The Class of 2025 left a plan to help close the black hole that persists in States finances, but debate is now swirling about the size of the problem and how best to deal with it.
This week the 2024 Accounts were published, and in a format that for the first time allows for much clearer evidence on which to base decision making, even allowing for much more direct comparison with other jurisdictions.
It might well be the last chance this current Policy & Resources Committee gets to spell out its thoughts on what the numbers mean, why action is needed and what that should be.
Ultimately, it wants the new States to look to long term trends, but turning to the 2024 position, by its positioning people should concentrate on the ‘core’ of general revenue (essentially what the public sector spends and how much it receives in taxes and charges), which showed a £44m. deficit in 2024.
Those with a more optimistic take are at pains to point out that a large part of that was driven by a negative one-off income tax reclaim by a bank of £22.9m. and that once you look at the overall picture, including positive investment performance, things are not as bad as P&R has been advertising.
Once you have settled on how big the financial problem really is, then you can turn to how to fix it. What remains on the table as the major tools is the GST Plus package and a review of States spending that is getting much less attention.
You will find only a handful of successful candidates that explicitly supported GST Plus in the election campaign, at least a dozen that were explicitly against and more still that want to see other reforms first.
Account Highlights
The financial status of the States of Guernsey ‘Core’, comprising General Revenue and Social Security Funds but excluding commercial entities, reflected a deficit of £44 million in 2024, composed of the £9 million General Revenue deficit, £13 million from Social Security Funds, and £22 million from non-infrastructure project expenditures, including IT transformation and elements of the revenue service programme.
Staffing levels within the Core rose from 5,058 in 2023 to 5,154 in 2024. This 1.9% increase was significantly driven by the Health sector, which experienced a net increase of 67 personnel, primarily in nursing and medical consultant roles, including the filling of 112 full-time vacancies that contributed to a reduction of agency workers equivalent to 51 full-time positions. Overall, the Health sector accounted for 70% of the total increase in full-time equivalents.
Outside the Core, in-sourcing of airport functions increased Ports’ headcount by 56.
The number of States Core staff incurring annual costs exceeding £110,000 rose by 48 to reach a total of 263, with 54% engaged in frontline services in Health, Education, or Home Affairs.
Higher-than-inflation increases in pay (8.3%) and non-pay costs.
A £130 million increase in the valuation of States investments by the end of 2024, an 8% return. This was driven by global equity growth; underperformed policy benchmark by 2.6%
Guernsey Electricity showed a strong recovery in its performance, a net surplus £1.7m (vs £0.9m deficit in 2023).
Aurigny showed a significant deterioration – a net loss of £7.6m (vs -£1.2m in 2023), caused by aircraft-related disruptions and crewed aircraft leasing costs that exceeded £6.6m.
Without the banking adjustment, income tax take would have risen by 4.8%.
Document duty was up by 24.7% due to strong open market sales.
Customs duties fell, especially tobacco (-33%) and fuel revenue was impacted by EV adoption.
The fixed asset portfolio, valued at £2.4 billion, comprises £677 million in land, £794 million in buildings, and £725 million in infrastructure assets. The depreciation of these fixed assets amounts to an annual charge of approximately £60 million.
Reflecting on the overall financial position being left from the current administration, P&R member Jonathan Le Tocq said it was not in the positive state that he would like, but it was equally not in crisis.
“These sets of accounts provide the best evidence that we've seen so far that we cannot continue to operate with the idea that things will generally improve or that it's just a minor problem,” he said.
“If you look at our core services and our core revenue, then our business as usual stuff that people expect us to do is now running at a significant deficit, and we've been saying this for some time.
“We're leaving with a resolution for a package called GST plus, which I do believe will go a long way to make that better for us. But we're not leaving in a position where that's in place yet. And so there's a degree of volatility, and I think these accounts demonstrate that.”
He believes that the latest accounts help put into context the need for the GST Plus package and help show to those that were sitting in the fence in the election that they cannot wait for something better to appear.
“I am certainly of the opinion that there are things that can be tweaked with regards to the GST Plus package. We need to weigh that up if that's the case, because I certainly want the package to be as simple as possible.
“But as somebody said to me, who's a new candidate, probably the best thing to do is to implement the package in the time frame that it's planned to be implemented. And if we need to make alterations once the dust has settled on that, we should be able to do that afterwards. And I think that's quite wise, because we've got some unknowns.”
The potential corporate income from the OECD’s Pillar Two initiative has been seized on by some as a reason not to push on with GST.
But not only is the income that it will generate unclear, it could also be quite volatile as financial institutions react and restructure.
“In my mind, if we do make extra revenue, and it's significant we should be putting that into reserves. We should be banking it for the future generations. We’ve run through our reserves. When I was first elected, we had a rainy day fund, a contingency reserve that was meant to be able to cope with nearly a year's worth of expenditure if we had a downturn in the economy, many unemployed or major incidents of some sort, we've eaten through all of that, really.”
The GST package includes finding £10m. worth of savings.
“I do believe we can find £10 million if we're serious about it. I don't believe it's going to be an easy job, and I don't believe it can be done very quickly, like some think.
“No doubt there'll be some of the new intake that thinks there's low hanging fruit everywhere. It won't be in that sort of region. This is why the fundamental services review, which the States has also agreed, is equally important. We need to ask ourselves as a community the question, should the government be providing these services, or can they be provided in another way? And if so, can we, for example, commission, or can we find a way in which the third sector could provide it with minimum government support?”
Some candidates have been keen to rally around Deputy Charles Parkinson’s move to change the corporate tax system to a territorial regime.
But it would be a move that flies against advice that the States has already received from consultants, rejected by Deputy Parkinson, about the economic damage and uncertainty this would cause. Projections in 2022 were GVA could be negatively impacted by £352.7m.
Deputy Le Tocq says his problem was not with the concept of territorial tax itself.
“The worst thing, from my point of view, is the uncertainty that it would give to our immediate trading partners, which are largely European focused. We would, for example, and I know this because several times I’ve met Maria Jose Garde, the chair of the EU Code of Conduct group], who was a head of the Spanish revenue services, and it's made it very clear that if we went in that direction, we would be immediately gray listed, and probably for a few years, as happened to Hong Kong. And I don't believe we can afford to do that.”
That could mean the existing finance industry has doors closed to them, while new businesses would have to question whether to relocate to a jurisdiction while not knowing if it was compliant with EU standards or not.
“That is not a good place to be in when we try to grow the economy.”
The 2024 States Accounts are the first to be fully compliant with International Public Sector
Accounting Standards and to be given a ’true and fair’ view by the auditors.
They are far more detailed than in the past.
“You can see that while there have been an increase in the overall number of staff, most of them have been in Health and Social Care, which most people that I meet certainly would say, ‘well, that's understandable, and we don't want to see a decrease in nursing’.
“At the same time, we've seen a decrease inn agency costs, which normally cost huge amounts more than if you actually employed these staff. So these accounts do provide evidence in greater context than we've had before.
“So that's a good news story. I think you want to make evidence based decisions. This is the first time you've had the full context to make it. We own a lot of property, but we can see that there are some properties that have some liabilities. Where in the past, it was always crisis, it's broken, or something we need to do now we can think, well, ‘we ought to have some money put aside to be able to do that’.
“In terms of evidence based decision making these are acounts that will help this new Assembly, if they learn how to use them well, provide the evidence that says this is why we need to make this decision. And that is very important, because we've not really been able to do that in the past.”
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