The latest Tax Reform plans for Guernsey are out – with plans to save £20 million a year included alongside a consumption tax and changes to other taxes, income tax allowances, and social security contributions.
These proposals have been drawn up after the current Policy and Resources Committee said it listened to feedback on the extant plans approved in principle by the last States.
That policy letter set the States on a path toward introducing a goods and services tax at 5%, while the new plans suggest it comes in at 3% instead.
A lot of the feedback on the previous proposals have included criticism of plans to introduce GST in the island in any form, when many people feel States spending is out of control. The Chamber of Commerce also raised concerns over the changes proposed to social security contributions.
P&R said this feedback has been addressed.
Savings
Published today ahead of a debate in mid-July, the 2026 Tax Reform Package proposes making efficiencies of 1% across the public sector over the next three years – which will reduce overall States expenditure by £20m per year by 2029, alongside ‘priority-based budgeting’ to identify “efficiencies and opportunities for expenditure reduction” over the next three years.
GST
P&R is still backing a consumption tax – but this time at 3% – saying it could raise £55m per year, with the majority coming from businesses.
If GST is introduced in 2028, an International Service Entities scheme would also be introduced for finance services with international clients, raising £10m-12m from the finance sector.
The States pension, income support payments, and other benefits will be put up to cover the increased cost of goods and service.
There will also be a new annual Essential Costs Relief Payment to support low-income households who do not, or cannot, claim income support.
The current States will also be asked to commit to not increasing the 3% rate of GST ahead of a planned assurance review in 2030.
The current States face the electorate in 2029 however.
Income Tax and Social Security
Alongside the new consumption tax, a reduction in the basic rate of income tax to 15% on income up to £28,000 is proposed, with a 20% rate applied to income above that level.
There will also be an increase in the personal income tax allowance of £600.
A new social security allowance at £11,122 for employed and self-employed people is proposed too, with plans to increase this, “if and when it is affordable”.
The amount that employers and self employed people pay in contributions will also increase alongside other proposed changes.
Transport taxes
With fuel duty making up a large proportion of the price of petrol, while drivers of electric vehicles currently make no contribution to the island’s coffers, P&R is proposing changes to the current transport taxes, which it says will raise £7m a year while reducing the cost of petrol and diesel.
Fuel duty will be reduced by a quarter under the latest proposals – saving drivers an average of ‘£130 to £140 per private vehicle per year’.
All vehicles will be subject to a new annual tax ranging from £25 to £280 with the median charge around £132.
‘High value private vehicle’ owners will face a surcharge with fees starting at around £2,500 for vehicles worth more than £50,000 (with some exemptions).
Corporate tax reform
P&R says making “modest extensions to the corporate tax system” would raise £6m for the island each year.
The suggested changes include the extension of the 10% rate to cover the entire profits of regulated businesses, slightly higher Guernsey Registry fees and a 10% tax rate applied to prescribed businesses.
The States will also be asked to consider extending the 10% tax rate to construction and retail business in the future – but no earlier than 2030.
The sums
The public have long been told that there is a funding gap between how much money the States makes and it spends each year.
The island has relied on income tax for most of its revenue for decades, with a growing and ageing population costing more along with higher standards expected in public infrastructure and services.
Previous P&R committees have said that the funding gap is £50m per year.
The current P&R says its new Tax Reform proposals would bring in or save a combined £42m per year gross – which does not include the £20m in savings that the States will be asked to make if the latest plan is adopted.
With running costs factored in, the proposals will give Guernsey a net of “about £39.5m” per year, made up of a mix of new taxes, refined taxes, and savings, said P&R.
These proposals are due to be debated in July.
More to follow…
