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# Scrutiny committee demands Budget transparency ahead of 2027 debate
- URL: https://www.thequarry.media/scrutiny-committee-demands-budget-transparency-ahead-of-2027-debate/
- Published: 2026-10-28T14:40:00.000Z
- Updated: 2026-10-28T15:01:44.000Z
- Author: The Quarry
- Tags: News

- Scrutiny Management Committee identifies £103 million in capital expenditure missing from 2027 Budget documentation, with total financing requirement of £75-80 million not disclosed to States Members.
- Committee demands five key financial documents be published before Budget debate, including consolidated capital expenditure forecast and cash-flow projections for 2027.
- Serious concerns raised about Pillar 2 tax revenue recognition on accruals basis before cash received, creating risk that expenditure commitments may be made on basis of uncertain revenues.
- Committee unable to obtain clear reconciliation of Chief Executive's £4 million 2026 savings target, whilst priority-based budgeting pilot produced net benefit of only £100,000.
- Approximately 40% of additional expenditure under Option B attributable to Policy & Resources Committee and Corporate Services, contradicting presentation of option as response to service committee demands.

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### Key terms

**Pillar 2** 

Pillar 2 is a global minimum corporate tax rate of 15% introduced by the OECD to prevent multinational companies from shifting profits to low-tax jurisdictions. Countries collect top-up taxes when companies pay below this rate elsewhere.

This is critical to Guernsey because the island has historically operated as a low-tax jurisdiction for certain companies. Pillar 2 revenues represent a significant new income source that is materially affecting the island's budget and financial planning, though there is uncertainty about how stable these revenues will be long-term.

**Accruals basis** 

Accruals basis is an accounting method where income and expenses are recorded when they are earned or incurred, not when cash actually changes hands. This means revenue can appear in accounts before the money is physically received.

The committee warns this is particularly important for Guernsey's 2027 Budget because Pillar 2 income is being counted before the cash arrives, which could create problems if the States commits to permanent spending increases based on revenues not yet in the bank.

**Capital expenditure** 

Capital expenditure refers to spending on long-term physical assets like buildings, infrastructure, and major equipment, as opposed to day-to-day operating costs. These investments typically provide benefits over many years.

The 2027 Budget proposes approximately £103 million in capital expenditure, but the scrutiny committee is concerned that legislators are being asked to approve this spending without seeing consolidated forecasts or understanding how it will be financed.

**Cash-flow forecast** 

A cash-flow forecast is a projection showing when money will actually come in and go out of an organization's accounts. It differs from a budget because it focuses on timing of actual cash movements rather than when transactions are recorded in accounts.

The committee considers the absence of a consolidated cash-flow forecast a fundamental flaw in the 2027 Budget, particularly given the uncertainty about when Pillar 2 tax receipts will actually arrive and the large capital spending plans requiring £75-80 million in financing.

**Priority-based budgeting** 

Priority-based budgeting is a method where government spending is reviewed and allocated based on how well programs align with strategic priorities and deliver value, rather than simply adjusting previous budgets. It aims to identify savings by questioning all expenditure.

A pilot programme in Guernsey produced only £100,000 in net savings after costs, which the scrutiny committee considers modest given the scale of the island's overall government expenditure and the ambitious savings targets expressed in the Budget.

**Medium-term financial framework** 

A medium-term financial framework is a multi-year plan showing projected revenues, expenditures, borrowing, and financial position over typically three to five years. It helps ensure current decisions are sustainable and aligned with longer-term fiscal objectives.

The scrutiny committee identifies the absence of such a framework as a fundamental gap in Guernsey's financial planning, making it difficult to assess whether 2027 spending commitments are sustainable given revenue uncertainty and planned capital investments.

Guernsey's Scrutiny Management Committee has issued a strongly worded challenge to the States' proposed 2027 Budget, identifying significant deficiencies in financial transparency and questioning whether legislators have sufficient information to make informed decisions.

The committee's Letter of Comment, dated 28 October 2026 and signed by Deputy Andy Sloan, follows a public hearing held on 19 October and raises fundamental concerns about missing financial data totalling over £100 million in planned expenditure.

