Policy and Resources published its latest tax reform proposals on Monday, and Express sat down with the Committee President to hold her to account on all things tax.
Here’s what Deputy Lindsay de Sausmarez had to say about the proposed reforms.
Note: This interview has been edited for clarity, with filler words removed and minor paraphrasing applied.New proposals
Bailiwick Express: There have been quite a lot of changes to the tax reform package at what feels like relatively last minute, as this has been a discussion for years. The last States took a position and GST+ at 5% has always seemed to be the answer. Then Deputy Parkinson’s tax review came in and basically said, ‘Well, we’ve looked at all the corporate tax options and they’re not going to solve the problem on their own.’
Then suddenly, at the last minute, we’ve got a whole range of changes to what felt like – and what a lot of the members of the public were saying was – pretty much a done deal.
Is this a question of flip-flopping or is it an example of the States listening to the public and looking at the data?
Deputy de Sausmarez: Well look, there might be people out who thought it was a done deal. As someone who never supported the previous package any of the times that it came to the States, I never did. I was never actually satisfied with that original package.
If you want to look at this in the context of this as an issue that’s been kicking around for 20 years, that I suppose you could say that this last 11 months is quite last minute. But actually, when we took office in July last year, we committed to two things.
We committed to not taking the previously agreed package off the table before an alternative was properly developed, because that wouldn’t have been a responsible way to approach the issue, and we also committed to leaving no stone unturned in terms of any alternative approaches and options, and that is exactly what we’ve done.
Now, I appreciate that the average person in the street probably hasn’t been up to speed on the work that we’ve been doing. But, we’ve been flat out for the last 11 months on all sorts of different things, so we’ve been coming at this from a number of different angles.
We had multiple work streams on the go looking at different things, really putting the originally-agreed package to its paces. And we’ve had the advantage since November 2024 (when it was first agreed) of being able to engage with industry groups.
That’s been such a helpful process, because it’s enabled us to really understand their concerns, and some of the practical implications of the package. It’s given us areas when we know we’ve got to go and do more work. Some of those areas we will now be able to bring forward detail on.
So that process of engagement has been ongoing since the States originally agreed that original package, and that has informed the changes that we have made to this package.
So I know that it feels a bit last minute, but that work has been ongoing, certainly on our watch, since July last year. That’s one big area.
Another area you’ve already alluded to is corporate tax. The potential for raising significant income from changes to our corporate tax system was looked at by Deputy Parkinson, who led a really highly qualified independent panel.
We were very lucky, actually, as an island, to have people with that experience and expertise giving their time and considerable brainpower to that issue. They’ve written a very good report, and that report essentially recommended against wholesale change of our corporate tax system, but did recommend some more modest changes.
Those changes are again incorporated into our package, so our package is quite different from the original, because it has many more strands to it.
So first of all, we’ve changed some of the elements and features of that original package in response to feedback that we’ve had, both from the community and specifically from the business community as well.
I’m happy to talk you through some of those changes.
We’ve also looked at the potential for changes to the corporation tax system, and again we’ve incorporated the recommended changes from that work, so that’s been highly productive.
We’ve also progressed the work – and this is definitely not last minute. This is work that has been kicking around for so long, and we’ve got so many States resolutions on it – and that is transport taxes.
The States has resolved time after time to address some of the problems in our current transport tax system, because our current system is really unfair and getting less fair by the moment.
Electric Vehicles
BE: As you brought the transport tax up, electric vehicles (EVs) are now going to be taxed, which I think a lot of people have been calling for.
I did notice that cyclists and electric bikes don’t seem to be there. As someone who I’ve seen get off her bike on her way to work, what was the rationale behind taxing EVs but not cyclists?
LdS: Oh my goodness, how long have we got?
Basically, it’s exactly the current system. You will only find one country in the world that taxes bikes – the last time I checked.
The only country that – and I don’t think they ever got around to implementing it because it was too mad – was Zimbabwe under Mugabe.
GST+ revenue
BE: Coming back to tax, the last time we spoke what was currently being looked at was a 5% GST plus package.
And you – or Deputy Parkinson – said that you were expecting that to bring in about £50 million.
In the proposals that have gone forward today the 5% has dropped to 3% – which I’m sure lots of people are happy about – but we’re now saying it’s going to bring in £55 million.
So what I’m wondering is how a 40% drop in GST brings in £5 million more? Is it just because we’re going to buy more stuff?
LdS: No, no – it’s because we’re not comparing apples with apples in that comparison.
The £55 million that you are referring to in the original package was net of the mitigations, and the £55 million that is being referred to in this one is actually gross.
So we’re not comparing apples with apples. But there are actually some internal adjustments as well, so you’re right to pick up on it.
