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Policy & Resources proposes 3% GST in its tax package, which comes with a £10m bill to implement and does not fill the projected financial hole

Policy & Resources unveils tax package including 3% GST starting 2028, lower than previously proposed 5% rate, expected to raise £55m annually
Includes new 15% income tax rate for earnings up to £28,000, with raised personal allowances and social security protections for lower-income households
Corporate sector faces increased contributions: 10% rate extended to regulated businesses and prescribed firms, plus International Services Entities scheme
Vehicle tax would return with fuel duty cut by 25%, new weight and emissions-based annual tax, and £2,500+ surcharge on luxury vehicles over £50,000
Implementation costs estimated at £10m with £20m annual spending cuts pledged by 2029, though package still doesn't fully close projected £80m deficit by 2027

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Guernsey’s senior committee has unveiled a sweeping set of tax reforms, including a 3% GST, in an attempt to plug a massive hole in the island's public finances.

Policy & Resource’s proposals, which will be debated by the States, include a new lower 15% income tax rate and a major overhaul of social security contributions.

Despite a projected accounting surplus in 2025, the island has a persistent "structural deficit" - an underlying gap between what it raises primarily in tax and what it spends on public services.

Download the full proposals

This gap is currently estimated at £50m per year and is forecast to rise to £80m by 2027 and £130m by 2035 as demand for healthcare and pensions increases as does the need to spend on infrastructure.

The package is expected to improve the financial position by £59m annually.

At the heart of P&R’s plan is the introduction of a 3% Goods and Services Tax (GST), proposed to begin in 2028.

This is a lower rate than the 5% previously suggested by the States. The committee says the 3% rate is designed to reduce the "inflationary impact" of the tax, bringing the expected one-off price increase down from 3.2% to roughly 1.9%.

GST is expected to raise approximately £55m annually, broadening the tax base to include visitors and businesses.

Key terms

GST (Goods and Services Tax)

A consumption tax added to most goods and services at the point of sale, similar to VAT in the UK. The customer pays the tax as part of the purchase price, and businesses collect it on behalf of the government.

This would be a completely new tax for Guernsey, proposed at 3% starting in 2028, and represents a major shift in how the island raises revenue - broadening the tax base to include visitors and businesses, not just residents.

Structural deficit

An ongoing gap between government income (mainly taxes) and spending on public services that persists regardless of economic conditions. Unlike a temporary deficit, it reflects a fundamental imbalance that requires policy changes to fix.

Guernsey's structural deficit is currently £50m per year and projected to reach £130m by 2035, driven primarily by increasing healthcare and pension costs as the population ages.

Pillar 2

A global tax initiative requiring large multinational companies to pay a minimum effective tax rate of 15% in each country where they operate. It aims to prevent profit shifting to low-tax jurisdictions.

Pillar 2 is expected to generate £40m annually for Guernsey starting in 2025 from large multinationals operating on the island, representing a significant new revenue stream from the finance sector.

International Services Entities scheme

A regulatory framework that allows certain financial services firms to pay a fixed annual fee instead of participating in the GST system. Jersey already operates a similar scheme.

This scheme is designed to keep Guernsey's finance industry competitive while still generating revenue (£10m-£12m annually), avoiding the administrative burden of GST compliance for international financial firms.

Prescribed businesses

Professional services firms such as legal and accounting practices that currently have special tax treatment. Under the proposal, they would be taxed at 10% on all profits.

Bringing prescribed businesses into the 10% bracket represents an increase in corporate contribution from Guernsey's professional services sector, which is significant given the island's economy.

Income support

A welfare benefit providing financial assistance to individuals and families on low incomes to help cover basic living costs. The new 'essential costs relief' would extend help to some who don't currently qualify.

The proposal acknowledges that some Guernsey residents struggle financially despite working full-time, and aims to protect vulnerable islanders from the impact of GST through targeted relief measures.

Protections

In an attempt to ensure the package is "fair and proportionate," the committee has proposed measures to lower the burden on lower- and middle-income households.

A new basic rate of 15% will apply to income up to £28,000. Income above this threshold will remain at 20%.

Personal income tax allowance will rise by £600.

A new social security allowance of £11,122 will be introduced, meaning workers will pay no contributions on their first slice of earnings.

A new payment, known as essential costs relief, will be created to help those on low incomes who do not currently receive income support.

