The Tax Review will help ensure we can invest in what matters to you, for generations to come.

On 28th November 2022, the Policy & Resources Committee announced its recommendations for how to secure funding for essential services such as a health, care and pensions for the future. Here, you can learn about how changes in our population are putting those services at risk, and how the recommendations propose to protect them.

The shape of our population is changing. We’re living longer and having fewer children, and that means fewer people working and paying taxes and more people using public services, especially pensions, health and care services in our later years pushing the cost of public services up a lot.

The funding shortfall is forecast to rise to as much as £100m a year.

For future generations, this shortfall will impact the services that we rely on, unless we take action now.

Changes to the make-up in our population

Graph showing the number of women and men in 1971, 2020 and a projection for 2050

What services are paid for by our taxes?

The States are responsible for ensuring that every islander gets good access to essential services, support and opportunities, such as education, healthcare, pensions and much, much more. But these services need to be funded, and for some the cost will rise significantly as the shape of our population changes.

Explore more on what services are publicly funded and how those costs are expected to change.

Health and Care Services

Health and care services are the most widely accessed services the States provide and one that people need to rely on more and more as they get older.

Guernsey’s care services include not only the hospital and its related services, but also include a subsidy on accessing your GP or practice nurse; mental health services; support for those struggling with addiction; social workers who protect the young, the old and the vulnerable from harm; social care services which provide people with care in their own home; substantial grants which will meet the majority of the cost of a nursing or residential care placement and much more.

In 2021 we spent £204m of health and social care services and a further £23m on the long-term care scheme – a total of £227m. We expect this to rise to £237m in 2023.

These costs will keep rising as more of our population reach an age at which they are likely need more of these services. We expect our health and social care services to cost at least another £45m a year more in 2040 than they do now, and long-term care costs are expected to increase by more than £17m over the same period. There are some reserves available to help support some of the cost of the long-term care scheme and at the moment more money is being paid into this scheme than is being paid out but this will change as costs increase further, which means the reserve will run out unless more money is provided to support the scheme or we reduce either the amount of support with care costs people are entitled to or restrict who is eligible for support.

Forecasting other health and care costs is more difficult but this could increase by more than £60m a year by 2040.


The States’ public pension scheme forms an important source of income for the majority of pensioners in Guernsey and it is the largest single item of expenditure in the overall budget.

Because the population is getting older, and people are living longer into retirement the number of people the pension scheme supports is increasing. Since 2010 the number of pensioners has increased by more than 25% and is set to increase by a further 18% by 2040.

In 2023 the States’ pension scheme is expected cost £157m, and it is estimated that it might cost more than £190m a year by 2040.

The States have built up reserves which are available to help pay for pensions and help mitigate some of the cost increase. However, more is being paid out in pensions each year than is being received in contributions, which means the reserve will run out if more money is not provided to support the scheme.


Even in a small community like ours, the States-maintained education system is broad and diverse, covering early years, primary, secondary, post-16, special needs and adult learning, as well as a number of support services across numerous sites. Throughout our education system lies the common purpose of ensuring the best possible outcomes for all learners, to make tangible differences to their lives and the community as a whole.

In 2023 the States expect to spend £83m on education, sport, and culture.

Public Transport and Roads

Traffic & Highway Services maintains and improves the condition of the island’s public highways and looks to enable options for Islanders when it comes to getting around the island through contracting a public bus service, expanding walking and cycling infrastructure and improving road safety. It is also a facilitator of works needed within the road so that businesses can ensure essential services, such as utilities, are continuously provided to residents and other businesses. Driver & Vehicle Licensing also sits within this service area and processes all enquiries involving vehicle licences, ownership and permits, as well as providing practical and theory driving tests.

In 2023 the States expect to spend £2m on road resurfacing and reconstruction and £8m on other highway services and public transport.


The need for urgent action on climate change is widely recognised and Guernsey is alive to the pressing need to take action. Multiple service areas work to deliver emissions reduction, climate change mitigation and adaptation and the long-term management to preserve and enhance nature in Guernsey. At the same time, maintaining and facilitating public access and engagement with the natural environment aims to increase community awareness of nature, its overall importance and its health and wellbeing benefits. Through these services, Guernsey will ensure it is sustainable and resilient to possible future climate change impacts.

We know that in the long term we are going to need to make capital investment to deal with some of the consequences of climate change and to ensure that we have the appropriate infrastructure to deal with things like the move to electric vehicles.

Law and Order

Bailiwick Law Enforcement provides policing services throughout the Bailiwick; with officers permanently based on the islands of Guernsey and Alderney. With a comparatively low crime rate, Guernsey Police Force and the Guernsey Border Agency strive to maintain security and protect the community from harm by working in partnership with both statutory and voluntary organisations. By proactively preventing and detecting crime and disorder, Bailiwick Law Enforcement aims to reduce the negative impact on the quality of life of Bailiwick residents and visitors alike. These are supported by the court, prison and probation services which are also integral to our justice system.

Law enforcement, and the court, prison and probation services that support is expected to cost £30m in 2023. The fire and rescue service cost a further £4m and £1m a year is spent on the Joint Emergency Services Control Centre.

How do we raise enough revenue to secure essential services?

Our proposals mean that most people will take home more money than they do under the current tax system, so while GST will result in the cost of goods and services increasing, most lower and middle income households will be better off overall.

A graph showing the percentage change of the new proposals on household income according to household income percentile

The package being proposed contains these key elements:

  • A new 15% Income Tax band on everyone’s income up to £30,000. For someone on median earnings (about £37,000 a year) this will reduce their tax bill by about £900 a year.
  • An increase in the personal income tax allowance of £600 which will reduce people’s bill by £120 a year.
  • A broad-based GST at 5% with relief for a limited number of things like rents and mortgages. This is expected to increase household costs by about 3.4%, which would be about £1,100 for someone on median earnings.
  • A restructure of Social Security contributions to give everyone an allowance. This makes the system more progressive and would mean an employed individual on median earnings gaining about £600 a year.
  • Pre-emptive increases to pensions and benefits to anticipate the impact of inflation.
  • A scheme to provide financial support to certain low- income households outside of the benefits system.

Those reforms to the tax system will raise some of the revenue needed, but they won’t be enough on their own.

We will also need to at least maintain the size of the workforce, through increased migration and enabling more people to be economically active. The States approved a new population policy in September 2022 to address this. But increased migration does mean a bigger population and more investment in housing and infrastructure would be needed.

