Exactly a year ago, the results of the general election had just been announced and, if any message could be clearly interpreted as having been spoken by the electorate, it was that they wanted their representatives to listen and to work together.
I’d knocked on many doors and had many conversations, and a lot of those conversations were about tax. I explained, and I listened. Many people understood that our public finances were unsustainable, but there wasn’t much confidence in the solution the previous States had agreed – the package known as GST-plus.
I didn’t have much confidence in it either.
Those doorstep conversations brought home just how much people are struggling with the cost of living in our island. Small businesses were concerned about the impact. People were worried there wasn’t enough discipline on costs, and that a low rate of GST would inevitably creep upwards over time. I hadn’t supported that package because I shared many of those concerns.
When I was elected to the States’ most senior position, I knew we couldn’t simply throw out the only plan we had to steady the fiscal ship – but in my view we owed it to the community to test every alternative properly. That’s what I and my P&R colleagues committed to do.
We explored the scope for corporate tax reform. We looked at transport taxes. We examined further savings, and potential new sources of income, such as offshore wind. We revisited GST-plus and worked through it in detail with industry groups to understand its real world impacts on businesses large and small.
Did we find a single silver bullet? No.
Did we arrive at a better proposal? I believe we did.
Our proposal has been shaped by feedback – from the community, from businesses, and from political colleagues across the Assembly.
The reality is that we are not trying to solve one problem, but several at once.
Our reserves – effectively the island’s savings – have been used to plug the gap since the introduction of zero-10, and they are now on track to run out by 2031 if we don’t act. At the same time, the cost of living remains a real pressure for many households. Demand for public services continues to rise as our population ages, while the working population that primarily funds those services is not growing at the same pace.
We are also overly reliant on income-based taxation: more than three-quarters of government revenue comes from earnings, leaving us exposed to economic shocks and demographic change. We are also increasingly dependent on fuel duty, in a way that is becoming less and less financially sustainable, and increasingly less fair.
Alongside all of this, we need to reverse years of underinvestment in infrastructure if we are to support our economy and our community into the future.
The tax reform package we are proposing is designed to address these challenges together, using a balanced blend of measures.
It raises additional revenue – primarily from corporates, visitors and those who spend the most, steering our finances away from the point where reserves run dry.
It helps people better cope with the cost of living through meaningful reductions in income tax and changes to social security contributions. Counter-intuitive though it may seem, this means most earners will keep a fair bit more of what they earn (on average around £1,250 more for someone on median salary). For many on low and middle incomes, that additional take-home pay will easily outweigh the additional cost of GST, which by comparison will be at a relatively modest 3% – but not applied at all to rent, mortgage repayments, healthcare or childcare. Pensions and benefits would increase in advance, ensuring that those who rely on them aren’t out of pocket and – something I feel very strongly about – we have committed to protect the value of all of these mitigating features in law so that they’re not eroded over time by inflation, or in the event that a future States decides to increase the rate of GST.
We are also taking spending discipline seriously. Alongside the agreed 3% reduction in baseline expenditure by 2029, we have already tightened the use of consultants and are rolling out priority-based budgeting to identify further efficiencies. This is not about choosing between saving money and raising revenue: it is about doing both.
Compared with the previous package, we have softened the impact – lowering the GST rate, simplifying implementation, and reducing the burden of change on businesses. At the same time, we have broadened the tax base, spreading the load more fairly and reducing our vulnerability to future shocks.
And, crucially, it restores our ability to invest – not just to maintain what we have, but to build for the future.
This kind of reform is necessary, but it is not always easy to communicate clearly. Often, when people contact me with concerns, I can see that they are based on something that has been slightly misunderstood.
A common challenge is that we should focus on reducing costs before raising taxes. We very much agree – and that work is well under- way. But even significant efficiencies will not, on their own, close the structural funding gap we face.
Another question is how anyone can be better off when a new tax is introduced. The answer lies in the balance of the package: for most people, the reduction in income tax and social security contributions will be greater than the additional cost of GST. Those who spend more contribute more, helping to make the package add up as a revenue raiser overall.
There are also understandable concerns about whether the Revenue Service can manage a new tax. Its recovery plan is already in progress, and GST is relatively straightforward to administer. It will not require a large expansion of the civil service – only half a dozen people in the tax office and a few more customs officers – and even after implementation costs, the package is expected to raise around £40m. a year.
No one likes the idea of new taxes, and I certainly wouldn’t be proposing any unless they were absolutely necessary.
This reform is absolutely necessary, though, and as there’s no avoiding that fact, we’ve created the most balanced package possible. This is a broader and more thoroughly considered response to the challenges than what came before. It reflects listening, compromise and a genuine effort to respond to the concerns that so many people raised a year ago and since.
Taken together with planned expenditure reductions, it puts our public finances on a more sustainable footing, helping to secure Guernsey’s prospects and people, both now and for the future.
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