The original package would have raised gross £85 million to £90 million, right? That drops down to £55 million – so that is your apples‑with‑apples comparison.
In this new package we’ve got so many more strands, and the original one was basically income tax, social security changes and GST.
And this one has got those elements in different proportions, with lots of internal rebalancing going on – especially on the social security side.
There’s a table – which you can only read if you print it out on about A2 because of all the tiny figures – about what’s moved where to rebalance it. Thank God it’s not me doing those!
And then we’ve also got additional elements in terms of transport taxes, which weren’t there in the original.
Our package is a more rounded package, and as a result we have got a broader and more resilient mix.
Benefits vs working people
BE: One of the things that was mentioned was increasing benefits and pensions prior to anything going in, in order to offset price rises.
Are there plans to give civil servants equivalent pay rises? And also, what about the private sector?
Is this not another example of working people being the one group not to get the additional support?
LdS: So, if you take the average employed person on a median wage, let me explain how they will benefit, which is really important.
Median earnings at the moment are around £42,600.
Compared with now, because of the changes to income tax – where we’re introducing a bigger personal income tax allowance that goes up by £600 – we’ve then got a standard rate at 15% between the top of that allowance and £28,000, and then 20% tax above that, as now.
Basically, the long and the short of it is that when you combine that, and you add in the fact that on social security you get an allowance where you didn’t get it before, you are likely, as that person who is earning a median wage, to take home £1,250 more from your earnings.
So as a working person, you are getting a significant tax break compared with now.
You are going to get to take home more of what you’ve earned, because government will be taxing you less on your earnings – and that goes way, way above anything that you might expect to pay in terms of increased costs through GST.
BE: So is what you’re saying – while I know you don’t have control over private sector pay – the reason civil servants wouldn’t get a bump when somebody on benefits might is because if you’re on benefits or you’re a pensioner, you’re not paying income tax on that, so therefore-
LdS: Well, actually, you probably are paying contributions.
But this is about supporting the lowest‑income households – so pensions go up, income support goes up, because those are some of the lowest‑income households.
And this package is designed to protect low‑income households.
BE: So in other words, as a working person it’s the tax side versus the GST side …
LdS: You’re getting a tax break, basically.
You are getting a significant tax break compared with now, and that’s the really critical bit – compared with now you will get a significant tax break.
Tax cap
BE: Just in terms of proposals that aren’t in there – there was an interesting proposal from Innovate Guernsey about increasing the tax cap for high‑net‑worth individuals.
They were proposing increasing it from the current rate – which is £50k or £60k depending on whether they live on the island or are partially resident – to somewhere between £100k and £150k, based on the fact that Jersey and the Isle of Man are charging over £200k each.
LdS: That’s the budget measure.
So that’s something that, if we’re talking about the same thing, is considered through the budget – but we have to be mindful of our overall competitiveness effect.
BE: So basically, that’s not something you’re looking at as part of this package?
LdS: That is something that is considered through the normal budget.
If we’re talking about the same thing, that’s something that we look at through our annual budget process.
GST implementation costs
BE: In terms of the cost of implementing GST – both in the civil service and for the private sector – putting in new computer systems and so on, is that something you’ve looked at, and how much is that going to cost?
LdS: Yes.
In the headline figures that you will have got in the media release – and in the policy letter the island’s published – we have factored in and netted off £2.5 million in terms of ongoing administration from the government’s perspective.
In terms of one‑off costs, there are some systems changes, etc.
Actually, the biggest impact is around border – Guernsey Border Agency and customs – who are likely to need some more people.
So there are one‑off capital costs in terms of implementing it that we’ve budgeted for, including quite a big amount of contingency at around £10 million – a little bit over.
We’re hoping those costs come in under that, but you have to err on the side of caution with these things.
But actually, if you’re looking at those costs, it more than pays for itself in year one in terms of income.
BE: One complaint, especially from businesses, is the cost of implementation.
I know it makes no difference to their costs whether GST is 3% or 5%, but it makes a difference to the States in terms of the revenue.
Does moving the rate of GST from 5% to 3% tip it over any kind of balance?
LdS: Well, the other point that is worth bearing in mind is that we also have budgeted some support for businesses to help them implement GST.
So there is a budget line that we have included, which is specifically about giving businesses the kind of support that they will find useful.
And we’re working with them to understand exactly what that looks like as part of our engagement process, to make sure that we are there to support them as the system comes in.
Tax returns
BE: One thing that I didn’t notice – and again, forgive me if I missed it – was any change in who needs to file a tax return.
In the UK, if I am a PAYE employee, I don’t need to do a tax return unless I’ve got a side hustle.
Now, I know there are people here who have complex investment structures, but there are also people who work in the Co‑op who still have to do a tax return every year, which is a pain for them.
