TAX ALTERNATIVES: Deputy Sloan’s flat-tax reset

Policy & Resources (P&R) has repeatedly argued there are “no credible alternatives” to its own tax reform proposals, which includes a 3% GST.

So Express decided to test that claim, by looking at a series of proposals from other deputies.

First up: former States Economist Deputy Andy Sloan, a PhD Economist, and his proposal for a radical ‘Flat Tax’ overhaul.

The big idea

Instead of adding new tax layers or tinkering at the edges, Deputy Sloan wants to sweep away Guernsey’s complicated mix of allowances, rates, and social security charges.

His plan would replace them with a single flat rate applied across personal income, corporate profits, social security, and consumption.

His earlier analysis used 12.5% as an illustration of what a single rate could look like, but Deputy Sloan now says the appropriate rate would need to be worked out properly and would likely be somewhere between 12.5% and 15%.

He argues Guernsey needs a significant change to arrest its economic decline and regain its international competitiveness.

“Tinkering around the edges, concierge services, etc., isn’t going to cut the mustard,” Deputy Sloan warned, arguing that Guernsey needs to regain its appetite for risk.

In his own words: What Deputy Sloan says

Deputy Sloan told Express: “Frankly, something quite significant needs to be done to arrest our economic decline… At present, we are managing decline.”

“Our tax review had always just been about plugging a gap, never about reforming the regime.

“Indeed, when we had the scrutiny hearing on tax in July, I wrestled the admission out of P&R that no alternative package had been on the table over the previous ten months.”

“It’s always taken a blinkered accountant’s view of things: where can I raise more revenue, never going back to first principles about how much we are spending and what tax regime might better support growth… that’s a missed opportunity.”

“We have to get health spending under control, and that involves politicians and the public both growing up and recognising that there has to be some limit to spending.”

The diagnosis: What is actually broken?

P&R frames the tax review as plugging a black hole left behind by Zero-Ten, but Deputy Sloan argues that is no longer the main problem.

His analysis for the International Sustainability Institute Channel Islands shows:

• Zero-Ten has already been covered: Higher TRP, frozen allowances, and expanded corporate taxes have already replaced more than the original shortfall.
  
  
• Growth has stalled: Since 2009, Guernsey’s economy grew at just 0.5% a year while public spending grew at 2%.
  
  
• Health costs are out of control: Rising healthcare spending, rather than simply an ageing population, is pushing costs upwards.
  

Deputy Sloan also argues that social security should be reconsidered as part of the reform.

He describes it as a “jobs tax” and believes it has contributed, at the margin, to the divergence in employment levels between Guernsey and Jersey.

How the numbers stack up

Deputy Sloan’s static analysis using audited States figures showed that a 12.5% flat rate across all tax types could match the revenue brought in by the system at the time:

• Personal Income Tax (12.5%): £152m
• Corporate Income Tax (12.5%): £89m
• Social Security (12.5%): £152m
• GST (12.5%): £170m
• Other retained revenues: £202m
• Total Aggregate Income: £765m (matching existing revenues)

But Deputy Sloan stressed that this was a simple, static exercise rather than a full economic model.

To establish the rate for a modernised system, he says further work would be needed, including a process to determine the appropriate single rate and the introduction of a social security allowance.

He expects the eventual rate would be somewhere between 12.5% and 15%.

Express Scorecard: The flat-tax reset

Here is how Deputy Sloan’s proposal rates against our six plain-English questions:

Question	Score	Verdict
1. How much could it raise?	★★★★☆ (4/5)	Deputy Sloan’s earlier analysis showed that 12.5% could match the revenues generated by the system at the time. He now expects the eventual rate to be somewhere between 12.5% and 15%, but this would need to be established through further modelling.
2. How fast can it be done?	★★☆☆☆ (2/5)	Requires substantial work to determine the appropriate rate, redesign allowances and social security, and model the wider economic effects.
3. Will it help the economy?	★★★★★ (5/5)	Deputy Sloan argues it could boost competitiveness, send a strong international signal, reduce the burden of employment taxes and maintain tax neutrality for the finance sector.
4. Is it fair to working families?	★★★☆☆ (3/5)	Deputy Sloan proposes a social security allowance alongside the single rate. The distributional impact would need to be tested through further modelling.
5. Does it stop government waste?	★★★★☆ (4/5)	Deputy Sloan argues that government needs to impose limits on spending, particularly in healthcare. His wider proposal is based on addressing spending as well as taxation.
6. Is it backed by hard data?	★★★☆☆ (3/5)	The proposal is based on published States figures, but Deputy Sloan is clear that his original calculation was static and did not model how taxpayers and the wider economy would respond.

Note: We are testing the proposals at a high level, looking at what they propose, the evidence and assumptions behind them, and how they compare with the P&R’s stated position. We are not independently modelling each proposal or assessing its full economic impact, as we don’t have access to P&R’s underlying tax models or data, so our analysis should not be read as an independent economic assessment of the potential revenue or wider effects of any proposal.

The catch

For the Flat Tax to work, politicians and the public would have to accept limits on government spending, particularly healthcare.

Because the original analysis was based on static figures, further modelling would also be needed to establish the appropriate rate and test how taxpayers, businesses and the wider economy might respond.

The eventual rate could therefore be higher than the 12.5% used in Sloan’s original illustration.

The bottom line

Deputy Sloan’s plan is not a tweak to P&R’s policy letter, but a fundamental change to the way Guernsey taxes income, businesses, consumption and employment.

His argument is that the island needs to address both sides of its fiscal problem: controlling spending while creating a tax system that better supports economic growth.

But the 12.5% figure is not a final proposed rate.

Deputy Sloan says the appropriate single rate would need to be established through further work and is likely to be somewhere between 12.5% and 15%.

Note: Deputy Sloan’s amendment was passed in July, along with his two other amendments.