When Policy and Resources confirmed its preference for putting GST on food sales late on Monday afternoon, the response was immediate, with lots of angry comments.
Some people questioned why decisions are being made on introducing a goods and services tax at all – when the current States has previously agreed to look at alternative ways of solving the island’s financial problems.
That work stream is continuing – with Deputy Charles Parkinson’s sub-committee due to give an update on whether other tax changes can plug the growing deficit later this year.
But in the meantime, work has continued in the background to prepare for GST+ – as previously agreed by the last States in 2024 – to ensure everything is ready if it is introduced.
Deputy Gavin St Pier, the Vice-President of P&R, said it’s essential that planning continued to ensure everything is ready to guarantee efficient introduction, if that is the States’ final decision in June.
“It’s important to be really clear that no final decision has been made on any of the tax reform options the States may ultimately decide to implement,” he said. “However, the previous States directed that preparatory work on the implementation of the GST plus personal income protections package of measures be continued, pending a final decision of the States.
“That final decision will be made before the end of June, once the work of the Tax Review Sub-Committee has concluded and a range of options are presented to the States. The Sub-Committee’s work is progressing well and it will shortly be publishing a consultation relating to alternative corporate tax reform options.
“As part of the preparatory work taking place, we need the States to decide some of the detail of what that package of measures includes so that it could be introduced without further delay, in early 2028, if the Assembly decides to include it as part of the final proposals on tax reform. P&R is in no way pre-judging either our final recommendation to the Assembly, or its decision.”
This week’s announcement – in the form of a policy letter lodged for debate by the States – has confirmed that if GST+ is introduced, the preference is that the new goods and services tax is levied on all food sales.
If that option is backed by a majority of deputies, GST will be introduced at 5%.
If they decide not to levy GST on retail food sales – such as in supermarkets – the new tax will be introduced at 6%.
Deputy St Pier said P&R thinks the lower rate, including food, is the best option.
“Our recommendation to the States is that a consistent lower rate including food is the best and most efficient approach. It is the clear preference of the business community,” he added.
‘GST+’ not just ‘GST‘
The preparatory work for introducing GST has continued since the then-States agreed the new tax needed to be introduced late in 2024.
The package of measures they agreed is what is known as ‘GST+’.
Multiple politicians and civil servants have been keen to promote the ‘+’ part of the new package over recent years.
The total package – which includes income tax and social security changes – is intended to counteract the impact of the new charges on less well off people.
The key measures are:
- Cutting the standard rate of personal income tax to 15%, with a higher rate of 20% applied to income currently above £32,400 a year. (This figure will be higher at the time of implementation as it will be increased in line with inflation)
- Introducing a social security allowance (currently £15,200 a year) to match the personal tax allowance, thereby reducing social security contributions for most people. (This figure will be higher at the time of implementation as inflation will be added)
- Implementing a 5% broad-based consumption tax on most goods and services (called GST)
- Pensions and benefits increases to compensate for the impact on prices as a result of the introduction of a consumption tax
- Introducing a new annual Essential Costs Relief Payment to support those low-income households who do not, or can not, claim income support (provisionally set at £520 a year for a single adult or £860 a year for a couple)
- New legal protections that would require the States to increase all allowances, thresholds and benefits if it ever wishes to increase the standard rate of GST
- Considering a new statutory requirement for a ’super majority’ (e.g. two-thirds) in the States of Deliberation to agree any increases in the rate of GST.
Deputy St Pier has reiterated that for the GST rate to be kept at 5%, retail food sales must be included.
“The detailed analysis we have undertaken, shows that zero rating food while having a higher rate (6%) of GST on all other goods and services does not in fact result in lower overall costs for low-income households,” he explained.
“This is because of the package of the protections included in the proposals.
“These include adjustments to pensions and benefits plus the Essential Cost Relief Payment Scheme. Although, it may be that better alternatives emerge from the Tax Review Sub-Committee, in the meantime, 60% of the net revenue raised in this tax reform package would be from sources other than local households, such as the corporate sector and those visiting the island.
“Taking all the measures together in this tax reform package means that most people earning less than £50,000 a year will be better off,” he said.