States finances record £36m. surplus for 2025, but members warned one good year does not change the need for reform
- Public finances back in surplus largely thanks to better than expected income tax returns from banking.
- £23m. was, however, unlikely to be repeated in future years.
- Positive economic signs in terms of bonuses and house sales
- Health overspends budget by £3.3m.
- Expected spending on major projects slower than needed.
The States’ finances have swung dramatically back into surplus.
In 2024, general revenue had an overall deficit of nearly £31m with significant downward adjustments to tax from banking profits.
Fast forward 12 months, and strong receipts have reversed that position to an provisional overall net surplus for the year of £36m.
Income was £57m above the allocated budget.
A key component of that is income tax from banks with revenue £37m more than budget, Policy & Resources’ Vice President Gavin St Pier told the States.
But £11m relates to a voluntary disclosure from one bank which had calculated an underpayment of tax over the preceding seven years and so includes a hefty interest surcharge.
A further £12m relates to tax from 2023 which was assessed and paid in 2025.
“Therefore, £23m of the £37m in additional revenue is exceptional and it cannot be built into our baseline and relied on in future years,” said Deputy St Pier.
“It’s a windfall, significant for this year, but unlikely to be repeated next year or in future years, and not significantly material to the long-term financial position of the States.
“Fortunate though this is 2025, it does highlight the inherent volatility in the tax from corporate profits generally, banking profits in particular drawn from a very small number of banking taxpayers, given there are only 21 licensed banks.
P&R is working with the major banks and the Guernsey Financial Services Commission to ensure it gets more timely information to avoid large historic adjustments, which has now happened two years in a row.
“However, it is evident that the banks have themselves found accurate forecasting a challenge in an unusual period where uncertainty has been high and interest rates have shifted very quickly. With interest rates coming down, we need to expect that to be reflected in future banking profits.”
Employee income tax receipts, which are the best real-time indicator of economic performance, were favourable to budget by about £7m (or just under 2.5%).
“Again, at first blush a very encouraging outturn, but we need to be aware that most of this variance arose in Q4 receipts – a bumper quarter.
“It is therefore likely to have been driven by a strong round of bonus payments, which would be consistent with a better than expected result for the finance sector – but, again, cannot be safely assumed as part of our baseline for 2026 and beyond.
Document Duty receipts were strong in 2025, and the final position was receipts of £27m compared to a budget of £16m.
This was driven by a 27% increase in the number of local market transactions compared to the previous year, with particularly high transaction numbers between May and October.
“Finally, in relation to income, there were strong receipts from tobacco duty at the end of the year. This does not mean our community are smoking more. Tobacco imports are subject to duty on arrival. Imports are lumpy and can be influenced by the timing of duty increases.”
For 2025 Customs Duties ended the year £3m, or nearly 6% ahead of budget.
Revenue income was just short of £716m in total and 9% above budget.
Most Committees spent within the cash limit allocated by the States.
Health & Social Care’s expenditure exceeded its budget.
The final overspend was £3.3m, or just over 1%, due to a combination of general demand pressures across the service and specific challenges relating to off island intensive and wrap around care.
The next highest overspend was the central Corporate Services function, which exceeded its budget by £2.6m.
£2m of this was driven by costs in the digital & technology area following the decision to change our IT contract arrangements.
Insurance cost pressures continued in 2025 at just over £1m more than budget.
“But the Policy & Resources Committee is now leading a comprehensive review of our insurance arrangements to better manage our cost and risk in this key area.”
Employment & Social Security was £1.2m (or 1%) better than budget due to lower income support costs than budgeted. The expenditure was broadly in line with 2024 on a real terms’ basis.
Pay costs for the year totalled £351m which was in line with the budget.
“However, this hides the fact that there were over 300 vacancies on average over the year which equates to 6% of the workforce. Many of these vacancies have had to be covered through overtime or agency staff which cost more than full time employees.
“All Committees had vacancies through the year with Home Affairs and Corporate Services having the most significant recruitment challenges, although both these areas did have reduced vacancies on the 2024 average.”
The allocated budget reserve was largely spent during the year - although the expenditure in relation Government Work Plan initiatives and service developments was significantly below budget.
Overall, there was an overspend when all committees and central reserves are taken together of £4m or 0.6% of the total budget.
“The combination of the stronger position on income and the more limited expenditure pressures, resulted in a gross Revenue Surplus of £73m - which is £53m better than budgeted.
“Of course, several adjustments need to be made to this figure to arrive at the net surplus. These include accounting for the losses of the unincorporated trading entities, project spending, depreciation and interest.”
The cost of revenue spent on major projects was £11m less than anticipated.
“However, as this is mainly down to the timing of projects this is less of a good news story and more another manifestation of the States’ challenge in managing projects.”
2025 was another good year in investment markets, with returns attributable to general revenue totalling £33.7m.
“But, of course, whilst it feels good and gives a nice warm glow, it is of course only a snapshot of unrealised gains based on market valuations on the last day of the year.”
Deputy St Pier said that the additional revenue in 2025 was a useful contribution to our depleting reserves but does not, without wider reform, change their trajectory.
“The 2024 and 2025 experiences highlight that having such a high dependency on whether banks have a good or bad year is neither sensible nor sustainable, especially given that the performance of individual banks will fluctuate from one year to the next, depending on their business models and on global as well as domestic factors. That is not a basis on which to build sustainable and reliable public finances.
The final numbers for 2025 will be published, following audit, on 2nd June.
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