The States of Guernsey has just released its consolidated financial statements for 2025 and the headline figure will catch your eye: a reported net surplus of £106 million.
After years of discussion about a structural deficit and the need for fundamental tax reform, that sounds like good news. But read past the headline, and a more nuanced picture emerges – one that has significant implications for every business and resident on the island.
What the Accounts Actually Show
The States of Guernsey Consolidated Accounts (including the States itself, plus entities like Guernsey Water, Guernsey Electricity, Guernsey Ports, Guernsey Post, Aurigny etc.) reported:
- Total revenue: £1.25 billion (up 14.4% from £1.09 billion in 2024);
- Tax and social security made up £881 million
- Total expenditure: £1.18 billion (up 6.3% from £1.11 billion in 2024);
- Net surplus: £106.1 million (compared to a surplus of £20.3 million in 2024);
- Net assets: £4.08 billion (up from £3.92 billion in 2024);
- Total debt: £403.5 million.
On the face of it, the improvement is dramatic — an £86 million swing in one year.
Why the Treasurer Is Urging Caution
Here is where it gets interesting. The States Treasurer’s own report, published alongside the accounts, is notably careful about what the surplus actually means.
The £106 million net surplus figure includes £118.9 million in unrealised investment gains on the States’ £1.73 billion investment portfolio that have not been realised. Strip those out and the underlying operating position is actually in deficit.
The Treasurer’s report goes further: “With one-off items and unrealised investment valuation excluded and after adjusting for the long-term capital investment requirement (2% of GDP), the underlying financial position of the group had a funding gap to close of some £50 million in 2025.”1
In other words, the States’ own assessment is that on a sustainable, recurring basis, Guernsey is still spending around £50 million more per year than it earns.
The One-Off Items That Won’t Come Back
Two specific items inflated the 2025 figures and are explicitly flagged as non-recurring:
- £39 million from Pillar 2 tax. Guernsey implemented the OECD’s global minimum tax on the profits of large multinational companies in 2025. The first year produced £39 million of accrued income, but critically, a significant portion of this has been recognised in the accounts now but will not be collected until mid-2027. The cash hasn’t arrived yet, and it is a new revenue stream whose future (and 2025) yield remains uncertain.
- £34 million in one-off corporate tax receipts. These relate to banking sector tax adjustments from prior years. The Treasurer’s report is explicit: these are not expected to recur in future years.
Together, those two items account for £73 million of the reported surplus. Without them, and without the unrealised investment gains, the position would look very different indeed. As tax expert Mike Williams has noted publicly, without Pillar 2, the structural deficit would have exceeded £100 million.2
Despite a £106m Surplus, Cash Fell by £9 Million
One of the most striking single facts in the accounts is this: despite the reported £106 million surplus, the States’ cash balances actually fell by £9 million during the year.
How? Because £113 million was invested in infrastructure, assets and major projects during 2025 – capital spending on roads, water, power, ports and other long-term assets. The Group’s cash position moved from a net positive of £4.9 million at the start of the year to a net negative position of £4.4 million by year-end.
This is a useful reminder that a surplus in the income statement does not automatically mean more cash in the bank.
The Investment Portfolio: Good Returns, Below Target
The States’ General Investment Portfolio, which was worth approximately £1.73 billion, delivered a return of 7.2% in 2025. That is a solid return by most measures, and it generated £118.9 million in unrealised gains that flow into the headline surplus figure.
However, the portfolio’s target return is 8.5%, and its policy benchmark is 9.1%, so performance came in below both benchmarks. The portfolio also paid out £122.5 million during the year to fund capital investment and other commitments, keeping the overall value broadly flat year-on-year.
The Pension Position Improved Significantly
One piece of genuinely good news in the accounts is the pension position. The Group’s defined benefit pension liability of £44 million in 2024 has swung to a £6.1 million asset in 2025, a £50.1 million improvement. This is driven by changes in actuarial assumptions and investment performance, and it reduces a long-term financial risk that had been building for several years.
The Bigger Picture: A Structural Problem That Has Not Gone Away
The 2026 Budget, published before these accounts, already acknowledged a structural deficit of £77 million that will persist until fundamental tax reform is implemented. The 2025 accounts do not change that assessment, if anything, they illustrate exactly how fragile the revenue base is.
Deputy Gavin St Pier, the former P&R Committee’s treasury lead, has previously pointed to a fundamental vulnerability: approximately 75% of Guernsey’s public revenues come from personal income tax and social security contributions from the working-age population. That is an unusually narrow base for a government of this scale, and one that is vulnerable to demographic change, economic slowdown, or any shift in the financial services sector.
What About the GST Debate?
Our previous blog post about GST highlights the complexities of GST, but even since then the landscape has shifted. These accounts create the real risk that any tax reform will again be kicked down the road by the States Assembly.
The tax reform picture has shifted since the Budget. The GST-plus package of a 5% goods and services tax combined with income tax cuts to 15% had been the expected solution. However, as of late May 2026, Guernsey Press is reporting that four of the five senior P&R Committee members oppose GST-plus and the committee is now developing an alternative plan.
The final proposals are expected in a policy letter on 8 June, with a States debate in July. Whatever the outcome, fundamental change to Guernsey’s tax system is now a matter of when, not if. The numbers in these accounts make that clear.
What Does This Mean for You?
For businesses and individuals in Guernsey, the 2025 accounts are a useful prompt to consider a few things:
Tax change is coming. Whether it is GST, higher income tax, extended corporate tax rates, or some combination, the fiscal reality documented in these accounts makes reform inevitable (even if delayed). Planning ahead, understanding your personal and business exposure to likely scenarios, is worth doing now, before the States makes its decision in July.
Corporate tax rates may change. The possibility of extending the 10% intermediate corporate income tax rate to GFSC-regulated professional services firms is still in play. If you run a regulated business, this could affect your tax position from 2027 or 2028.
Capital investment is continuing. The States spent £113 million on infrastructure in 2025. That spending supports the local economy, but it also means ongoing capital requirements will keep pressure on the public finances regardless of what happens with the revenue side.
The Pillar 2 income is not guaranteed. The £39 million recognised in 2025 will not be collected until mid-2027, and the long-term yield of this new tax on multinational profits is inherently uncertain. It should not be counted as stable, recurring income.
Talk to me
The next six months will be defining for Guernsey’s fiscal future. Whether you are a business owner thinking through the implications of tax reform, an individual planning your finances ahead of possible changes, or a regulated firm concerned about corporate tax rate changes, my Accounting firm Evans Bond can help you understand your position and plan accordingly.
Visit our website for more info.
Jon Bond is Founder and CEO of Evans Bond Limited, an accountancy and advisory practice in Guernsey, and principal of Melius Consulting Limited – a business consultancy. He is also a non-executive chairman of CI Co-op and NED at Sark Shipping. The views expressed here are his own.
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