FACT CHECK: Would capping States spending really mean slashing pensions?

Anyone hoping the delay to Guernsey’s GST vote would bring a much-needed break from the island’s tax wars will be sorely disappointed.

The battle has simply moved on to its next front: pensions.

The argument over whether islanders should pay more tax – and if so how – has quickly descended into a row over what local people might have to go without.

A vote to limit how fast the States can increase spending has been branded by critics – somewhat questionably – as a spending “freeze”, arguing it will lead to cuts in healthcare and pensions.

Do they have a point? Express decided to dig a little deeper…

What happened last week?

After days of debating a slew of amendments, it became clear the States wasn’t going to get round to the actual tax reform vote in time.

Late on Friday, in the last vote of the day, Deputy Andy Sloan’s proposal to cap States’ spending at inflation narrowly passed, by 15 votes to 12.

Deputy Sloan previously told Express his amendment was simply designed to force Policy and Resources (P&R) to keep spending “under control” and exercise a minimum level of fiscal discipline.

On the surface, you might imagine few people would object to the idea of keeping public spending under control – particularly after years of concern about the size and cost of government.

But the amendment has proved deeply divisive.

Even some politicians who supported the principle of tighter spending control acknowledged that the wording left important questions unanswered.

Deputy Mark Helyar, who seconded Deputy Sloan’s amendment, said during Friday’s debate that it “doesn’t deal with savings… it just asks us to try and prevent the government growing faster than the economy”.

However, he admitted it needed “some refinement… even just defining what RPI means”.

The ‘only way’ is ESS cuts

Critics have argued the so-called “freeze” will lead to cuts in healthcare and pensions.

Employment and Social Security (ESS) President Deputy Tina Bury has become the public face of that argument.

Her warning could hardly have been clearer: “The simple fact is if we have to pay more people with the same amount of money as the amendment directs, the only way to do it is to pay each person less.”

It’s a powerful claim. If she’s right, pensioners will get less money as the States is blocked from growing faster than the island’s economy.

However, opponents have argued that Deputy Bury and others are “scaremongering”, pointing out that the States doesn’t fund pensions directly from general taxation.

So which is it?

The answer depends on what is meant by “spending”.

The amendment was not simply a cap on departmental budgets.

During the debate, Deputy Sloan’s proposal was described as applying to overall States expenditure, including social security spending.

Pensions flashpoint

The row has become a battle over whether the amendment is a necessary spending restraint or a threat to vital services.

Deputy Haley Camp argued the debate had become too focused on worst-case scenarios, saying opponents were using “emotive language” around possible savings.

But for many people, particularly pensioners, those warnings have real consequences.

Responding to Deputy Bury’s comments, one pensioner said older people deserved “better than a politician waving the threat of poverty to win an argument”.

The debate also exposed a disagreement over language.

A spending constraint and a spending “freeze” are not the same thing.

One describes a limit on how quickly government spending can grow; the other suggests services or payments being held back.

If GST increases prices as expected, the spending cap would rise with inflation too – potentially giving the States 20% more to spend by 2030.

The distinction matters because it shapes what people think the amendment would actually do.

The vote itself has also raised questions about engagement in the Assembly.

Five deputies had left before the amendment was voted on, while seven – including all of P&R – abstained.

Given the importance of the issue – and the strength of the arguments made about its consequences – voters may ask why some of their elected representatives weren’t there to vote on it.

Does the States pay old age pensions?

Short answer: not directly.

The old age pension is not paid out of the same pot of money used to fund government departments, schools or healthcare.

The old age pension is paid from the ‘Guernsey Insurance Fund‘ – a pot of money mainly supported by social security contributions from workers and employers – along with investment returns and other funding sources.

That means pensions are not simply paid from the same tax pot used for hospitals, schools and government departments.

Since 2022, the Insurance Fund has appeared within the States’ published accounts because of changes to accounting rules.

The President of ESS has warned there will be a 4% increase in pensioners over the next 3 years. To see Express‘ in-depth examination of the States’ spending over the last 20 years CLICK HERE.

