‘We can’t afford to become a high-tax jurisdiction’

LORD Digby Jones and Jon Moulton are both household names in UK business, Guernsey residents, and chairman and founding director respectively of Gpeg, arguably the first attempt at a think tank locally.

But the two men have slightly different views about how the States’ tax and spending debate is likely to end this week.

‘I think the most likely outcome is the loud noise of the can being kicked down the road,’ said Jon.

‘I think the easiest thing for them is to kick the issue to the other side of the next election. They know there’s enough borrowing capacity and investments to fill the hole for a few more years.’

He thinks inaction has been made more likely by the range of alternative options being put forward by amendment, which he dismisses as ‘different factions coming up with ill-thought-out and silly ideas’.

They both oppose a goods and services tax, though Digby more vigorously, and he is also more concerned the States might actually back the Policy & Resources Committee’s wish to introduce one at 5% in the next two years or so.

‘My man in the Co-op – you know, the man on the street, as it were – says to me they’ll pass it,’ said Digby.

‘I’ve had meetings with a few deputies who are against GST. They have all demanded privacy because they are worried about voting against. One said to me she had been told: “If you don’t vote for this, we will close a hospital ward, we will close a school, and we will make sure your name is in the headlines as having caused it”.’

They have harsh words for some politicians who they feel have promoted their tax package unreasonably.

‘I’m passionately against GST. If the money is needed, I’d raise it elsewhere,’ said Digby.

‘I’d be a bit more campaigning about it, but Jon reins me in, and rightly so. If anyone thinks GST would still be at 5% in five years’ time, they must be mad.’

Jon predicts it would be 20% by the end of the decade, even higher than the 10-15% by 2040 projected by former States’ economist Dr Andy Sloan. This feeling – that the new tax would inevitability increase rapidly – is central to the public’s fear of GST.

‘I don’t fancy GST at all. Most people don’t fancy GST,’ said Jon. ‘But if we genuinely have no alternative but to raise more revenue, GST it is. First, we have to look at States’ spending and economic growth. Here’s something to think about – people of working age who are not working. The majority are female and of middle age. If those people were working, they would be paying income tax, which means the gap between States’ income and spending would decline. If you got 1,000 of them into work, you could make quite a dent in public finances. Benefits are also a big deal in this island – 86% of the population live in a household receiving a States benefit other than the pension, which compares to 52% in England.’

His tone incredulous, Jon begins reading a lengthy list of such benefits – bereavement allowance, death grant, new-born care allowance, incapacity benefit, industrial injury, industrial disablement, unemployment benefit, long-term care attendance, and on he goes.

Possibly making it too obvious what I’m thinking – which is how on earth he expects to persuade any politician to lead the removal of most of the benefits he is listing – Jon quickly moves on to what has become perhaps Gpeg’s cause celebre – the States employees’ pension scheme.

‘We all know that most pension schemes have gone from defined benefit to defined contribution. But even if you took 1,000 defined benefit schemes in the UK, the States’ scheme would be the best. We have uncapped, inflation-linked public sector pensions. There is almost no pension scheme in the UK which doesn’t have a cap. We have roughly £2bn. gross liabilities for pensions at the moment with inflation close to 10%. We are taking a huge risk by running such a great big liability. We need to close the scheme for future accruals and make it a defined contribution scheme, like throughout the private sector. At the moment, a civil servant has a wonderful pension and people in the private sector are getting a third or a quarter of that. It can’t be right. The rich ex-civil servants and the poor ex-private sector pensioners will see quite a big difference in retirement – a big social divide really.’

Digby wonders why the defined benefit scheme has not been closed at least to new recruits.

‘I know nothing in politics is easy, but that act would certainly be easier,’ he said. ‘By not doing that, they’ve shown they don’t give a damn about cutting spending. It’s easier to say we need to put up taxes, but what is being put forward lacks balance by failing to be brave on spending. We need a strong public sector. Nobody is denying that. Nevertheless, growth is created by the private sector. It’ll be a sin if, at this watershed moment when politicians have the chance to set down something important for a generation, they lie down and are inactive and do nothing about the pension scheme. They will set down the division of the next generation.’

The self-styled ‘fairer alternative’ tax and spending package proposed by P&R’s principal adversaries, Deputies Heidi Soulsby and Gavin St Pier, includes an in-principle vote on closing the scheme to new staff in two years’ time. But Digby and Jon seem as unimpressed with their package as they are with P&R’s, dismissing their plan for budget savings of 1% next year except in health and social care and a further 1% the following year as hopelessly inadequate.

Gpeg tries to back up its assertions with research and evidence. ‘We look at issues, do research, see if there’s a fact-based approach and produce papers,’ said Jon. ‘We feed them into public debate in the hope we’ll be able to influence policy. That’s what think tanks do.’

