The irony wasn’t lost on you, I’m sure. A States of Guernsey with a richly deserved reputation for screwing things up couldn’t manage its own time well enough to conclude the GST debate before packing up for their summer holidays. Some, it has to be said, were out of the door – beach towel and a dog-eared copy of Jilly Cooper’s Riders under their arm – well before then.
Ah, but what can you expect when you pay deputies collectively only £5,500 a day to look after your interests? And this attention span deficit is one reason why more than 13,000 of you – that’s one in five of all islanders – are now being threatened with a raid on your OAP.
The fall out from the unexpected (and not fully thought through) decision to limit committee budgets to inflation-only increases for the next three years would actually hit many more than that. In all, there are 18,900 people claiming a States pension (yes, more than 5,000 no longer live here) and a lot of pensioners – among many others – rely on income support to live.
That assistance costs around £1m. a week because 3,200 households are claiming an average of £16,220 a year to get by and a lot of that is needed to pay rents, which are so high because the States hasn’t built enough homes. You’re paying for another States’ failure.
Income support, in particular, is calculated on household earnings after tax which means that changes in direct taxes and contributions can hit benefit costs. Every time the States increases electricity or water costs or imposes GST, it affects household incomes.
That means what’s called the requirement rate (civil service-speak for ‘acceptable standard of living’) goes up, so income support does too. Like many other benefits or States services these things are formula-led so an arbitrary cap on budgets can have perverse impacts. Hence the threat of OAP cuts.
I mention this simply to say that cutting the cost of the States is a complex area and cannot really be achieved without stopping stuff. Something has to go. Less has to be done.
Ah, but what? Well, you can’t answer that because you simply do not know the full extent of what the States does (or why) or what the consequences of stopping might be. How much of what is carried out can truly be declared as essential? Not even States members know.
Thanks to the States Accounts, you can get a sense of the answer, however: £30.6m spent on more than 40 quangos or dispensed in grants and so on. The biggest single one is £4.5m. on overseas aid, which has no fewer than six commissioners overseeing its work.
Keep or close? Like grants to the colleges, the £2m. to farmers to produce overpriced milk or £2.5m. to Guernsey Finance, it depends on your point of view. Personally, I’d keep the £814,000 establishment grant to the Lieutenant-Governor because having the king’s personal representative based in the island is an essential element of our constitutional links with the UK, without which we really are screwed. But many of you will disagree.
So what we really need is a simple briefing from each committee. What is the bare minimum, by law, that you are obliged to do? What are you currently doing and why? And what aren’t you doing but should be? Then sensible choices can be made about what’s essential and where resources ought to be allocated.
And that process is inescapable. The inconvenient truth is that the island’s public finances have been on an unsustainable path for decades and GST won’t cure that. Really, it won’t.
Realisation that the wheels were seriously coming off started in 2019 and led in 2023 to a panel of economic experts being set up to assess the suitability of the first stab at GST (before its current pared-back version).
And all three of the panel (two doctors and one professor since you ask, one being our own Andy Sloan) concluded that none of the then-proposed full-fat options put the island back on a fully sustainable path. So GST-lite certainly does not.
Why? Our old friend growth. Specifically the lack of it. Oh, and bloody pensioners, government’s favourite bogeyman.
Something known as ‘the iron law of convergence’ means poorer economies grow faster than richer ones like Guernsey. So growth eroding the value of States debt relative to GDP is reversed. Yes, what we owe actually gets worse over time.
Obviously, with so much dependency on financial services, we’re classed as a specialised economy – and therefore much more exposed to external shocks. Solution? Keep plenty of spare cash. To be confident of weathering a significant catastrophe, call that £1-2bn in readies, and we have nothing like that.
Adding to this somewhat gloomy outlook is we pensioners. A big increase in the number of people above States pension age began in 2011 and is expected to continue until the 2060s. Similarly, the number of people aged 85 or over, who typically require the most care, is expected to continue increasing until 2090 or beyond and is likely to more than double over that period.
If you think the demonisation of pensioners is bad now, it’s really only just begun.
As the economists observe: ‘Government income (tax revenue) will tend to decline as a greater proportion of the population reaches retirement, and government spending will tend to increase – particularly when large age cohorts reach their 80s and 90s.’
Inescapably, then, GST at 3% plus the great welfare giveaway linked to it won’t cure any of this. What we need is more people in work, economic growth and rising real wages. But pushing the States retirement age, as we’re doing, to 70 by 2049 won’t achieve that either. People will retire when it suits them, not when Frossard House says they should, so the best thing that can happen is it lowers pension spending.
Oddly, however, and rather contradicting the claim that pensions will have to be slashed, the Fiscal Policy Panel says there’s plenty of money to pay them.
‘In 2021, the States agreed in principle to increase social security contributions over a period of 10 years. This would increase funding to both the Guernsey Insurance Fund (largely pensions) and the Long‐term Care Fund to a point where they might be considered sustainable over the projection period (beyond 2080).’
That’s happening, so pensions imminently running out is a myth. As is P&R’s insistence that GST (which isn’t a tax on goods and services but actually VAT, a tax on value added at each stage of production) is the solution.
Oddly enough, it’s taken a socialist PM across the water to point out what we and the UK need – tight controls on expenditure, economic growth and rising living standards.
If Andy Burnham can see that, why can’t we?