But that does not mean pensions have become just another government department funded from general taxation.

The fund also holds significant investments, which help support future payments.

So when people say “the States pays pensions”, that needs some explanation.

The States runs the scheme and contributes as an employer, but pension payments come mainly from the Insurance Fund rather than directly from tax revenue.

Is cutting pensions the ‘only way’?

Short answer: No.

Deputy Bury’s argument is based on a scenario where the number of people receiving support rises while the amount of money available stays fixed.

In that situation, difficult choices would have to be made.

But a spending cap does not automatically determine what those choices should be.

The amendment does not say which services, benefits or payments should be reduced – it simply limits how quickly overall spending can grow.

The States could look for savings elsewhere, increase income (for example by increasing GST), change policy priorities, find different ways to deliver services.

Deputies Garry Collins and Haley Camp proposed an ‘Appropriations Committee’ to control spending.

They argued that individual committees were siloed, so had no control over major expenses such as IT and the core civil service.

However, ESS’s concern is that an ageing population means more people will need support in the future.

Both sides of the argument are relying on assumptions about what happens next.

ESS is warning that rising demand combined with limited spending growth would leave difficult choices.

Critics argue that pension cuts are not inevitable and that the Insurance Fund’s own finances must be considered.

The evidence should come from the numbers: how many pensioners there will be, how many people are paying in, how much money is in the fund, and whether future changes are needed.

However, as far as we’re aware the numbers haven’t been published, along with rest of the by-now infamous GST modelling.

So the spending cap won’t affect pensions?

Short answer: It’s not that simple.

This is where the debate becomes more complicated.

Deputy Sloan’s amendment does include “social security spending” within the inflation limit.

That is why ESS argues it could have less room to respond if demand rises faster than the available budget.

Guernsey’s ageing population is central to that concern.

ESS previously claimed the number of pensioners is expected to rise by more than 2,200 by 2029 – an increase of around 11.8%, as a larger number of people reach retirement age.

However, Deputy Bury has since issued a correction, saying EES had failed to account for the rise in pension age, meaning the increase in pensioners would be about 700 – or 4%.

Critics could argue that this kind of basic statistical mistake is exactly why the complete modelling that underpins GST and P&R’s other tax reforms needs to be shared with deputies and others, as significant errors can be made because of incomplete or incorrect assumptions.

The pensioners projection is based on demographic forecasts, but ESS has not published the modelling behind the figure, making it unclear whether expected deaths are included.

Either way, rising costs do not automatically mean pension payments must fall.

The question is how politicians choose to respond.

The amendment doesn’t pick the cuts

So what would happen if spending pressures exceeded the cap?

The answer is that the States would face choices.

It could find efficiencies, reduce spending elsewhere, increase income (for example by increasing GST), change eligibility rules, or decide that some areas of spending should take priority over others.

What the amendment does not do is identify a specific saving, department, benefit or service that must be cut.

That was actually one of the criticisms made during the debate.

Deputy Gavin St Pier questioned whether a blanket spending target was a realistic way to reduce costs, arguing that governments needed to identify specific savings rather than simply impose an overall limit.

He also warned that the biggest pressures in areas such as health and education often come from pay costs, which are not directly controlled by individual committees.

Spending vs growth

ESS’s concern is that, even if pensions are not directly cut, a spending cap could make it harder to respond to rising demand.

The committee points to an ageing population and rising numbers of pensioners as future pressures on social security.

If those costs rise faster than inflation, the States would have to decide how to absorb the difference.

That could mean finding savings elsewhere, increasing income, or changing priorities – but the amendment itself does not make the decision.

The claim that capping States spending at inflation would automatically mean pension cuts is therefore misleading.

The amendment does include social security spending, meaning ESS could face tighter choices as demand rises.

But it does not instruct the States to reduce pension payments, nor does it specify where savings should come from.

The real debate is not whether pensions are being cut, but whether the States can restrain spending growth without affecting frontline services.

The answer will depend on future decisions by politicians – and on the underlying financial position of the Insurance Fund itself.