Since forming two years ago, Gpeg’s papers have ranged from tax to energy to rights legislation. Some have been better than others. Its efforts to make the concept of a think tank work locally are commendable. But it is vulnerable to an image problem – of wealthy people trying to discourage tax increases by cutting spending on benefits and public services they rely on less than most of the population. It may think it has overcome this problem more than it actually has in the minds of the people it is trying to influence.

‘Only an extremist would think the deficit could be dealt with by savings alone,’ said Jon.

‘The challenges with public finances can’t all be sorted by savings – you would make life nasty, brutish and shorter,’ said Digby, who described himself as centre-right – ‘around where Blair or Cameron was’ – and once served as a trade minister in Gordon Brown’s government, without ever joining the Labour Party.

‘At the start, I think some people thought Gpeg was a group of right-wing wealthy people trying to get their political agenda across,’ said Digby. ‘I think people have come to see that we are up for getting the island to succeed and looking after the poorest as well as the wealthiest, trying to get this idea across that the poorest will be better off if everyone is better off. We’ve opened up our board and membership and we’ve got people involved who come from more different walks of life than a dinner party in Guernsey.

‘Look, I would pay more tax. I think we could be brave on this. I believe that 95% of the people who earn over, say, £150,000 a year or who have assets of, say, £1m. or more would not object to seeing their tax bill go up. If this island stands for anything, it stands for security and courtesy and decency and for a way of life that is very precious. People will pay a premium for that. It’s important to me that Gpeg gets over the accusation that we are a rich man’s club promoting our own vested interests.’

Digby was born 67 years ago over a grocery shop run by his parents near a car factory in Birmingham. When he was 10 years old, a Tesco supermarket opened three miles down the road, prompting his dad to sell up and go to university at the age of 40 to retrain as a probation officer.

Digby became a corporate lawyer, making senior partner at Edge & Ellison. Jon, meanwhile, was born into an engineering family in Stoke-on-Trent and trained as an accountant. Their paths first crossed professionally in the 1980s. Jon was an important supporter when Digby became director-general of the Confederation of British Industry in 2000, a post he held for six years.

Jon has been in private equity since 1980, accumulating a long list of high-profile successes – and failures. In 2019, when The Sunday Times’ rich list was still 1,000 names long, Jon’s wealth was estimated at nearly £200m. He started doing business in Guernsey in the mid-1980s and moved to live in the island with his wife, Pauline, more than a decade ago. Jon is 72, still works more hours than many half his age, often investing in life sciences and funding clinical trials. He keeps fit in the gym and walking the couple’s dog. He said a substantial amount of his wealth is in Guernsey assets. His biggest concern for the island is economic vulnerability.

‘We have a very fragile economy,’ said Jon. ‘One very dominant industry – financial services – which is highly mobile, owned by people who in many cases are active in a dozen jurisdictions and who can move easily and quickly. That’s a real threat. Lose a couple of big ones and suddenly we have real problems of scale in our financial services industry. We’re never far from that. That’s why we can’t afford to become a high-tax jurisdiction. We could lose our financial services industry as quickly as it arrived here.’

Digby and his wife, Pat, bought a home in Guernsey in 2018 and moved to the island permanently two years later. They spend most of their time in Guernsey and Digby said all his wealth is here, except a cottage he owns near Stratford.

‘We didn’t come for tax. When Jeremy Corbyn ran Theresa May very close, I came home one day and said I’m not taking the risk of living in a country run by an anti-business, anti-Semitic Marxist. Pat said why don’t we go to Guernsey, and we bought a bungalow in the Forest.

‘I love this place. In the May, we decided to make this our permanent home. In the July, there was an evening at Castle Cornet sponsored by KPMG, my accountants. I heard this voice and there was Jon. I didn’t know he lived here. He told me he had a job for me, called me the following morning and asked me to chair Gpeg. The lovely man didn’t arrange something with three or four people to talk me into it – he got 150 people at Le Reunion and all of a sudden stood up and announced I was going to be chairman.

‘I said I liked the spirit and sense of community, and I liked the idea of Gpeg. But there were three conditions – this is not political because you will not win, it must be research-based and knowledge-based and done well, that’s not cheap, and you’ll know you’re making a difference when people are rude to you.’

At some point soon, Gpeg will turn its attention to Guernsey’s system of government and produce what Jon referred to as a relatively academic paper.

‘The system doesn’t work very well and needs to be improved,’ he said. ‘I would say 95% of politicians in democracies enter politics for the right reasons. Democracy is one of the few things I’d pick up a gun for if it came to it,’ said Digby. ‘The problem is the system gets them and in so many ways they become quite powerless. On this island, the system is incredibly powerful. I came here thinking it was refreshing there were no political parties but actually it means nothing gets done. The default position is doing nothing.’

On the subject of inaction, US President Woodrow Wilson once said: ‘Nothing was ever done so systematically as nothing is being done now’.

And so it’s over to this week’s flagship tax debate in the States…