The most significant concern identified by the committee is that the 2027 Budget omits critical information about capital expenditure and cash-flow forecasts. The Budget proposes £81 million in major capital expenditure for 2027, alongside £22 million in routine capital expenditure, creating a total capital expenditure of approximately £103 million and a total financing requirement of £75-80 million for the year.

The committee states: "States Members are being asked to approve a Budget without a consolidated presentation of expenditure, financing requirements and the projected financial position associated with the Government's plans."

Before the Budget debate proceeds, the committee has demanded that the Policy & Resources Committee publish five specific items: a consolidated capital expenditure forecast for 2026 and 2027; a consolidated cash-flow forecast for 2027; a reconciliation between projected revenue surplus, capital expenditure and anticipated movement in cash and financial assets; the projected movement in external borrowing and financial liabilities; and an explanation of assumptions underpinning forecasts, including timing of Pillar 2 receipts.

The committee considers this information "fundamental to informed consideration of the Budget and should be included in the standard financial information accompanying future Budgets."

The Budget has been significantly affected by upward revisions to anticipated Pillar 2 corporate tax revenues, which have "materially altered the near-term financial outlook." Whilst acknowledging the improved outlook, the committee expresses concern about the substantial scale of upward revision compared to earlier tax reform projections, uncertainty surrounding longer-term behavioural responses to Pillar 2, limitations of current economic data, and the absence of up-to-date GDP statistics.

A critical issue on timing emerged during the hearing, which confirmed that Pillar 2 income is being recognised on an accruals basis before associated cash is actually received. The committee warns: "Recognition of income in the accounts does not, of itself, provide the cash to finance that expenditure. This is an important distinction when considering proposals that would permanently increase the States' expenditure baseline."

The hearing revealed substantial increases in requested expenditure, with £33 million in additional expenditure initially sought by committees above Option A, alongside 161 staff positions originally requested as a net increase. Under the proposed Option B, 70 staff positions would be added as a net increase.

The committee states these figures are "material to any assessment of the future cost base of government" and notes that "additional permanent posts create expenditure commitments that generally persist beyond the budget year."

A critical gap exists in the information provided, as the Budget does not provide sufficiently detailed analysis of expenditure drivers, failing to distinguish between pay increases, non-pay inflation, demographic and demand pressures, new services, and discretionary policy decisions.

The committee states: "The Committee does not question the necessity of political judgement in setting budgets. It does, however, consider that the exercise of that judgement should be supported by transparent financial information."

Serious doubts have been raised about the credibility of claimed savings and efficiencies. The Chief Executive's 2026 savings target totalled £4 million, comprising £2.5 million in general revenue expenditure and £1.5 million in capital projects. However, the committee "was unable to obtain a clear reconciliation showing the extent to which the savings target had been achieved."

Whilst reductions in consultancy expenditure were identified, the explanation that savings might be reflected in unutilised balance of central budget reserve "did not provide a sufficiently transparent link between specific management interventions and actual expenditure reductions."

The pilot priority-based budgeting programme produced modest results, with £400,000 in recurring savings incorporated into the 2027 Budget against estimated internal resource costs of £300,000 for the pilot, creating a net benefit of only £100,000\. The committee notes these results are "modest relative to the scale of overall expenditure and the savings ambitions expressed in the Budget."

The Budget proposes replacing annual savings requirements with a target of £20 million in recurring savings by 2029, but this raises questions about the baseline against which savings will be measured, timing of delivery, and the extent to which savings will offset expenditure increases in intervening years.

The Budget presents two options to the Assembly, but the committee raises serious concerns about the clarity of these choices. During the hearing, both Deputy Parkinson and Deputy Niles indicated "they did not regard Option A as realistic and that Option B would better accommodate expenditure pressures."

A significant finding emerged regarding Option B's composition: approximately 40% of the additional expenditure proposed under Option B is attributable to the Policy & Resources Committee and Corporate Services. The committee states: "This is a significant proportion and does not sit comfortably with the presentation of Option B as principally a response to additional funding requests from other committees."

