When a penny adds up to much more

This week it was one penny from Rishi Sunak which could have huge repercussions, particularly for the island.

The decision to bring the UK’s basic rate of income tax down to 19%, the first cut made for 16 years, is said to be worth an average £175 for more than 30 million people in the country. Mr Sunak himself called it a ‘£5bn tax cut for workers, savers and pensioners’.

But with Guernsey potentially wrestling with the issue of whether to move from a personal tax rate of 20% – sacrosanct for decades – has Mr Sunak just made consideration of that calculation much more challenging?

It feels like a different era now, but the last time the full States was discussing income tax rates and goods and services taxes, in September 2021, the Policy & Resources Committee’s treasury lead was saying the prospect of raising income tax would make Guernsey ‘stick out like a sore thumb that has been hit with a hammer’.

If direct taxation on income had to rise, it would make Guernsey uncompetitive, Deputy Mark Helyar warned.

But would the stark facts of 19% versus, say, 21 or 22%, truly make Guernsey seem unattractive? And those are only the headline rates – headline grabbing, accepted – taking no account of tax caps, social security contributions, other taxes, and the UK’s differential between basic rate tax (paid on to earnings of up to £50,000) and its higher rate of 40% on any earnings above the £50k.

It looks like a politically-motivated move from the Chancellor, made with a general election of May 2024 in mind, but it is dressed up in fiscal speak which will interest all islanders following the Guernsey tax debate, including reference to ‘cutting taxes sustainably requires prioritisation and a commitment to fiscal discipline’.

But whether any of this changes anything for Guernsey’s discussions will start with consideration over the value of that a single penny.