Given that there is a backlog on income tax, you’re checking people’s returns and they’re having to fill in a big online or paper form, would it not make more sense to exempt people who are on PAYE from needing to do tax returns, unless they’ve earned a set amount on top – say £2,000. And of course do spot checks to catch cheats.
LdS: I think what you’re talking about is automatic assessments, and that already happens.
But basically, watch this space. I’ll be giving you an update on Revenue Services and the recovery plan in the next States meeting, and I think those questions are probably going to be better answered then.
I know it feels like it’s a tax reform thing, but it’s not. That’s just business‑as‑usual Revenue Services, so it’s not part of this package.
But what is fair to say is that we have given careful consideration to the impact on Revenue Services and whether we would be able to actually implement it.
And we are confident that is all manageable.
Savings
BE: So, my final question is around savings.
There are around £20 million of savings. Briefly, can you kind of describe roughly where those are coming from?
Are we sacking all our teachers and nurses, or is it just efficiency savings?
LdS: So this is actually something the States has already agreed to, so we’ve factored it into the baseline.
We are anticipating – we are baking in – about £20 million of savings from 2029.
And those we feel very strongly should be about genuine efficiencies, not expenditure reductions which are going to impact frontline services.
Now, to give you some examples of those kinds of efficiencies, it’s things like e‑rostering in the health sector.
If you don’t do it electronically, it’s quite a labour‑intensive, time‑consuming process.
You get the right software and systems in place, and actually you can make that system a lot more efficient and effective, and you can save costs, but deliver a better service at the same time.
BE: Ok, so there’s an efficiency there because you’re saving somebody time – does that mean that, long term, the civil service would shrink?
LdS: Are you counting nurses as civil servants?
BE: I’m talking about public service – people working in this building [Frossard House]. I’m not talking about teachers or nurses.
LdS: So, we have been very, very keen to draw the distinction between efficiencies and the potential for expenditure reductions.
Efficiencies are delivering the same public services that we currently do, but doing that in a way that delivers better value for money.
So finding more efficient ways of doing what we’re doing now.
Expenditure reduction is always a possibility, and that’s something that committees will look at through something called priority‑based budgeting.
And that’s really where they assess every pound of public money spent.
BE: This is what I’m trying to understand.
If you’ve got to save £20 million, then either that is in costs – for example paying less to a software company for licenses – or you’re saving somebody from doing a job that was previously taking them all week and now they can do it in an hour.
And if so, are they being redeployed, or are you not recruiting behind them, or-
LdS: The thing that will make sense of this in terms of your question is that demand is going up.
Just in health alone, it’s going up by about £5 million a year, year on year.
So if you think every single year it costs us more to deliver exactly what we’ve been delivering this year, because demand is growing – because we’re getting older – then that puts into context the fact that we can bank £20 million of savings.
But it doesn’t necessarily mean you’ve got fewer people, because you’re still having to deliver more.
BE: So it’s the same amount of people having to deliver more – or being able to deliver more through efficiencies – as opposed to looking at it and saying we’re spending £20 million less?
LdS: We’re spending £20 million less than we otherwise would have been.
But the answer is both of those things.
Efficiencies are one aspect, but another aspect, which is the bit that we’re looking at through priority‑based budgeting, is about whether there is any potential for expenditure reduction.
And historically that’s been a really hard thing for the community to get behind.
On paper, everyone goes, ‘Oh yes’, but actually we have such a small public service compared to pretty much anywhere else per capita.
So there’s not nearly the sort of fat that many people imagine.
But that said, priority‑based budgeting is about looking service area by service area to make sure each committee is happy with what is being spent, and whether things could be prioritised differently.
Whether a service needs to be provided at all, whether something needs more focus while something else is dialled back – needs to change as well.
BE: So it’s about giving committees flexibility to rebalance?
LdS: Yes.
And we’ve also got a workstream – a super‑priority – which is looking at putting our health and social care system on a more sustainable footing going forward.
That might change the baseline.
It may mean we don’t have to spend as much every year in delivering services.
It may involve difficult decisions about what kind of healthcare is provided on‑island versus off‑island.
It might involve decisions about how healthcare is funded.
All of that could affect the public purse and move the position.
BE: Finally, if I was a public servant, is it fair to say I shouldn’t be looking at this as a £20 million cut, point blank?
LdS: No.
It’s £20 million delivered over three years, for a start, and then annually recurring.
But the main point is the baseline is not static.
The status quo is that demand is rising, so all other things being equal, we would be adding more people into the system.
So it’s not a static baseline.
BE: But if I was a civil servant, I shouldn’t be worried about my job at this stage or being made redundant?
Lds: No.
BE: Deputy de Sausmarez, thank you very much.