This finding is particularly important because it suggests Option B reflects centrally-determined expenditure increases rather than simply responding to service committee demands. The committee notes: "The information presently available does not make those distinctions sufficiently clear and risks obscuring the extent to which Option B reflects centrally determined expenditure increases rather than additional demands from service committees."

The hearing revealed important information about economic growth assumptions, with 0.5% real economic growth assumed for 2027\. Expenditure under Option B is forecast to rise in real terms at a faster rate than economic growth, whilst £5 million has been allocated for an economic development initiative.

The hearing "did not establish clear evidence of the extent to which this expenditure could materially affect economic growth over the Budget period." The committee argues that "Economic growth and expenditure management should not be treated as alternative responses to fiscal pressures."

The committee identifies a fundamental gap in financial planning, stating: "The absence of a published medium-term financial framework makes it difficult to assess the combined implications of expenditure growth, revenue uncertainty, capital investment and reserve management."

Several technical issues with how financial position is presented were highlighted during the hearing. The Budget presents several different measures of financial position, including a substantial revenue surplus on one hand and significant cash outflow on the other, alongside a "funding gap" calculation and the distinction between accounting balance and actual cash position.

The committee expresses concern about "the difficulties arising from presenting several measures of the States' financial position." The hearing examined "apparent inconsistency between the treatment of investment returns, which are excluded from the funding gap calculation on prudential grounds, and their relevance to the maintenance of financial reserves."

The committee notes that the funding gap calculation incorporates adjustments to reflect target capital investment levels and assumed longer-term reduction in Pillar 2 receipts, but observes: "These are policy and forecasting assumptions rather than measures of an immediate cash deficit."

In its overall assessment, the committee's concluding statements are notably critical. The committee states: "The hearing reinforced our concern that the Budget does not provide the Assembly with a sufficiently integrated or transparent account of the States' finances."

On the missing information, the committee states: "The Committee's most significant finding is the absence of consolidated capital expenditure and cash-flow forecasts. These are fundamental to financial planning and accountability, particularly at a time when substantial capital investment is anticipated and the timing of major tax receipts is uncertain."

The committee articulates a core principle: "The Committee believes that the Assembly should not be expected to approve the States' annual financial plans without being provided with a consolidated account of what the States expects to spend, how that expenditure will be financed, and the resulting movement in its financial assets and liabilities."

The committee poses a fundamental question: "The central issue is not merely whether the States should spend more or less in 2027\. It is whether the financial information presented enables States Members to understand the consequences of the choices before them and to exercise effective oversight of public expenditure."

The committee concludes by emphasising the urgency of providing additional information: "The Committee therefore considers it important that the additional financial information requested in Section 1 be made available before the Budget debate."

More broadly, the committee believes the identified matters "underscore the need for a more comprehensive and transparent approach to medium-term financial planning, budget preparation and the reporting of public expenditure."

The Letter of Comment was submitted to the Presiding Officer of the States of Guernsey in response to Policy Letter and Proposition No. P.2026/82\. Attendees at the 19 October hearing included Deputy Parkinson, Deputy Niles, and Treasury officers from the Policy & Resources Committee.

## Q&A

**Q: What is the total capital expenditure planned for 2027 that was not disclosed in the Budget?**  
A: Approximately £103 million in total capital expenditure is planned for 2027, comprising £81 million in major capital expenditure and £22 million in routine capital expenditure. The total financing requirement for the year is £75-80 million.

**Q: What five documents has the Scrutiny Management Committee demanded before the Budget debate?**  
A: The committee demands: a consolidated capital expenditure forecast for 2026 and 2027; a consolidated cash-flow forecast for 2027; a reconciliation between projected revenue surplus, capital expenditure and anticipated movement in cash and financial assets; the projected movement in external borrowing and financial liabilities; and an explanation of assumptions underpinning forecasts, including timing of Pillar 2 receipts.

**Q: What were the results of the priority-based budgeting pilot programme?**  
A: The pilot programme produced £400,000 in recurring savings incorporated into the 2027 Budget, but had estimated internal resource costs of £300,000, creating a net benefit of only £100,000\. The committee notes these results are modest relative to the scale of overall expenditure and the savings ambitions expressed in the Budget.