Author: Steven Rouxel, Director of Chamber of Commerce

Join us at Chamber Lunch to delve into the topic of capital investments in Guernsey and explore potential solutions. Be warned, there is no silver bullet. Chamber does not want to shy away from the realities that the island faces, but instead, facilitate business and Government coming together to find pragmatic solutions.

The Situation

We will explore with Peter Ferbrache, Chair of the Policy and Resources committee, the pressing financial challenges facing our island as Government look to re-prioritise capital spend due to cashflow and deliverability concerns. We will not only discuss the current situation but also explore potential solutions.

How did we get here?

Our current financial situation stems from decisions made when the budget was set in 2021 and a lack of decision on removing the fiscal deficit. At that time, it was clear that there was an operational expenditure problem, particularly concerning healthcare and lack of long term saving for investment. Unfortunately, this problem has only worsened over time and has been masked by excellent investment returns. With the market volatility seen in 2022, those investment returns have taken a significant downturn.

The May 2022 capital prioritisation was set in expectation that revenue-raising solutions would have been implemented by now. With no decision in sight, P&R is making the case that the level of investment needs to drop to ensure Guernsey has adequate reserves for any future contingency.

The Major Problems

Systemic underinvestment caused by successive States – No major capital priorities have been approved by the States until there was no other option. This leads to suboptimal investment decisions and inflationary cost increases.

People are living longer, and our working population is shrinking– Guernsey is not alone in this demographic pressure. It leads to falling revenue for the States (reliant on income tax) and increasing cost (mainly driven by healthcare costs).
No agreement on fiscal reform – Guernsey’s expenditure is rising faster than its income. This has been known for some time this terms deputies have yet to find a solution.

To put things into perspective, the average cost of public services per person is estimated to be approximately £11,000 per year. With a population of around 63,000, this means that the annual cost of maintaining public services in Guernsey is nearly £700 million. In comparison, a taxpayer on median earnings, which stands at about £35,000 per year, pays approximately £7,000 in taxes and social security contributions combined. So put simply, the average taxpayer on median earnings contributes significantly less in taxes than the average cost per person of running our island’s public services.

Now, we all know that the first and second attempt at tax reform has been unsuccessful the Government is now going through a ‘mid term reset’ re-evaluating the Government workplan and capital projects to see what can be achieved with, in P&R’s view, dwindling finances.

Join in the debate

Chamber does not want to shy away from the realities that the island faces, but instead, facilitate business and Government coming together to find pragmatic solutions. Join us for the Chamber lunch on the 17th of July where we will set the following key challenges to our speaker:

Capital Projects
These are vital to Guernsey’s future. Inflation will only ever mean investment will be more expensive if there is a delay and there has already been significant underinvestment in capital projects for over a decade by successive States.

Given this paradigm, how can P&R justify further delay to already prioritised capital projects?

Taxation, Cuts or Both
This is a problem that does not go away. Many Chamber members when asked (20% of the survey) still thought it achievable to resize the deficit by cuts alone. 21% thought a raise to income tax was best. Chamber Executive, along with 49% of our members, were of the view that first, there needed to be a clear package of civil service and pension reform to achieve some savings along with small achievable committee savings in bigger departments such as Education and Health tied with targeted productivity polices to get some of the 6000 economically inactive either back to work or paying some form of tax (if they are able). Alongside this there should be a roadmap for future taxation (with gateways linked to the savings and reforms and achievements in productivity) set out. Taxation plans should include all potential revenue including corporation tax, alternatives sources such as visitor taxes, behaviour taxes (paid parking, plastic tax, sugar tax), social insurance reform and substantive tax measure (such as GST or Income Tax).

Given our members views, what is P&R’s stance on cuts alone, income tax rises only, or Chambers proposed mixed approach which does not rule out tax rises but prioritises savings and productivity first?

Given the importance of the capital projects, the challenges to the public sector finances and political challenges involved, what commitment to timelines is possible at this time to bring the various polices back to the States?

Book your ticket now and join us on the 17th of July to be part of these vital conversations. By attending the Chamber lunch, you will have the opportunity to contribute your ideas, voice your concerns, and help shape the future of Guernsey.