We will aim to raise more from businesses and an independent review has found that up to £20m could be generated this way, but it must be done through liaison with industry and the other Crown Dependencies. 

We will also propose much tighter restrictions on States spending, limiting budgets for Committees in 2024 and 2025 to control expenditure.

Statistics & Data

In 2010 we spent £158m on health and care services, in 2020, this cost was £207m. This cost will continue to rise.

The average taxpayer pays £7,000 in tax. Which covers just 2 days in neonatal care.

The tax paid in a year by the average taxpayer covers a nursing care placement for just 7.5 weeks.

It costs £11,000 per person per year to run public services and we’re using those services more. The average taxpayer pays just £7,000 per year.

Between 2009 and 2019 the number of working age Islanders fell by 1,500. That’s a significant drop in tax revenues.

In the last 10 years the number of over-65s has risen by 2,500. By 2040 it will rise by another 5,500.

The cost of one year of secondary education per student is about £9,000.

The cost of the prison service per prisoner is about £45,000 per year.

The cost of one complex knee or hip operation is about £20,000.

How much will this raise?

All together it is possible that limiting spending, reviewing corporate tax and a range of other measures could close the gap by up to £40m over time, but that still leaves a deficit of £50m-£55m a year needed to deliver the essential services the community needs.

The proposed package would raise this amount. £19m of this would come from households contributing through GST.  £27m would come from businesses contributing through GST, and £6m would come from business visitors and tourists contributing through GST.

How could this affect me?

Case studies

These tables give examples of how different sorts of households would be affected by the proposed changes to the tax system.  Each household’s tax contribution depends on a range of factors including their income, their housing situation, how many children they have, whether they receive pensions or benefits and how they spend their money.  The following does not cover every household but aims to give a mix of different examples (equivalised income):

One adult (65 and over) case study

Two adults (65 and over) case study

One adult (16-64) with child(ren) case study

Two adults (16-64) with child(ren) case study

One adult (16-64) case study

Two adults (16-64) case study

Two adults (16-64) with child(ren)

Two adults (16-64) case study


Alternative Tax Review Package

Why is there an Option B?

A series of proposed amendments were put forward as alternatives to the Tax Review Policy Letter at the January States Meeting. While all of these were rejected, the Policy & Resources Committee recognises that many in the community, and some States Members, wish to see a viable alternative which replaces a GST with other revenue raising measures.

The Policy and Resources Committee has consulted further with States and prepared the best, viable alternative package (Option B) to consider against the Committee’s original Tax Review Package (Option A).

Debate on the Tax Review will resume on the 15th February. The Committee will continue to argue in favour of the original package, which it believes is the most progressive and reduces the burden for people on lower incomes.

What is Option B?
  • Raising an additional £34m through social security contributions (£15m more than Option A), achieved either through increasing contributions, reducing allowances or restricting entitlement to contributory benefits, or a combination
  • A 50% increase in TRP, including investigation of a scheme for deferred payment to mitigate impact on low fixed income households
  • Tax on transport, which may include a form of distance charging, motor tax or paid parking
  • Investigating corporate tax reforms in consultation with industry and the other Crown Dependencies to raise up to £20m
  • £16m savings in public spending
Is there an Option C?

Yes, the original proposals from the Policy & Resources Committee already included an option to cut tens of millions of pounds from public services, which would be the necessary next step if the States were not prepared to support a reform of the tax system and raise additional revenue. 

Following consultation with States Members in preparing Option B, the Committee agreed to also present this as Option C. 

Option C includes:

  • Increasing revenue raised through Social Security contributions to the same level as Option B but without any additional restructuring to make it more progressive
  • Investigating corporate tax reforms to raise up to £20m
  • £31m plus in cuts to public services

Due to the large cuts to public services required as part of Option C, the Committee is advocating against this. Option C would have a significant impact on essential services and ultimately be damaging to the community - especially to those on lower incomes.

Comparing the impact on households

The following graph compares the three options:

Impact on households

What other alternatives have we explored?

Income Tax

Increasing taxes on income is one way in which more revenues could be raised, either by increasing the amount of income tax people pay or increasing social security contributions or applying an income-based ‘health tax’.

Many people may think this is fairer, but we already get about two thirds of revenues this way. Most of these types of taxes are paid by people who are working, and we know that this group will make up a smaller portion of our community in the future.

Relying on these taxes to raise all the additional revenue we need only increases the reliance on our island’s workers. Each 1% of additional income tax would raise roughly £13m but if the pool of people in work shrinks, you would need to raise it by more to generate the same amount of revenue.

Unlike income tax, a GST would raise 25% of the necessary revenues from businesses and visitors who would be expected to contribute £27m and £6m per year respectively. 

A GST also means a more flexible tax system, which allows for increases in allowances and support for lower earners which is how the overall proposals ensure the majority of households would be better off compared to now.

The Policy & Resources Committee and the Tax Review Steering Group believe this would be the wrong option because of its over-reliance on the working population and because it would mean our income tax rates are higher than jurisdictions we compete with for business and could damage our economy.

Taxing businesses

Corporate income taxes make up approximately 10% of our current revenues. The existing tax regime already taxes regulated financial services businesses at 10%. Large retailers and companies renting or developing Guernsey land and property are taxed at 20%. These businesses also contribute considerably to the economy through the high commercial rates of TRP, and employer social security contributions they pay.

An exercise was undertaken to identify what further options might be available to raise more from corporates in a way that remains internationally acceptable and competitive. This identified the potential to raise up to £20m a year, which is not sufficient to meet the funding gap.

One of the options under consideration is a fixed annual fee payable by companies that benefit from Guernsey’s regulatory and judicial regimes. We are also developing proposals for an alternative corporate vehicle which would be subject to tax at 15%.

As international tax standards are evolving, the corporate tax environment is changing. As this is an economically sensitive area, there is a need to move carefully. The process of engaging with industry on the options identified has started, however more extensive work needs to be done. There is also political engagement with Jersey and the Isle of Man to ensure the best way forward is found.

Other taxes

The States’ apply a range of smaller taxes and we have looked at the potential for these to raise revenue. Between them document duty, TRP and excise duties raise only about 12% of the revenues we collect now so we would have to make really large increase in these to raise a large amount of money. We have included some analysis on these taxes as an appendix to the policy letter (which can be downloaded from this page).

