of income tax from 20% to 15% for the first £15,000 of income – that’s a very significant move. For the first time, having a zero-rated band for social security contributions would be very meaningful for people. I’m not sure everyone has done the maths on what it would mean for them, but it could be quite meaningful.
Under P&R’s current package, the least well-off will benefit less than they would have under the scheme agreed in 2024, and the most affluent will pay less tax than they would have. The policy letter estimates that someone in the most affluent 5% of the island will be £6,000 a year better off under the current package than under the 2024 scheme. Are you happy that this package is less redistributive?
There are those who think our package goes too far the other way and still redistributes too much. Introducing tax changes which deal with the deficit in public finances and leave half the population – the least affluent half – better off than they are today would be almost unfathomable anywhere else. Tax reform is normally painful. This is as painless as we can make it.
Has P&R failed to communicate the advantages of its proposed tax package?
We could have communicated better – or perhaps those fundamentally opposed to it have communicated better. I don’t know which. If you’re on P&R, taking a tax package to the public and you try to do too much, you risk being accused of spin. We don’t need to spin this. It’s self-evident that it’s necessary to fill a fiscal gap and we’re also trying to rebalance our total tax package. I’m not trying to sell you something. I’m just trying to say we’re in a genuinely advantageous position in managing our economy and public finances compared with almost anywhere else.
Economic growth in Guernsey has been subdued for some time. P&R’s treasury lead previously said GST would be a drag on economic growth, but the committee’s policy letter claims the tax package has been shaped with a clear focus on growth. How do raising taxes and cutting public spending – which are both part of this package – combine to stimulate economic growth?
I’m not going to argue that raising taxes and cutting costs stimulates the economy because it doesn’t. But look at the total shape of the package alongside the revenue we’re achieving from Pillar Two [global company tax changes] – that would give us the revenue to invest in our economy in future. Some deputies would like us to face years of austerity, contracting and suppressing spending, as a way of balancing the books, but it doesn’t give you the tools to invest and stimulate which this package would enable. The only reason I want us to have a balanced budget is so that we can invest in our island. Some point to young people who might want to leave because they can’t face the cost of surviving in Guernsey, who look at government and worry we don’t have the confidence to raise the revenue to invest in our economy. I want to say to them very clearly that we’re not doing this for ourselves, for the people paying tax today, but rather the people who come after us – for investment in education, infrastructure and the resilience we need to survive in a competitive environment. If young people can see that we’re spending wisely, investing in health, security, resilience and education, they’ll have every confidence to stay.
Are you able to be explicit in also wanting to shift the tax burden somewhat from the working-age population to those pensioners who can maintain higher levels of spending?
I’d like to see everyone contributing. In the community I live in, when I speak to my mother and her friends, they understand they have an obligation to the island. They’re not delinquent in understanding that it falls on all of us to make things work.
Many households are spending less as Guernsey is facing a cost-of-living crisis. Wouldn’t it be better to get through this, see inflation fall rather than rise and real wages climb rather than stagnate, before introducing higher taxes?
The best possible time to introduce any tax package is always tomorrow, or next year, or the year after – and that’s how Guernsey has approached this discussion for many years. There are those who would like to see every last penny spent before we try to raise a few more. On cost of living, those who feel it most – people earning at the 50th percentile of income and below – are exactly the people we’re looking to protect and enhance the amount they take home each month.
P&R’s proposed package assumes expenditure savings of £20m. a year by 2029. P&R has said they must be efficiencies, not just service cuts. How is that work going?
States committees and the underlying services they provide are under pressure. What is being asked of them requires looking at everything carefully. I don’t think we’re going to miss those efficiencies. We’ll present committees with the Assembly’s request that those budgets be delivered. Our objective is £20m. a year of efficiencies by 2029, but for a lot of committees it isn’t easy.
Since GST at 5% was first put forward in the previous States term, the States has directed £20m. a year in spending reductions, Pillar Two is forecast to bring in £30m. a year more than expected and P&R has proposed new transport taxes of £7m a year. Those three elements together – £57m. a year – already exceed what the GST-plus tax package was proposing to raise three or four years ago, so why is GST still on the table?
Fundamentally, we need to broaden our tax base. We don’t need to be aspirational about the level of GST we introduce, but we need to introduce it, because in the long term a broader tax base is far more sustainable.
Are you not just trying to raise more revenue so that public spending can continue growing above the rate of inflation as it has been in recent years?
We’re a small community, but we own almost all our utilities and provide all our own services – the harbours, the airport, an airline. We choose, as an island, to have a degree of control over our destiny, and that requires us to balance our books and invest in the portfolio of assets we own. I sit on the States Trading Supervisory Board as well as P&R – we would like to fix the roof of the airport, but the way we constrain spending makes that difficult. I’d like us to have the means to invest in our infrastructure when we choose to, not only when we’re forced to. If we choose to constrain ourselves, day-to-day services will keep running, but there won’t be money to invest in infrastructure. That’s the central issue the States is wrestling with.
P&R’s proposed package would raise an estimated £55m. a year from GST, but it gives £28m. of it back through income tax and social security reductions. Is that not an inefficient way of raising additional revenue?
This lets us redistribute some of the revenue we earn. Everyone who lives on the island should be able to afford to live here. We live on a very affluent island, with an economy that’s the envy of many in Europe, but not everyone has been able to keep up. This lets us redistribute to make sure everyone does.
The Revenue Service is in serious difficulty. P&R’s treasury lead has said that it would be in special measures if it was a school. A big part of your proposed tax package involves changes to income tax rates and social security contributions. Would it not be sensible to await improvements at the Revenue Service before bringing these proposals to the States, or at least undertaken not to introduce them until then?
It’s unacceptable that we can’t collect revenue on time or deliver assessments to people who have submitted returns on time. But the measures we’re looking to introduce would be in 2028. The discussions we’ve had with the director of the Revenue Service, who is very capable, have given us a timeline we believe in. She’s highly analytical, has a plan, and is taking her team with her. It’s a horrible position to be in but it’s being fixed. I have got every faith in our Revenue Service.
In the States in July, you said: ‘I think that if we take GST off the table now, it does give an opportunity for S&P to downgrade us, and I suspect that will come quite swiftly.’ Do you wish you had phrased that differently, or clarified it, during the July debate?
In debate it’s difficult to clarify in the moment – I did try a couple of times to correct points being made, but it doesn’t much matter now. On raising the S&P issue itself, I’ve no regrets at all. It was wholly appropriate, especially as we were debating removing GST from the equation entirely and not replacing the revenue with anything else. My point was this: if we remove the GST part of the tax package without replacing it with other meaningful revenue, we should be prepared that we could be downgraded, which would affect the cost of borrowing.
You are in your first term as a States member and you are in the unusual position of sitting on the senior committee. Have you found the recent criticism directed at you and the committee difficult to handle?
I won’t say I easily ignored it because I didn’t. I wanted to understand where the concerns were coming from, and I understand far more now. Perhaps it’s been an educational process – perhaps people, and some deputies, didn’t fully understand the purpose of external rating agencies in giving us some self-discipline in our fiscal affairs. It comes down to the cost of running a government that covers its fiscal obligations versus one that doesn’t. There’s a cost to everything – there’s no free money.