Economic signs are pointing one way only

A report released last December, the Guernsey Economic and Financial Stability Overview, contains many worrying indicators for the future and the sustainability of this community.

P&R this week highlighted the effects of the island’s ageing population and how that is increasing health and pension costs, in particular, while reducing the size of the workforce, the main taxpayers.

The stability report puts that into context. Just more than 44% of the island’s GDP (a measure of the size and health of Guernsey’s economy) comes from employee compensation and a further 40.6% from something called gross operating surplus, or company profits.

So without enough businesses paying good salaries to about 30,000 staff, government’s revenues collapse. Finance contributes 40% to GDP and nearly a fifth of all employment, but was contracting before Covid struck.

That shrinkage was centred on banking but funds, fiduciary and insurance are all under pressure at the same time government itself is expanding. The public sector employs almost as many now as finance and is approaching 10% of GDP in its own right.

None of this means the island is doomed. Far from it. But the data reinforces P&R’s warnings that the demands put by politicians on the economy to provide more and better services now exceeds its capacity to pay for those improvements.

That is before factoring in the costs of recovery from Covid, the consequences of Brexit, and the many challenges facing the business community, particularly from external sources.

Unless the island can significantly expand its economy – something that will include growing the population – it is going to have to rebalance its expectations, define the essentials it needs and stop pursuing desirables.

A P&R that can command a majority in the Assembly is one of those essentials.