Guernsey needs to practically double its recent spending on public infrastructure to help maintain the economy and living standards, an independent fiscal panel has recommended.
Policy & Resources asked the panel to review Guernsey’s investment in major capital projects like schools, the hospital and housing and what was appropriate.
It has also investigated the island’s reserves and investment returns on these, highlighting a woefully inadequate pot of money to cope with any major economic shock.
“Chronic underinvestment in Guernsey’s public infrastructure is an increasingly binding constraint on growth, fiscal sustainability and living standards,” it reported.
“The Panel’s preferred target for infrastructure investment would be to average 3% of GDP over the medium- to long- term. This is higher than the current 2% target, which itself has not been consistently met.”
In fact, capital spending has been hovering below 1.5% of GDP.
Using the 2023 GDP figure of £3.488bn, the panel’s target would mean spending around £100m. annually, in contrast to the £52.3m which is the current average.
But public spending pressures means that P&R has already recommended prolonging the latest capital spending plans well into the next States and until tax reforms are implemented and income increased, investment means running down already limited reserves.
The panel has recommended that much of the spending of arms length bodies like Guernsey Electricity and Guernsey Water on critical infrastructure count towards the target, but even that only provides a boost of about 1%, so still short of the new and old targets.
“The current tax base, as it exists in 2025, cannot sustainably support both the current profile of service provision and the level of infrastructure investment needed to maintain the capital stock,” the panel said.
“Tax reforms currently proposed (but not yet implemented) are an important step towards long-term fiscal sustainability, including the ability to fund Routine Capital and Major Projects Portfolios (at an investment level of 2% of GDP), if they are implemented. However, the Panel’s preferred target is 3% of GDP.
“Without implementation of the agreed tax reforms, progressing even the minimum level of infrastructure investment needed is projected to result in the complete depletion of the States’ unallocated financial reserves, resulting in a deteriorating net debt position without the revenues available to stabilise the situation.”
The States is planning to introduce a GST of 5%, alongside other mitigating measures like a 15% income tax band and changes to social security.
The panel has identified other pressures on States spending.
“Although Guernsey has a relatively lean public sector, an ageing population means there are foreseeable increases in expected costs around health and social care. Recent proposals to increase contributions to the fund supporting States’ pensions – if they are implemented – would go a long way towards closing the gap, but may not be sufficient.”
The Core Investment Reserve, a pot of money put aside to cope with severe economic shock, is also significantly below what it needs to be.
“Given that the purpose of the fund is for exceptional events such as a significant problem in Guernsey’s financial services industry, its current scale is substantially below what would be required to support the economy through such an event,” the panel said.
“In our last report we demonstrated how these exceptional events – when they have occurred in other small economies (such as Iceland and Cyprus) – require a buffer of around 30% to 60% of GDP in order to offset the fiscal costs of such an event.”
That figure is far in excess of the current States target for the reserve which is based on 100% of general revenue income, and even then it has failed to meet that target.
At the end of 2023 it held £169m., less than a third of that target, and shy of 5% of GDP.
The Panel consists of three members:
- Prof. Matthew Agarwala (Chair)
- Prof. Francis Breedon
- Matthew Bell OBE