The States has looked at the role some of these taxes might pay in specifically changing the way people behave and these were included in the 2023 budget. For example, we plan to put higher TRP charges on derelict properties and properties with planning permissions which have not been developed. We also plan to apply lower rates of document duty to people moving into smaller properties, to support people looking to downsize freeing up larger homes for families. These steps raise very little money, but they should help a little with making sure we are using our housing stock efficiently at a time when the cost of housing is a big issue.

The States is also still looking into how we might tax motoring in the future now that people are moving to electric vehicles.

We have also looked at some taxes we don’t already apply, like online taxes or capital taxes. However, what we found is that these don’t raise enough revenue to be worth the potential risk they bring.  

Spending cuts

The Committee has considered what impact there would be if the funding gap were closed entirely by reducing spending, but this is likely to mean drastic services cuts, limiting access to some services and introducing charges.  The extent of these would be so severe the Committee believes it would have a severe impact on the community.  However it has sought to illustrate what that impact might look like in its Tax Review policy letter by including details of an exercise carried out by all of the States Principal Committees earlier this year.

The Committees were requested to complete a framework document outlining what measures they feel they would need to consider if they were asked to reduce their Committee budget by 5%, 10% or 15%. Should there be a desire to close the structural deficit by cuts in expenditure/services alone, then budgets would need to be reduced by circa 13%.

It was stressed that the aim is to establish the consequences of a significant reduction in spending on existing services for illustration purposes only and that the results of this exercise would be used to inform our continuing discussion on taxation and spending. At this stage these potential “savings” are entirely hypothetical. Significantly more work would be needed to assess both their feasibility and understand the overall consequences.

The examples listed below cover some of the items identified if they were to reduce expenditure by up to 15%.

  • The Committee for Economic Development identified a range of measures including;
    • A reduction in the Committee’s core policy and operational areas which would reduce the Committee’s ability to support the finance sector and to support business innovation and growth;
    • A reduction in the budget for Grant & Support Schemes which would reduce the ability of third-party organisations funded by the Committee to deliver their core activities;
    • A reduction in the Marketing & Tourism budget which would reduce the reach of marketing campaigns and lead to fewer visitors to the Islands.

However, the Committee advised that “a budget reduction of 10% and 15% respectively would have a severely detrimental impact on the Committee’s ability to deliver on key work streams identified within the Government Work Plan” and that “We urge Members to consider the core remit of the Committee for Economic Development, which is to facilitate economic development and growth within the Bailiwick, to generate incremental employment and tax take for the benefit of the local community. It is this Committee’s opinion, therefore, that any further budget reductions over and above 5% would be to the detriment of GDP, employment and subsequent tax take and therefore, a false economy.”


  • The Committee for Education, Sport & Culture identified measures which could reduce expenditure by £12.2million predominantly through reductions in or restrictions to access of public services. Achieving this kind of reduction in expenditure would require measures such as:
    • Removal/reduction of grant funding (e.g. Grant-Aided Colleges; Guernsey Sports Commission, Youth Commission)
    • A change in eligibility criteria to reduce Higher Education expenditure;
    • Ceasing funding for Guille Alles library;
    • Removal/reduction of non-mandatory services (e.g. Museums Service, Schools Music Service)
    • The closure of a Primary School;

The committee would wish to stress that substantially more work is required to understand the implications of cuts of this magnitude on the community, the third sector and wider committee mandates. The Committee further note that some measures might be counterproductive given the important role of education and enrichment in supporting skills and development which are integral to supporting the earnings capacity of the future working population, particularly among those who might not be able to access these services without government support.


  • The Committee for Employment & Social Security identified a range of measures which it advises could deliver significant reductions in expenditure but would involve:
    • A complete removal of family allowance;
    • A reduction in all benefit rates noting that a 5% budget cut would require a 5.2% reduction in rates ranging to a 23.5% reduction in order to achieve 15%;
    • A restriction of access to benefits (including an affluence cap for the State pension);
    • Removal or means-testing of some benefits (including death grant, industrial injury, parental, bereavement, unemployment, winter fuel allowance for energy efficient households, Severe Disability and Carers Allowance, school uniform grants); and
    • Change in long-term care provision including reduced rates or means testing and equity release scheme.

In its response the Committee for Employment & Social Security note that restrictions in benefit levels would be hugely unpalatable, and in particular highlighted the role of income support “to avoid intolerable poverty”. It noted that while the indicative reductions in income support to achieve the hypothetical savings have been provided as part of this exercise, the Committee would consider this completely unacceptable in practice.


  • The Committee for the Environment & Infrastructure advises that its preferred option would be revenue-raising instead of expenditure reductions and has identified a range of measures for increased prices / introduction of new charges that would generate additional income which would negate the need for a wider range of spending cuts including:
    • Charging for roadworks and parking suspensions; and
    • introducing charges for corporate and commuter parking in some locations.
    • charging for school bus services;

Should it be required to deliver expenditure reductions, the Committee has identified measures such as:

    • stopping beach cleaning, cutting the south coast cliffs and works in winter to maintain steps;
    • stop maintaining / dispose of Candie Gardens and coastal and town plantations; and
    • a reduction in off-peak bus services.

The Committee notes that “cutting services in these areas… would negatively impact both tourism and visitor experience and also the local community.”


  • The Committee for Health & Social Care advised that measures totalling £29.85m have been identified although £4.5m are categorised as cost avoidance (i.e. not saving money from existing budget but avoiding the need for an increased budget in the future).

The large majority of these reductions would come from service restrictions and reductions or a remodelling of existing services. In view of the large spread of services which HSC provides, there are a number of initiatives which could reduce revenue expenditure but would result in lesser service provision and may be counter-productive in the long-term. These might include:

    • Reviewing the progression of the funding of NICE TAs;
    • Reviewing the model of service provision for adult community services;
    • Increasing emergency department charges for adults; and
    • Consideration of moving to a partial user-pays model for secondary care.

The Committee notes that these suggestions, including asking the community to contribute financially to a wider range of health care services, would represent a shift in the current model for funding for health and care and would require further detailed consideration and analysis to examine the consequences of such a change.


