A flask I drink of sober tea / While relay cameras monitor me / And the buzz surrounds, it does / Buzz surround, buzz surrounds.
It’s States meeting week and the prospect brought to mind the words of a ‘90s classic. Massive Attack’s Group Four – a dirge about the tedium of a security guard’s night shift. A slight homage perhaps to Mark Bousfield, who used to begin his Aurigny in-flight columns with a pop culture quote before explaining, in ever more inventive ways, how Ravenscroft didn’t follow a recognisable investment strategy.
Why, you ask, dear reader? Surely you’re looking forward to three days of Socratic sophistry, Sloanie boy?
Because, with reassuring regularity, GST is back on the agenda. It is once again the topic de la semaine. I am reliably informed there was even an anti-GST gathering, featuring both of my colleagues on Scrutiny – whom I shall affectionately refer to as Trouble One and Trouble Two. Plurality of views on Scrutiny, I’m pleased to report, is alive and well.
To GST or not GST – that has been the States of Guernsey’s perennial question for the best part of the last 20 years. It is the one constant of my time here. Well, that and the roadworks. Not that that’s strictly true – those have accelerated impressively of late. Just ask States Works. It’s costing them – aka us – a small fortune just to put out the signs.
First, just for the avoidance of doubt, I am in favour of GST in principle.
Consumption taxes are not revolutionary instruments of oppression. They are used by almost every advanced economy because they are relatively efficient and relatively hard to avoid. The idea that Guernsey is uniquely virtuous for not levying one has always struck me as slightly theological rather than economic.
Three years ago I spoke at the anti-GST event at St Pierre Park. Yes, me. I accepted because I felt some important points were missing from that debate. And I made it clear that, as an economist, I was, am and will remain in favour of GST in principle.
At the time I had just published a report warning that ‘the situation of continuing weak growth makes the future less affordable’. That was 2023. Since then, by most observable measures, we have broadly stagnated. I hear the soon-to-be-published Oliver Wyman work into the finance sector reaches a similar conclusion.
The simple problem is this – public spending has grown faster than the economy. Health spending has overshot earlier projections by years. In the Budget debate last autumn I pointed out that projections made in 2012 for 2040 had effectively been reached by 2025.
Something has to give. And it cannot simply be ‘raise more tax’. By Policy & Resources’ own numbers in the corporate tax review, ignoring GST, around an extra £110m. of tax and social security will be raised by 2030 compared to pre zero-10 arrangements – roughly the size of the original black hole and then some. People do reasonably ask where it has gone.
In the interests of full disclosure, I also made the point three years ago that on this path – ceteris paribus – GST would need to be 15% to balance the books by 2040.
So far, so very P&R – albeit with a splash more bluntness (some might say honesty). But this week’s debate, apparently, is not about decisions; it’s still all preparatory ahead of decisions.
Given P&R’s public pronouncements, I’m not entirely sure what they are waiting for. The maths of the corporate tax review have been published. Whatever option you favour, none raises more than £20m., and P&R’s own estimate of the ‘structural’ deficit is £98m. Do the maths. Though it remains to be seen whether the £53m. Brucie Bonus in 2025 States revenue announced in the States yesterday has changed their opinion on that number.
There is, inevitably, a degree of political choreography in all of this. We are reassured – in emails, in speeches, even in the policy letter – that this is not yet a final decision, merely refinement of the package. That alternative approaches may yet emerge.
Formally, that is correct. The States will vote again. Options remain on paper. But when one option closes only a fraction of the purported structural deficit, and when expenditure restraint was rejected as a lever when the States voted against mine and Deputy Camp’s proposed Budget freeze last year, the practical range of outcomes narrows considerably.
The policy letter suggests that at the end of Q2 2026 the States will have an opportunity to decide between this tax package and an alternative. Yet it is difficult to see where such an alternative will emerge, because it’s already clear the corporate tax proposals won’t meet the definition.
Which means that if this vote passes, the direction of travel is largely set. And that matters, because as ever, the devil is in the detail. And it is on the detail that I part company with P&R – not on GST in principle, but on the specifics – and it is on that detail that we vote this week. A point which I think is largely lost on the public, because I know of very few (especially among my golfing buddies) that a debate of such significance is happening this week.
What’s frankly missing from the current conversation is the slightly old-fashioned instinct that when a country faces structural pressure, everybody shoulders a bit of it. Time was – forgive the Blitz cliche – when ‘we’re all in this together’ actually meant something. If more revenue was required, broadly everyone contributed something, according to their means, collectively.
The current GST-plus pitch is different. It goes like this: we need to raise more tax – but not from two-thirds of you. In fact, you’ll be better off. If we had party politics, commentators might suggest the pitch was carefully targeted, or in crude American terms, a pitch to the base.
It may be electorally attractive. But on first principles it has a faintly perverse feel. If the problem is that we do not raise enough revenue to sustain what we expect from the state, how does the solution begin with most people contributing less?
It feels less like shared endeavour and more like a sales strategy.
What also troubles me is the celebration that accompanies the creation of an essential cost relief payment to possibly around 1,500 people. We are told this is a virtue of the design. But it is worth pausing on what that means. We are introducing a broad-based consumption tax – and offsetting it by effectively widening income support. More people become recipients of targeted relief.
This is not an obvious marker of economic progress. A healthy economy reduces dependency where it can. It does not build additional layers of it as a by-product of tax reform.
Coincidentally, The Economist last week ran a piece arguing that modern tax systems are already far more progressive than people imagine. The ‘Robin Hood state’, it suggests, has not been dismantled by neoliberal barbarians – it has quietly expanded.
Across the rich world, tax-and-benefit systems are more redistributive than they were in 1990. Seven in 10 advanced economies have increased the progressivity of their systems over that period. In the G7, even as pre-tax inequality widened in the 1980s and 1990s, post-tax inequality has been broadly stabilised – in some cases reduced – by heavier redistribution. In Britain, the effective income-tax rate paid by the top 1% is now close to 40%, materially higher than it was 20 years ago. Similar patterns are visible elsewhere.
Even in the United States – that supposed libertarian dystopia – redistribution today offsets much of the rise in market inequality. By some measures, Washington redistributes roughly twice as much income as it did in the 1960s.
Which is awkward for a certain strand of the argument.
My long-standing intellectual antagonist Thomas Piketty has spent the better part of two decades warning that capital accumulates, democracy falters and the rich grow ever richer unless the state intervenes decisively. There is truth in that. But the suggestion that governments have been asleep at the wheel while inequality gallops unchecked is simply not borne out by the numbers.
The rack has been tightened. Repeatedly.
But redistribution, particularly in a low-growth environment, has limits. There are only so many palanquins for Robin Hood to rob – especially when the line is getting shorter. And there is a school of thought that this increased penchant for redistribution has been a causal factor in the secular stagnation story.
GST is part of the answer. Broadening the tax base makes sense. Relying so heavily on income tax in a small, externally exposed financial centre carries risk. But GST, on its own, will not fix a structural growth problem. And growth will not magically appear because we pass a tax reform and declare the job done. Not when redistribution rather than restoring fiscal balance seems to be the actual priority.
