GST debate could trigger regime change

‘YOU’RE wrong to keep on about Guernsey being at a political crossroads,’ a prominent States member told me the other day. ‘We’re actually on a roundabout going round and round and missing all the exits.’

Well, let’s not, er, drive the metaphor too far, but a change of direction will be taken in September.

That’s when the smart money in the Assembly expects Policy & Resources to return with yet another attempt to strong-arm the island into GST (6% or thereabouts but with more exemptions including food) – and fail to win the day.

What happens then? If Peter Ferbrache and Co. don’t resign – as they should – for (again) losing a flagship economic policy or failing in a straw-seizing manner to support an alternative fund-raising package, they will face a vote of no confidence. That, I’m told by multiple sources, is pretty much guaranteed.

And then? Lose, and a new Policy & Resources is elected.

While it’s too much to expect that would emerge as something akin to a government of national unity, the new team would belatedly grasp the nettle of the island’s strategic challenges, with an emergency budget out swiftly to get finances under control.

Survive a motion of no confidence by a narrow margin – the best Messrs Peter Ferbrache, Mark Helyar, Jonathan Le Tocq, Dave Mahoney and Bob Murray can hope for – and the States of The Walking Dead that Horace Camp was writing about here last week becomes a reality. Yes, we have a zombie government incapable of doing anything until the general election in 22 months’ time.

As an aside, despite the considerable pressure there would be to have a corpse-clearing early election, that won’t happen.

While a process could theoretically be pushed through, preparing an electoral roll will take time, so June 2025 the ballot will be.

Let’s briefly take stock of where we are. This P&R started with an incredible advantage – a pretty much guaranteed parliamentary majority. Despite that, little meaningful has been achieved, no deep-seated reforms introduced, nor the public finances placed on a stable footing.

Instead, we have a fiscal black hole, a lead committee that’s lost control of expenditure and many of its own supporters, plus a bureaucracy that – for whatever reason – is not delivering the infrastructure investment projects that the island desperately requires.

The reputation of the Assembly is at an all-time low (an achievement in itself) and fresh depths have been plumbed with the rule-book gagging of Education member Andy Cameron for daring to question his president.

Forget who’s to blame for a moment, the current members of P&R were in the hot-seats when the music stopped. So that’s where the fingers are now pointing – but no solutions are in sight or being offered.

So what are we up against? Firstly, it’s not the finances. Yes, we’ve had some fun over the size of the deficit but on an income v. expenditure basis that’s just £3m. A big number for you and I. But for the States, that’s very roughly what it spends each and every day. A trivial amount that can easily be covered by savings. After all, the subsidy heading Alderney’s way is now about £9m. a year and growing.

So the priority is the housing crisis, which is seriously damaging the economy. Homes out of reach at 16.3-times earnings, insufficient ‘transactional vacancies’ (empty houses) to make for a competitive market, and more than 8% of properties being used for second homes or tourist lets.

Finance, a new survey found, has 500 to 600 housing-related vacancies at a time when we desperately need more taxpayers, and the pressure for accommodation means workers are blocking tourist beds, further blunting the visitor economy, one of the few growth prospects we have.

As a result, the workforce is static, ETI tax receipts are falling in real terms and the States alone is competing for 304 additional staff. Not only are these private sector vacancies damaging business growth, on median earnings alone, that’s £40m. of taxable earnings being lost every year.

As the just-published housing strategy says, ‘There is a need to attract an average net migration level of +300 per year over the next 30 years to sustain the island’s workforce at its 2020 level.’ This is mission critical – but we’re even further away from the pledge that ‘all people living in Guernsey will have access to a range of good quality housing that is affordable, secure, energy efficient and adequate for their needs’ than we were 20 years ago.

Once again, the problems have been identified in a new report, targets of 313 homes a year set – and not a single property built. In reality, the target never will be met because the island doesn’t have the construction capacity. And so, without a short-term crisis response along the lines of a tow-in floating accommodation barge, nothing will improve.

Talking of construction, I’m told by a usually impeccable government source that the cost for the hospital project is now 40% (yes, four zero) higher than the pre-tender price. If so, that has massive implications for the schools build and, dare I mention it, the Alderney runway extension.

Compounding these woes – remember, come September a lot of States members are expecting P&R to be fighting for survival or dashing for the exits – the smart money is also on Guernsey having a less-than-successful Moneyval inspection. Yes, it’s hoping for the best but planning for the worst because prosecutions for financial crime won’t meet the expectations of the inspectors.

After a lot of finger-pointing and reform of the Crown Officers’ relationship with government (a column in itself) this should be fixable – given leadership and strategic direction – but there will be an impact on new business in the interim, further impacting States’ revenues.

Oh, and ratings agency Standard and Poor’s has already warned that it could further downgrade the island if it continues to burn through its cash and investment reserves and/or if there’s a significant shift in the regulatory environment affecting the financial services sector.

Pretty close to a perfect storm and it won’t have escaped you or States members that this has happened and/or worsened under the ‘leadership’ of a P&R promising action this day. So regime change or not, something has to give before it’s all too late.