  • The Committee for Home Affairs has not provided any new initiatives to the £300,000 of potential savings opportunities it identified at the end of 2021. The Committee has advised that “the Committee already operates exceptionally lean services, and believes strongly that further budget reductions risks damaging the infrastructure that ensures the safety and security of the Bailiwick” and “the Committee would describe any cost cutting exercise that would see budgets reduced by 5% as unachievable and potentially dangerous for the community.”

Opportunities previously identified included:

    • Tagging as an alternative to custodial sentences;
    • Modernisation fixed penalty notices;
    • Adoption of the National ‘Single Online Home’ web-based platform for digital; contact and crime reporting; and
    • Outsourcing of ‘Court Group’ prison officers.


  • Reductions in the core budget provided to the Policy & Resources Committee of up to £2.75m were identified which would involve measures such as:
    • restricting the service levels on the Alderney PSO contract;
    • Reducing the size of all Revenue Service teams with the consequential impact for service delivery and meeting international commitments; and
    • withdrawing from the Bureau des Iles Anglo-Normandes and the Channel Island Brussels Office.


In respect of Corporate Services, measures that would need to be considered include:

    • reducing the size of all enabling service teams with the consequential impact for service area support;
    • cessation of various IT contracts;
    • reducing insurance coverage in order to lower premiums (increasing the level of risk and self-insurance); and
    • restrictions/closures of public conveniences.

The Policy & Resources Committee appreciates the significant work undertaken by Principal Committees in compiling the possible cost cutting measures but also that these are theoretical only. Should the States not have an appetite to raise the revenues required to continue to fund the level of public services currently offered, further detailed work would be required by all Committees to further understand the options and implications of such drastic expenditure reductions.

Public presentation - Monday 28th November 2022

Below is a recording of the Tax Review - Public Presentation that was broadcast live to the States of Guernsey Facebook page on Monday 28th November 2022.

Public presentation - Tuesday 17th January 2023

Below is a recording of the public presentation that was broadcast on Tuesday 17th January 2023.

Facebook live Q&A - Tuesday 10th January 2023

Below is a recording of the Tax Review - Facebook live Q&A that was broadcast on Tuesday 10th January 2023.

Frequently asked questions

Why do we have a shortfall in funding for public services?

There is an increasing gap between the revenues that the government receives from taxes and the cost of the services and infrastructure that these taxes pay for. This is largely because Guernsey has an ageing population, meaning that more and more people are needing the long-term health and care services and pensions that the States provide. At the same time, as more people reach retirement age, there will be a decrease in Guernsey's working population, whose income tax and social security contributions cover a lot of the cost of public services. The health and social care services being put under pressure are some of the most important services that the States provide but they are also expensive. As such, this gap is forecast to increase and presents a long-term issue for the States. It is currently foreseen that the gap in States finances could reach £85m a year unless action is taken.

Some of these effects are already being felt. We are already seeing smaller surpluses, which means less money is available to invest in Guernsey’s infrastructure. We have some short-term solutions for that, but we need to find a sustainable and long-term solution.

What does an ‘ageing demographic’ mean?

The ageing of the population is something that began back in the 1940s. After the end of the second world war there was a period where fertility rates were high and people had a lot of children. Health care was also improving so more of those children survived into adulthood creating a big generation known as the 'baby-boomers'. In the early 1970s, with wider access to contraception and improving living standards, people stopped having so many children. The number of children born per woman fell below 2 (the fertility rate required to maintain a stable population) and it has stayed below that level ever since. The very long-term implication of this change is a fall in the size of the population, but it takes many decades for that to work through. This means there are more people in the baby-boom generation who are currently retiring, than there were in their parents' generation, or are in their children or grandchildren’s generations.

That means that the number of people below pension age will fall (unless it is topped up by migration) because there are fewer young people entering the workforce than the number of people retiring. It also means the number of people above retirement age is increasing, particularly since improved living standards and healthcare also means that people are living longer in retirement.

In 1965 when the States' pension in its current form was introduced average life expectancy was about 72 years. Today, the average life expectancy in Guernsey is 83 years. That presents a challenge because generally, people pay the most taxes while they are working, and they need the most support from public services towards the end of their life.

As more people retire, we need to provide more pensions and health care services. For example, between 2010 and 2020 the number of people claiming a States' pension increased from 15,000 to 18,700 and it might reach 22,000 by 2040. As a result, the annual cost of paying pensions increased from £82m to £157m between 2010 and 2023 and this cost will keep going up, unless changes are made to what people are entitled to.

We see similar impacts in health care provision because we need to provide more procedures like hip and knee replacements and community care services. This isn't the fault of older people, who are valued members of the community and are entitled to care and support when they need it.

However, it does mean the cost of providing that support is increasing. At the same time the relative decrease in the number of people of working age places pressure on the amount of taxes we raise from our community.

This workforce will also need to deliver the increased volume of care services, and that will mean that more nurses and carers are required. The potential for a fall in the size of the working population is therefore a further issue that needs to be addressed. The States have made a resolution to increase the long-term average level of migration from 100 to 300 people a year. That will go some way to easing the financial challenge, but in order to be successful we will need to plan for a larger population. That means that we will need more infrastructure and more houses.

Why do we have to pay more tax?

There are limited options for decreasing the States’ funding gap. In general terms the three main ways are:

  • Economic growth - which would mean there is more activity in Guernsey to generate tax income. We can achieve this either by increasing the number of people working in the economy, or increasing the amount of GDP generated by each person. The States is pursuing both of these, including through its recently approved population plan which looks to increase the long-term average level of migration to 300 people a year.
  • Expenditure savings and service cuts which would reduce the amount the States spends. The Policy & Resources Committee will put much tighter controls on committee budgets from 2024, but it is difficult to reduce the cost of things like pensions and health care because there are driven by more people needing these services are they get older.
  • And increase in revenue through taxation.

None of these are enough to be the solution alone. To meet a shortfall of more than £100m, we’ll need to use all three of these options.

Who is going to pay?

The package presented will provide an estimated £55m a year in additional net revenues to the States. The package is designed to distribute the revenue raising and the net impact is split between:

  • Households £23m (42%) comprising
    • No net change in revenues from the Social Security contribution system (although lower income households will pay less and higher income households will pay more)
    • A net decrease of £29m in income taxes
    • A net increase of £53m from GST
    • A net gain of £1m-£1.5m in above inflation increases in benefits and the cost support scheme
  • Businesses £27m (49%) comprising
    • A net increase of £19m from Social Security contributions (compared to £16m from the increases agreed in October 2021)
    • A net increase of £8m from the ISE fees for international financial services within the GST
  • Visitors and other non-residents £6m (11%) from the application of GST to visitors spend.