The committee argues that the majority of lower- and middle-income households will be better off overall under this plan than they are currently.

Corporate measures

The package also seeks a greater contribution from the corporate sector.

Large multinational firms are already moving toward a 15% minimum effective tax rate under the global Pillar 2 initiative, which is expected to deliver £40m a year starting in 2025.

In addition, P&R has proposed that the existing 10% rate for regulated businesses will be extended to cover their entire profits. Firms like legal and accounting firms (prescribed businesses) will also be brought into the 10% tax bracket.

An International Services Entities scheme, mirroring Jersey's, will allow finance firms to pay a fixed fee (generating £10m–£12m) to stay outside the GST system.

Changes for motorists

The committee also wants to bring back vehicle tax.

Fuel duty would be cut by 25% under its proposal, saving the “average” private vehicle owner between £130 and £140 per year.

To replace this lost revenue and ensure electric vehicle (EV) owners contribute, a new annual vehicle tax based on weight and emissions will be introduced.

A surcharge of at least £2,500 would also apply to the first registration of private vehicles valued over £50,000.

Spending and savings

The committee has pledged to find £20m in annual expenditure reductions by 2029. However, they cautioned that Guernsey’s public sector is already small compared to the UK and Jersey.

They warned that significant further cuts would likely require "reducing or removing public services."

Implementation and administrative costs

The one-off costs to implement the package are estimated to range between £7.05m and £10.6m:

Core Programme (GST, Income Tax, and Social Security): £5.45m – £8.8m.
Transport Tax Changes: £400,000 – £500,000.
Corporate Tax Changes: £100,000 – £200,000.
Business Support Package: A fixed £1.1m to help local businesses adapt their systems and processes for GST.

Including preparatory work already undertaken since November 2024 (approx. £1.6m), the total cost of the tax reform programme is estimated at £8.65m to £12.2m.

Beyond these setup costs, the ongoing annual administrative cost for the new system is estimated at £2.5m.

This includes the requirement for approximately six additional roles within the Revenue Service and ten roles within the Guernsey Customs and Immigration Service.

A “measured” approach

Policy & Resources President Lindsay de Sausmarez said: “‘We have been acutely aware of how much some people are struggling – whether they’re working full time or whether they’re retired; whether they rent or pay a mortgage, and whether they have young children or older loved ones to care for.

“We’re also keenly aware of the state of our public finances, and the need to put them on a stronger and more sustainable footing to provide the services and infrastructure the islands need, now and in the future.

"Finding a way to raise more revenue for essential services whilst also protecting those who are financially vulnerable has been a challenge, but the 2026 Tax Reform Package meets both aims in a measured and manageable way.”

A formal Assurance Review is proposed for 2030 to assess the impact of these changes on inflation and the economy.

The committee has recommended a legal commitment that the 3% GST rate cannot be increased before this review takes place.

What we still don't know

What specific public services might be reduced or removed to achieve the £20m in expenditure cuts?

The committee warns that significant cuts would require 'reducing or removing public services' but does not specify which services are being considered or targeted.

How much of the structural deficit remains unfilled after implementing the full package?

The package raises £59m annually but the deficit is currently £50m and forecast to reach £80m by 2027 and £130m by 2035, leaving unclear what gap remains and when.

How many households or individuals will qualify for the new 'essential costs relief' payment and how much will they receive?

A new payment is announced for low-income households not on income support, but no figures are provided for eligibility thresholds, payment amounts, or expected beneficiary numbers.

Q&A

Q: When will the proposed 3% GST be implemented in Guernsey?
A: The 3% Goods and Services Tax is proposed to begin in 2028. This rate is lower than the 5% previously suggested and is expected to raise approximately £55m annually.

Q: How does the tax package protect lower-income households?
A: The package includes a new 15% income tax rate for earnings up to £28,000, a £600 increase in personal allowance, a new social security allowance of £11,122 (meaning no contributions on first slice of earnings), and essential costs relief payments for those on low incomes not receiving income support.

Q: What is Guernsey's current structural deficit and how does it compare to what the tax package will raise?
A: Guernsey has a structural deficit currently estimated at £50m per year, forecast to rise to £80m by 2027 and £130m by 2035. The proposed tax package is expected to improve the financial position by £59m annually, meaning it won't fully close the projected gap.