Earlier this week, Express published the results of a Freedom of Information (FOI) request we submitted, which asked a series of questions about the hidden costs of GST.
Rather than providing a detailed breakdown, Policy and Resources (P&R) said its latest tax proposals answered our questions.
The only problem – it didn’t. At least, not fully.
While we did find answers to some of our questions buried in P&R’s policy letter – such as the cost to the civil service of implementing GST – several more questions remain unanswered.
So what do we still not know?
1. Business burden
What we asked:
We asked P&R how much it would cost local firms to implement GST – for example updating software and extra bookkeeping.
We also asked for a detailed assessment of secondary economic risks, like reduced consumer spending, inflationary pressures and potential business closures.
What we know:
P&R admits GST will bring complexity and administrative burdens for businesses, but – unless we’ve missed something – it has failed to say what GST will cost businesses or the wider economic impact in the latest policy letter.
It has promised £1.1m to help local businesses deal with the changes, but there’s not much detail on where this money will go – or whether any of it will be given to firms to help them pay for system upgrades.
The previous States did publish high-level economic modelling back in 2022 as part of the original GST proposals.
However even then, the total bill facing local firms wasn’t clearly quantified – and that data was based on an out-of-date 5% tax model that has since been superseded. For example, the Agilysis contract was factored into the 2022 calculations.
While P&R predicts inflation will be 1.9% higher because of GST, it doesn’t seem to have modelled how this will increase supplier costs – nor whether they’ll pass these on to consumers at a higher rate, known to economists as the ‘cascade effect’.
During a recent live stream Q&A session on Facebook, P&R Vice President Deputy Yvonne Burford argued that retail businesses would already have tills – also known as electronic point of sales (EPOS) machines – which allowed for sales tax, so they would not have high costs.
However, she did not discuss the impact on non-retail firms or other aspects of business operations, such as procurement, bookkeeping or GST rebates.
Deputy Burford said: “I think for a lot of businesses who have electronic point of sale machines to run their business, then it’s not going to be a great deal, because all of these machines are already set up, because Guernsey is one of the very few places in the developed world that does not have a GST.
“I don’t know what type of businesses you’re talking about, but I’m assuming it’s retail, but, so you know, it shouldn’t cost a great deal.”
It was also unclear whether her opinion was based on any research carried out by the States, or was a personal opinion.
2. Consultancy costs
What we asked:
We asked P&R how much it had spent on “external consultants, advisers, or third parties” to prepare the latest GST proposals.
What we know:
We know external consultants were used to help prepare the proposals, with Deloitte mentioned in the latest policy letter and EY mentioned previously.
Back in 2022, the States said it had budgeted £200,000 to pay EY, although we haven’t been able to find any information about whether this came in on budget.
However, there appears to be no mention of how much the States spent on consultants in total.
3. Public sector knock-on costs
What we asked:
We asked P&R for a breakdown of knock-on costs for the public sector itself – such as increased procurement costs on goods and services purchased by the States, or potential wage pressures driven by the introduction of the tax.
What we know:
The policy letter does factor in £1m a year to cover inflation-linked increases for local benefits and pensions.
However, the wider knock-on costs to the public purse appear to remain unquantified.
Introducing a tax like GST inevitably drives up costs for government departments and – with inflation forecast to rise 1.9% – creates clear upward pressure on public sector wages – neither of which seem to have been given a firm figure.
4. Evasion and enforcement
What we asked:
We asked P&R how much it would cost to enforce GST, including compliance monitoring and debt collection, as well as how much it was expecting to lose from unpaid tax.
What we know:
P&R has confirmed it is expecting the civil service to hire 16 new civil servants across Revenue Services and Customs, costing an estimated £1.1m to £1.7m annually (including non-wage costs).
However, we don’t know how many of these people will be focussed on evasion and enforcement.
What seems to be missing, as well, is a clear estimate of its operational budget for audits, or any published target regarding the inevitable “tax gap” resulting from non-compliance.
5. Knock-on effect on the wider economy
What we asked:
We asked P&R if it had looked at secondary economic impacts, like reduced consumer spending, changes in tourism behaviour, cross-border or online purchasing, or business closures.
What we know:
P&R’s models predict that a 3% GST will bring in roughly £30m net (though others have contested this figure) and increase inflation by about 1.9%.
However, no evidence seems to have been publicly provided by the committee to demonstrate that they’ve modelled the cascade effect on local supply chains – specifically how rising operational and utility costs for suppliers will add up and potentially be passed down to consumers at a higher rate.
Beyond these top-level figures, the policy letter describes wider economic risks and “competitiveness” in broad, qualitative terms.
However, there appear to be no detailed, sector-by-sector breakdowns laying out how the tax might affect specific sectors.
6. IT costs
What we asked:
We asked P&R if they’d looked at how much it would cost to update their IT systems – and if so how much.
What we know:
The policy letter says the upfront setup bill will be between £8.65m and £12.2m for implementing all of the tax reforms (with £1.6m already spent).
While this provides an upper bound for the IT costs, we don’t appear to know how much of this will go on IT changes.
However, the policy letter does say P&R is expecting to spend £200k to £600k a year on ongoing IT licensing and support once the initial changes have been completed.
We also don’t appear to have an itemised breakdown of either the upfront or ongoing IT costs, yet.
7. Recruitment costs
We asked:
We asked P&R how much they expected to spend recruiting extra civil servants, including recruitment, relocation and training costs.
What we know:
P&R says the States will need about 16 new civil servants across Revenue and Customs – costing up to £1.7m (see question 4).
However, we don’t appear to have any information about how much they’re expecting to spend per new hire advertising the roles, paying recruiters, on chairs and laptops – or on relocation costs.