At a household level the package is designed so that those with lower incomes will be better off on average and those with higher incomes will pay more (An average of 3% more, for the top 5% of households).

Can’t rich people pay more?

The package of measures recommended by the Policy & Resources Committee, which includes a Goods and Services Tax, would be progressive. That means that those with higher incomes would, in general, be expected to pay more as a percentage of their income. This is because they benefit less from things like the increase in allowances, the 15% tax band on income up to £30,000 or the application of an allowance to social security contributions than lower income households. The increase in the social security contribution rate also increases their liability.

The Committee did look at things like higher taxes on higher earners, but this would mean the headline rate of tax paid by higher earners would not be competitive, particularly since in Guernsey people pay a full rate of social security contributions to an income level almost three times as high as they do in Jersey. It’s important for our economy that Guernsey is able to attract the best talent and as a strategy this could be quite high risk and place our tax system out of step with our closest competitors. So the option the Committee is presenting achieves a similar outcome, with the highest income households contributing the most, but without compromising our competitiveness.

Can’t companies pay more?

Corporate income taxes make up approximately 10% of our current revenues. The existing tax regime already taxes regulated financial services businesses at 10%. Large retailers and companies renting or developing Guernsey land and property are taxed at 20%. These businesses also contribute considerably to the economy through the high commercial rates of TRP and employer social security contributions they pay.

An exercise was undertaken to identify what further options might be available to raise more from corporates in a way that remains internationally acceptable and competitive. This identified the potential to raise up to £20m a year, which is a significant contribution but not sufficient to meet the funding gap.

One of the options under consideration is a fixed annual fee payable by companies that benefit from Guernsey’s regulatory and judicial regimes. We are also developing proposals for an alternative corporate vehicle which would be subject to tax at 15%.

As international tax standards are evolving, the corporate tax environment is changing. As this is an economically sensitive area, there is a need to move carefully. The process of engaging with industry on the options identified has started, however more extensive work needs to be done. There is also political engagement with Jersey and the Isle of Man to ensure the best way forward is found.

Can the States stop wasting money so we don’t have to increase taxes?

Certainly the States must not waste taxpayers’ money. But the services it spends money on are services people rely on and services they expect in a modern society with a good quality of life.

Some of States’ spending is on large one-off capital projects, like redeveloping a hospital or building a new school. Capital projects often come with a big price tag, but they don't need to be done very often and the investment in things like the modernisation of the hospital is vital to our ability to provide services to a good standard.

Where we are forecasting the real increase in costs is on annual running costs, the routine expenditure which we have to spend every year to make sure people get the services and benefits they need. Increases in annual expenditure often sound much smaller, but because it needs to be paid every year the costs mount up. For example, the introduction of NICE drugs is expected to cost an estimated £5m a year by 2025. That £5m will need to be met every year, which means between 2025 and 2034 it will have cost a total of £50m - more than many States' capital projects. It is these annual costs that are the primary source of financial pressure. For example, between 2010 and 2020 the number of people claiming a States' pension increased from 15,000 to 18,700 and it might reach 22,000 by 2040.

As a result, the annual cost of paying pensions has increased from £82m to £157 between 2010 and 2023 and this cost will keep going up unless changes are made to what people are entitled to. We see similar impacts in health care provision because we need to provide more procedures like hip and knee replacements and community care services. What tends to happen is that, when our budget is under stress, the amount set aside to meet capital costs is cut because we can't just stop providing people with services like health and education because we had a difficult year.

This is fine as a temporary solution, for example during 2020 and 2021 when COVID-19 meant we needed to spend a lot of money to support businesses. But in the long-term it's like putting off repairing your roof - eventually it will spring a leak and it will probably cost more to fix it.

Can we cut the number of ‘overpaid civil servants’?

It is important to remember that 2 out of every 3 people employed by the States are not what people would consider “civil servants”.

More than 1 in 4 are nursing and other medical staff and the rest cover a wide range of functions including teachers, police officers and the staff who keep our public spaces clean and tidy. Steps are being taken to manage staff numbers and additional processes have been introduced to scrutinise any appointments to senior roles.  But it is important to remember that the majority of these staff are essential for delivering frontline services like medical and community care that are in increasingly high demand.

The State’s employment levels reflect this pressure of demand. The total number of full time employees working for the States increased by around 440 between 2011 and 2021, but the number of nursing and medical staff has increased by 450. In other areas staffing numbers have gone down. There are more than 100 fewer public service employees for example, as well as fewer teaching staff and police.

The States have increased the pay of nurses and care staff who deliver many of our most visible services, reflecting the increasing specialisation and qualification required in these areas and this has added to the States pay bill.

Can we bring in more working age people into Guernsey?

The States debated this issue in September and agreed to plan on the basis of a higher level of net immigration so we can maintain the size of the workforce. This means that it will look at things like housing provision to ensure that we have enough places for people to live so this is no longer a barrier to people moving here. The States also agreed some changes to the population management regime which will make it easier for employers to get licences to employ people for a wider range of jobs. This will help support our economy and our revenues.

However, we can’t guarantee we can maintain a higher level of migration in the long term. At the moment, there are issues with labour shortages in a lot of places and Guernsey has to compete for the skills it needs.

Can’t we be more efficient and spend within our current means?

It is the responsibility of the Committees across the States to identify efficiencies and to ensure value for money where possible.

The policy letter recommends putting tighter restrictions on committee budgets going forward. This means that they will have to manage spending, so it doesn’t increase by more than inflation. However, there are areas where this is much more difficult. For example, we can’t reduce spending on pensions (which is expected to total £157m in 2023) unless we reduce the amount that people are entitled to. We also need to allow for the increase of demand for health services as people get older, and this means that spending will need to increase in some areas unless the community is willing to accept getting a lower standard of services.

The Government Work Plan, which sets out all the things the States intend to do during its term in office, is also going to be revised to reduce the number of priorities. This means that the States will not be able to do everything it wanted to, but it should reduce the amount of spending that’s forecast up to 2025.

Beyond that, there are some efficiencies that are being made, but to make the kind of savings that would be needed so we did not have to increase taxes would mean very significant cuts in the level of services we provide to the community, or the introduction of charges for services which currently have no charge.

