Updated modelling estimates GST package will raise £3m a year less than expected as housing costs erode spending
- Updated financial modelling shows the 2026 Tax Reform Package will generate £36m a year in net additional revenue, down from the £39m estimate published in June
- The reduction is primarily due to updated household expenditure data showing average spending fell 6% in real terms, with housing costs taking up a larger proportion of household budgets
- GST revenue from households revised down to £38.3m from £41m, while visitor GST revenue adjusted to £3.5m from £4.7m based on latest expenditure surveys
- The package still provides tax relief for average and lower earners, with income tax changes costing £26.2m compared to £27.9m previously
- Combined with £20m annual expenditure reductions already agreed, the measures would improve public finances by approximately £56m a year - still short of the estimated £80m shortfall
The financial modelling estimates for the 2026 Tax Reform Package have been updated to incorporate the most recent data, with revised figures showing the package will generate around £36m a year, compared with the £39m estimate published in June.
The Policy & Resources Committee's original proposals were based on previously available data, but the updated estimates reflect findings from the latest household and visitor expenditure surveys, as well as the most recent income tax and social security forecasts.
The principal reason for the reduced predicted revenues is the change in how much a 3% GST will generate. The original modelling used household expenditure data from 2018-2019, but applying the more recent survey findings reduces the estimated GST revenue from households by about £3m.
Data from the latest Household Expenditure Survey found that average expenditure had fallen by 6% in real terms between the 2018-2019 survey and the 2023-2024 survey. It also found that core housing-related costs, including rent and mortgage payments which would not be subject to GST, had increased for most household types and particularly for private renters.
This means a smaller proportion of household spending is expected to be subject to GST, as households are spending a higher proportion of their income on housing costs that will not incur GST. The revised estimate shows GST revenue from households at £38.3m, compared with £41m previously.
The updated Visitor Expenditure Survey provides a more detailed picture of how visitors spend money in the Bailiwick. Of the estimated £149m of visitor expenditure in 2025-2026, around £35m was spent on air and sea travel, which would be GST zero-rated under the proposals. The revised estimate of GST revenue from visitors is therefore approximately £3.5m per year, compared with £4.7m in the original modelling.
The re-run of the modelling has also updated the package against the latest 2026 income tax and social security contribution forecasts. This reduces the estimated cost of the proposed income tax changes from about £28m to approximately £26m, while the estimated net revenue from the social security contribution changes has been revised from £1.6m to £1.2m.
The revised revenue and cost estimates for the full tax package show income tax changes will cost £26.2m, compared with £27.9m previously, to reduce the amount of income tax people pay. Social security contribution changes are expected to generate revenue of £1.2m, compared with £1.6m in the original model.
GST from households is estimated at £38.3m revenue, while GST from visitors will generate £3.5m. The International Service Entities scheme remains unchanged at £11m revenue, motor taxes at £7.4m revenue, and corporate taxes at £5.5m revenue. Corporate TRP relief remains unchanged at a cost of £1m.
Total gross additional revenue is estimated at £39.7m, with total net additional revenue at £36.2m after £2.5m administration costs and £1m cost of increasing benefits.
Nick Mann
GST is just one element of a much wider package of tax reforms, which include significant tax breaks for islanders to leave the majority with more disposable income than now, even after the introduction of a consumption tax. The proposals include a major restructure of income tax and social security which will mean average and lower earners will have more disposable income than they currently do, even after GST, P&R said.
The package also includes the minimum £20m a year of spending reductions previously agreed through the Government Work Plan. Taken together, the updated net revenue estimate and those expenditure reductions would improve the public finance position by approximately £56m a year.
This still falls some way short of the blackhole in public finances which was estimated to be £80m. by 2027.
Deputy Lindsay de Sausmarez, President of the Policy & Resources Committee, said: "The world does not stand still while we deliberate.
"We thought it was important that the financial estimates supporting the Tax Reform Package were updated when better and more recent evidence became available, so officers have re-run the modelling using the latest household and visitor expenditure surveys, as well as the most recent income tax and social security forecasts, none of which were available when the package was being developed.
"We are now using the very latest available data, which should support the Assembly in reaching a much-needed conclusion to this long-running debate on how to stabilise our public finances."
Deputy de Sausmarez added: "The updated work estimates that the package will raise around £36m a year in net additional revenue, rather than the £39m previously forecast.
"The reduction does not alter the fundamental purpose or balance of the package, as it still provides substantial tax relief for people on average and lower incomes while securing the additional funding necessary for essential services and reducing our over-dependency on income-based taxation."
She continued: "Publishing the revised figures demonstrates the evidence-led approach we are taking.
"Forecasts inevitably change as newer information becomes available, but one thing that hasn't changed is the absolute need for the States to diversify its tax base to improve our resilience to economic shocks, and to raise more revenue if we are going to avoid reaching the cliff edge in a few years' time when are island's savings are expected to run out.
"As a responsible government, we must act to safeguard public finances, and we must act without further delay."
The Household Expenditure Survey is usually undertaken in Guernsey every five years. The survey gathers anonymised information on the goods and services bought by people who live in Guernsey to find out the average cost of living. The latest survey took place from October 2023 to January 2025 to incorporate seasonal changes in expenditure patterns and ensure enough households took part for the results to be reliable. Data was collected from 876 households, representing 2,082 individuals.
The Guernsey Visitor Expenditure Survey provides information on expenditure by visitors travelling by aeroplane, ferry, cruise ship and private yacht to the Island of Guernsey between April 2025 and March 2026. Surveys were conducted face to face by fieldworkers with departing visitors at the airport, harbour terminal and cruise tender quay, and via an online self-completion questionnaire for those completing the yacht expenditure survey. In total 4,438 surveys were conducted, representing 8,691 visitors, just over 2% of all visitors to Guernsey between April 2025 and March 2026.
More information about the 2026 Tax Reform Package is available at www.gov.gg/taxreform.
Q&A
Q: Why has the estimated revenue from the tax package been reduced from £39m to £36m?
A: The reduction is primarily due to updated household expenditure data showing average spending fell 6% in real terms between 2018-2019 and 2023-2024, with households spending a higher proportion of income on housing costs that won't incur GST. Additionally, the visitor expenditure survey showed £35m of the £149m spent by visitors was on zero-rated air and sea travel.
Q: How will the tax reforms affect average and lower earners?
A: The proposals include a major restructure of income tax and social security which will mean average and lower earners will have more disposable income than they currently do, even after GST. The package includes significant tax breaks for islanders designed to leave the majority with more disposable income than now.
Q: What is the total impact on public finances when including expenditure reductions?
A: The package includes the minimum £20m a year of expenditure reductions previously agreed through the Government Work Plan. Combined with the updated net revenue estimate of £36m, this would improve the public finance position by approximately £56m a year.
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