Why are you recommending a Goods and Services Tax?

A decision on introducing a Goods and Services Tax would be made by the States Assembly as a whole and that hasn’t happened yet. But the Policy & Resources Committee, which is responsible for overall public finances, raising revenue and setting budgets, believes it is the best solution if it is accompanied by other tax reforms to make the overall system more progressive. That includes restructuring social security contributions and better allowances and a lower tax rate on income up to £30,000.

A Goods and Services Tax is one of only two options that can realistically deliver the scale of revenue needed to fill the shortfall, keeping in mind that some of that shortfall would already be dealt with through economic growth and restricting public spending The other option would be increasing the taxes on Islanders’ income. Income tax and social security contributions (both of which are calculated based on people’s income) are already our biggest sources of revenue, and we lean very heavily on them. That makes our tax system vulnerable to certain economic shocks and it also puts most of the burden on the working population, which has shrunk over the last decade and is forecast to continue shrinking.

A Goods and Services Tax would distribute tax revenues differently, spreading taxes out more widely to more people, including visitors to the Island, those who support their lifestyle using their capital rather than their income and businesses, all of which spend money on goods and services and therefore would contribute more in tax. The more they contribute, the less needs to be raised from working Islanders.

Guernsey is one of the very few places in the world that doesn't have some form of Goods and Services Tax at the moment. Because many other jurisdictions like Jersey and the Isle of Man have a Goods and Services Tax of some form, introducing one is the least likely of the suggested tax options to risk damaging Guernsey's competitiveness, which is important for local businesses and local jobs.

Is a Goods and Services Tax regressive?

On its own a Goods and Services Tax can have a disproportionately negative impact on low-income households, which is why jurisdictions usually introduce supporting measures to counteract these effects and to maintain a fair tax system.

Alongside a Goods and Services Tax, the Policy & Resources Committee also proposes measures such as increases in personal tax allowances, a lower tax rate on income up to £30,000, introducing an allowance on social security contributions and adjusting pensions and benefits to reflect the impact a Goods and Services Tax will have on inflation. We also intend to set aside a sum of money to provide additional support grants to households who are outside the Income Support system.

The package overall is progressive, meaning that on average lower income households will be better off and higher income households will pay more.

Will a Goods and Services Tax mean more admin and more cost for businesses?

The Goods and Services Tax being discussed is an input/output tax. This means businesses would charge the tax on the products that they sell, and remit that amount, less any tax they paid on their supplies to the States. This means that while the actual cost of the tax is ultimately paid by customers, businesses are involved in its collection and that means some administrative cost. Because this is common around the world, modern accounting and till systems have modules to help businesses manage this.

In most systems, very small businesses are not required to register for Goods and Services Tax. This means that they don't need to submit quarterly returns or charge the tax to their customers, but they also can't claim back the tax that they pay on their supplies.

In the UK the threshold for VAT registration (a GST equivalent) is a business turnover of £85,000; in Jersey it is much higher at £300,000. This high registration threshold helps protect smaller businesses from the cost of administration and is something that will need to be considered further in the next stage. Keeping the system simple, with a single rate and a limited number of exemptions could also make the quarterly returns process easier for both businesses and government.

However, we recognise that it might be difficult for some businesses to get to grips with a new set of processes, so we have budgeted £1m to help businesses get on board.

Will a Goods and Services Tax disadvantage local retailers competing against online retail?

Imported goods will be subject to a Goods and Services Tax if they are above a certain threshold (known as a de minimis). This will ensure that, for many goods, local businesses will be at no more of a competitive disadvantage than they are now. We also intend to follow Jersey’s example, and make it a legal requirement for online companies who send more than £300,000 worth of goods to Guernsey to register for GST in the same way a local company would have to. These businesses would need to charge the GST when you pay for your goods online regardless of the value of the item.

The threat to high-street purchasing is a concern for all jurisdictions, but there are still different contributing factors to be considered and there are reasons why consumers will still continue purchasing goods on the high-street rather than online.  By applying these requirements to large online retailers who account for the majority of online goods bought by Islanders, we aim to keep the playing field level.

If corporate tax rules are changing globally, should we not wait to see if we can raise money that way?

The Organisation for Economic Co-operation and Development (OECD) continues to press forward with reforms to the international tax framework, developing proposals to address the challenges of increased globalisation and the digitalisation of the economy, targeted at the world’s largest Multinational Enterprises. One element of the proposals seeks to ensure that those MNEs with global revenues of at least €750m would pay a minimum effective tax rate of 15% on their profits, with an important carveout for investment entities (such as funds).

Technical discussions on these global reforms continue at an international level in which Guernsey actively participates. Extensive stakeholder engagement and data analysis is being undertaken to understand potential impacts of the various policy options. Whilst it is expected that the proposals will bring in some additional revenues, the level and timing are still uncertain, as these are impacted by MNE behavioural responses and how other jurisdictions implement the proposals.

An exercise was also undertaken to identify what further options might be available to raise more from corporates in a way that remains internationally acceptable and competitive. This identified the potential to raise up to £20m a year, which is not sufficient to meet the funding gap. The process of engaging with industry on the options identified has started, however more extensive work needs to be done. There is also political engagement with Jersey and the Isle of Man to ensure the best way forward is found.

Recognising that there are opportunities which may contribute to the long-term solution, not only from reforms in corporate tax, but also the future of how we tax motoring or changes in the assumptions around migration, the Policy & Resources Committee is already recommending a lower revenue raising target of £50-60m to be achieved from the package of measures it has put forward.

Can we just undo zero-10?

Corporate income tax is an important factor for many businesses when deciding where to locate and who to do business with. It is important for Guernsey to retain a tax system that is competitive with other jurisdictions and internationally acceptable. Before Zero-10 was introduced, Guernsey had a 20% company tax rate but with some exemptions for companies owned by non-residents.

However, as international standards changed this system was deemed non-compliant with international rules and could no longer be continued. Guernsey, as well as other jurisdictions, had to decide how it was going to change its tax system whilst remaining attractive for existing and prospective businesses. When the Isle of Man made the decision to introduce a 0% headline company tax rate, Guernsey and Jersey followed, whilst retaining a 10% or 20% rate for a small number of businesses such as banks, real estate and regulated utilities.

If Guernsey had not, it could have lost a lot of its financial services sector, the largest economic sector in the Island which generates the most jobs for Islanders. Since the introduction of Zero-10 many changes have been made to offset its consequences (including the expansion of the 10% rate to most regulated financial services businesses) and have meant the States have been able to regain a large amount of revenue from corporates, whether directly or indirectly by increases in commercial TRP rates and employer contributions to Social Security.

Can we introduce environmental taxes?

Environmental taxes, as the name suggests are intended to help meet environmental objectives. They can be effective in these objectives, but they are not likely to raise significant revenues.

This is because as they drive more environmentally-friendly behaviour, the revenue they generate reduces. This also tends to make them less sustainable. However, they could make a smaller contribution to filling the gap and they are being investigated further.

Can we use other forms of tax, like transport or property tax to raise revenue?

Additional revenue can be realised through property tax and taxes on transport (such as paid parking or motor tax) and for that reason these have been included in the alternative Tax Review Package presented by the Policy and Resources Committee (Option B).

This includes a 50% increase in TRP, including investigation of a scheme for deferred payment to mitigate impact on low fixed income households (raising £5m), and a tax on transport, which may include a form of distance charging, motor tax or paid parking (to raise £10m-£15).

However, even though the increases look large the total amount of revenue they raise is relatively small, which is why they are combined with more revenue raising from social security contributions, reforms to the corporate tax system and larger cuts in spending in Option B. The also have a tendency to hit some specific groups of people more than others – for example if you are a family with a larger vehicle who does a lot of running around, or if you own a large home but have little income. This makes their impact more difficult to predict.

Whilst the Committee is presenting Option B, it will continue to strongly argue for the original package, Option A.

Please see the section - Alternative Tax Review Package - for further details.

What’s happened to all the contributions we’ve put in for our pension?

Guernsey's States' Pension is the largest single item of expenditure in the States annual budget costing more than £157m in 2023. The scheme is operated on a contributory basis so each time you pay your social security contributions it entitles you to a contributions credit which builds up the amount you are able to claim in a pension when you retire. There is not, and never has been, individual pension pots for each person.

The system is essentially pay-as-you go. That is, the money paid in by today's contributors, is used to pay today's pensioners. But for several decades the scheme was run at an annual surplus so that money was set aside to build a fund to support future pension payments. This means that there is a sizeable fund which supports the States pension. This fund, which also supports some much smaller benefits like unemployment, held £718m at the end of 2021. This money is invested and the investment return is used to help support the scheme. However, because the number of pensioners has been rising since about 2011 and is going to keep rising for many years to come, the amount coming in as contributions is now less than the amount paid out in pensions each year. This means that we are drawing on the fund to pay for people's pensions and the amount held in the reserve is going down. Incorporating all the people who will become eligible for a pension in coming years, the forecast is that the reserve will be empty by 2039 unless something is done to slow the rate at which it is being used up.

Why can’t we just remove the tax cap?

There are actually a number of tax caps applied in Guernsey, which apply in different circumstances:

A standard charge of £40,000 which people can opt to pay if they spend between 3 and 6 months in Guernsey and also spend more than 91 days in another jurisdiction

A temporary £50,000 limit on tax liability on qualifying income which people can apply for if they live in Alderney is available until 2025.

A short term £50,000 limit on tax liability on qualifying income which can be claimed by new residents moving to Guernsey for up to 4 years if they purchase open market property incurring £50,000 of document duty (equates to property valued at above £1.3m).

A £150,000 cap on tax liability on qualifying income arising outside of Guernsey.

A £300,000 cap on tax liability on all income arising from both outside and within Guernsey.

These are reviewed on a rolling basis in the annual budget process and periodically increased.

Note that these limits do not cover income from land and property in Alderney or Guernsey; tax is payable on this income in addition to the cap. The caps are also expressed as tax liability, not on income. For the £300,000 tax cap to be beneficial, you would need an annual income of at least £1.5m. To provide a comparison someone on median earnings would expect to pay less than £4,800 a year in income tax.

Very few individuals have an income high enough to justify applying for a tax cap. The exact number varies every year because people’s income moves above and below the level at which these are beneficial, but generally 20-30 people each year elect to pay the standard charge and 40-50 are affected by the various forms of tax caps. That means that very few people would be affected by removing them and for those that would be, it would make living in Guernsey far less attractive. Some may choose to stay, but others may not and there is a risk that in removing the tax caps that we could lose revenue, not gain it.

Why can’t we just remove the cap on contributions?

Caps on national and social insurance contributions are a common feature of these types of schemes. The upper earnings limit on contributions in Guernsey for both employers and individuals was increased as part of the package of measures put in place when zero-ten was introduced. Guernsey’s limit is much higher than is typical for such schemes and at more than £150,000 is more than 2.5 times the standard limit applied in Jersey. In fact only about 2% of Guernsey individuals have earnings higher than the cap. This means anyone earning more than about £55,000 pays contributions at the full rate on much more of their income than they would in Jersey or the UK for example. Removing the limit on contributions entirely could make it difficult to attract good and experienced candidates to the very senior roles in our economy.

The policy letter does recommend that a 2% contribution be made by employers above the Upper Earnings Limit up to £250,000, but it is not going to raise a very large amount of money, because there are very few businesses with many employees paid at this level.

How much would it cost the States to administer a Goods and Services Tax?

If a Goods and Services Tax were introduced, we would expect the administration to be split between the Revenue Service for the primary administration and the Border Agency in relation to the application of the tax to imports. Both areas would need to employ some additional people and invest in technology.

Based on the experience of administering the Goods and Services Tax in Jersey, it is estimated that it would cost in the region of £1m per annum for government to administer.  If the Goods and Services Tax were set at 5%, that would be less than 2% of the revenues raised by the new tax.

There would also be a one-off capital cost to purchase and/or develop IT systems.

How does GST actually work?

The GST we are proposing is designed so that the impact on the final price paid by the customer should never be more than the headline rate of the tax.

A business will incur GST on the things they buy, whether these are brought locally or imported. If they are a small business and they choose not to register for GST that will be the end of the process. They won’t be able to claim back the GST they have incurred on what they buy, but they won’t have to charge it and they won’t have to do any quarterly administration.

Any GST registered business which is selling taxable products will have to collect GST on the goods and services they sell. Once a quarter they will need to file a return, which is a a very short form, to the Revenue Service (in Jersey it asks about 6 questions) declaring how much GST they have collected and how much they have paid on their own supplies.

They will then pay the Revenue Service the difference between the amount they collected and the amount they have paid.

Very simply it looks like this:

Business 1 Imports £1000 of goods

They sell those goods to Business 2 for £2000 (before tax) and collect £100 of GST on the sale.

Business 1 files a quarterly return and pays £100 to the Revenue Service


Business 2 buys the goods for £2000 (before tax) and pays £100 in GST

They sell the goods to the public for a total of £3000 (before tax) and collect £150 on their sales

Business 2 files a quarterly return and pays £150-£100 = £50 to Revenue Service


The total amount of GST collected on the goods ultimately sold is £150 or 5% of the final sale price.

Some companies already don’t take VAT off their prices, does that mean we will get taxed twice?

Goods brought in Guernsey are not subject to UK VAT which means that nothing should be remitted from local sales to HMRC in the UK.

However, some companies operate a “sterling zone” price strategy. This means they charge the same price in all their stores regardless of what taxes are applicable to a specific store and they absorb any differences into the overall finances of the group. That does mean that for some chains the mark up applied in Guernsey in the absence of VAT might be higher than it is in other stores. Companies are free to set their own prices and the States generally can’t influence their pricing strategy.  However, if a company is applying a “sterling zone” pricing strategy, it also means they may not change their prices if a 5% GST is introduced but will absorb it into their profit margins.

How will GST work on things that are already taxed like petrol and alcohol?

Technically the duty on things like petrol, diesel, alcohol and tobacco is paid by the importers or producers at the point at which they enter the market based on the volume, not the price of the goods. It is not applied to the final consumer, although generally the cost of the duty to the importer is incorporated into the final price.

In the UK and Jersey VAT and GST are applied to the final consumer price of these goods, which means it is applied after the inclusion of the duty into the price.

GST would not apply to taxes like TRP.

Your analysis suggests you need more than £50-£60m, why are you not raising everything you need and does this mean the GST will go up in the future?

In the debate on the Green paper the Policy and Resources Committee was asked to leave “no stone unturned”. So what we have done is to look at all the other possible ways we might close the funding gap and we have reduced the amount we are seeking to raise in taxes to reflect these opportunities. They include:

  • Placing tighter restrictions on committee budgets for the rest of this term so we can limit the speed at which our spending is increasing.
  • Reducing the number of projects included in the Government Work Plan. This means we won’t be able to do everything we planned to in this term, but it will reduce the amount we are planning to spend over the rest of this term.
  • Facilitating a higher level of net migration to support the workforce. This was debated by the States in September, and this should help slow or even stop the shrinking of our workforce, but it will mean having to do more development and build more houses
  • Progressing work on the corporate tax system, which we think could raise up to £20m. However, this has to be done carefully so we don’t damage our economy by making ourselves uncompetitive or breaching international agreements.
  • Continuing work to look at the future of how we apply taxes to things like motoring and environmental issues.

While we think the funding gap could become as large as £100m if some of these other opportunities are able to meet some of the gap, we estimate the minimum amount of additional revenue we need to raise in the next few years is £50-£60m. By raising this amount we should be able to secure the States finances for a significant period, but no-one knows what the future holds and we cannot guarantee that a future States might need to look at raising taxes again if things change.

How will the 15% tax band to £30,000 work, and can I transfer it with my spouse?

The 15% tax band will apply to any income between your personal tax allowance (which is taxed at 0%) and any other allowances or reliefs you are entitled to (like mortgage interest relief or charge of child allowance) and the £30,000 threshold. So for someone with just the £13,025 tax personal allowance they would pay:

  • 0% on their income up to £13,025
  • 15% on the £16,975 between their allowance and the £30,000 threshold
  • 20% on income above £30,000

So for a couple, with just the £13,025 tax personal allowance each, where one spouse has no income, the earning spouse would pay:

  • 0% on their income up to £26,050 (i.e. their allowance and the unused personal allowance transferred from their spouse)
  • 15% on the £3,950 between their allowance and the £30,000 threshold
  • 20% on income above £30,000
Have you looked at taxing electric vehicles?

Several years ago the States identified a problem with fuel duty. Because cars have been getting more and more efficient and, more recently, people have started buying electric cars the amount of fuel people are buying has been decreasing. This means that it has been necessary to make above inflation increases to fuel duty just to keep raising the same amount of revenue.

With the sale of new conventional petrol and diesel cars due to be stopped by 2030, we are going to have to find a new way of taxing motoring including finding a way to capture a contribution from electric vehicles. There is a project to investigate how we might do this underway, and that includes looking at charging based on how far a vehicle is driven.

The first objective of that project is to raise as much revenue as duty on petrol and diesel does now and to stop, or at least slow, the rate at which revenue from taxes on motoring is being eroded. It could raise a little more, but our analysis suggests that it is not going to be anywhere near enough to make up the bulk of the revenue we need.

How have you calculated the impact these changes will have on households?

Guernsey is very lucky to have a rolling electronic census, which provides information on the population much more frequently than a traditional census (and at a lower cost). It takes information that various government services separately hold about people and joins it together. This includes information on income, which is not collected via traditional census. This means we have a huge data set which covers almost every household in the Island and includes things like:

  • Household income and broadly where this comes from
  • Household tax payments and social insurance contributions
  • Household composition (e.g. a single adult, a couple with children, a pensioner etc.)
  • The employment status of people within a household
  • A household’s tenure and whether or not they pay a rent or a mortgage
  • And lots more

The data set doesn’t include any sensitive information about people's health or medical situations and doesn't include any personal identifiers, so no-one can be individually identified by the officers using the data. This big data set is very important for making policy, but because it contains a lot of information about each person (even though no-one is named in it), access to it is controlled by law.

By combining this with data from the household expenditure survey, which tells us how different households tend to spend their money, we have enough information to model the impacts of proposed changes. This lets us try out all kinds of different scenarios, including different rates of GST, income tax and social security contributions and the way in which these are applied.

This work is all undertaken by States of Guernsey staff. During this tax review, the team have looked at hundreds of possible combinations to come up with the options the Policy and Resources Committee are presenting. It is not practical to share all of the possible combinations (as this would be too much information), but other than the three options, some examples of different models (including some without a GST), are appended to the ‘Tax Review - Phase 2 Policy Letter’.

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