The States of Guernsey are having a tough time not just managing the financial position of the island’s government, but even measuring it.
The 2025 budget was set for a £16m loss after capital expenditure. This week, the Guernsey Press reported that 2025 would be published with a headline surplus of somewhere between £105m and £106m. Given the total income in the original 2025 budget was £687m, this swing of around 17% of projected revenue is substantial — and it deserves unpicking, because not all of it is what it first appears.
So what has actually happened?
Two windfalls, not one
There are two distinct income surprises at work here, and they need to be treated separately.
The first emerged back in February, when Deputy Gavin St Pier updated the States on the provisional 2025 figures. General revenue came in £57m above budget. The headline driver was banking income tax, which beat expectations by £37m. But St Pier was careful to flag that £23m of that £37m was exceptional – £11m came from a voluntary disclosure by a single bank that had calculated a seven-year underpayment, and another £12m was 2023 tax assessed and paid late. “It cannot be built into our baseline and relied on in future years,” he said. At that point the provisional surplus was around £36m, and the full-year audited result is due in June.
The second surprise, announced more recently and not yet in the audited accounts, is an estimated £39m of accruals from Pillar II, the new OECD global minimum tax.
These are different in character, and it matters that we treat them as such.
What is Pillar II, and why does the timing matter?
Pillar II is the OECD’s global agreement to ensure large multinational companies pay a minimum effective tax rate of 15% wherever they operate. Guernsey implemented it from January 2025, applying to multinational groups with annual revenues of €750m or more. Because Guernsey’s standard corporate tax rate is 0% for most companies, most in-scope entities would previously have paid nothing here. Pillar II captures the difference between what they paid and the 15% minimum.
Originally, Guernsey expected Pillar II to raise around £10m a year. By the time the 2026 Budget was set in October 2025, that estimate had been revised sharply upward to £40–45m. The £39m accrual in the 2025 accounts reflects that revised expectation.
But here’s the critical note: an accrual is not a cash receipt. The 2026 Budget documents confirm that Pillar II cash will not arrive until 2027. The States is booking income in its 2025 accounts based on a best estimate of what multinationals owe — income that hasn’t yet been collected, from companies that are, almost by definition, highly mobile. Tax expert Mike Williams made exactly this point at the recent public presentation, warning that without Pillar II income the island’s structural deficit would be over £100m rather than the estimated £77m.
So the honest description of the £105m figure is roughly: £36m of actual surplus (itself partly built on one-off banking windfalls), plus £39m of accrued but uncollected Pillar II receipts, plus investment returns and other items. The audited accounts due in June will give us the precise final breakdown.
The structural picture hasn’t changed
The more important number is one that the surplus headline obscures entirely: Guernsey still has a structural deficit estimated at £77m.
That figure represents the gap between what the States routinely spends and what it routinely earns, once you strip out the one-offs — the banking windfalls that won’t repeat, the Pillar II accruals that may or may not materialise in full, the investment returns that were strong in 2025 but lost £140m in 2022. The 2026 Budget, approved last November, projects a deficit of £48m before investment returns even with the new Pillar II receipts baked in.
Deputy St Pier put it plainly: “Having such a high dependency on whether banks have a good or bad year is neither sensible nor sustainable.” With only 21 licensed banks in Guernsey, a handful of individual institutions can move the States’ income by tens of millions in either direction, year to year. That’s not a tax system – it’s a lottery.
What the surplus doesn’t tell you about spending
Buried in the provisional figures is a number that deserves more attention than it gets: pay costs for 2025 totalled £351m.
That’s up from £318m in 2024, a 10.4% increase in a single year, in a year when Guernsey RPI was running at around 3.4%. The States’ own presentation noted that over 300 vacancies existed on average throughout the year, around 6% of the total workforce, most of which were covered by overtime or agency staff, both of which cost more than permanent employees.
Health and Social Care overspent its budget again, by £3.3m. Corporate Services overspent by £2.6m, largely from costs associated with the exit from the Agilisys IT contract. The same two areas, the same story, as in 2023 and 2024.
The pay bill has now grown from approximately £130m in 2006 to £351m in 2025 — a 170% increase over nineteen years, against cumulative inflation of roughly 85% over the same period. The workforce has grown by approximately 1,400 people.
A good year that changes nothing
That’s the honest assessment. 2025 will be reported as a surplus, and there’s genuine good news in there — document duty receipts were strong at £27m versus a £16m budget, driven by a 27% rise in local market property transactions. Employment tax receipts beat budget by around £7m. These are real signals of economic activity.
But the swing from a budgeted £16m deficit to a reported £100m+ surplus is almost entirely explained by factors the States cannot control or reliably repeat: a banking sector that had an exceptional year, a single bank paying seven years of underpaid tax at once, and an accounting accrual for new international tax revenue that won’t arrive as cash for another two years.
The 2026 Budget acknowledged this directly, noting that the States continues to operate a structural deficit that will not be resolved until tax reforms are implemented. Those reforms, whether GST-plus, corporate tax changes, or some combination, remain undecided, with a States debate expected in July.
A one-year surplus built on windfalls is not the same as a sustainable public finance position. The States knows this. The question is whether the rest of us understand it too.
Jon Bond is a non-executive director of the Channel Islands Co-operative Society and a director of Sark Shipping. He runs Evans Bond, an accounting and advisory firm based in Guernsey and is principal of Melius Consulting Limited. He writes at jonbond.biz.
The views expressed here are his own.
Sources: States of Guernsey Budget 2025; Guernsey Press, 20 May 2026; The Quarry, 25 February 2026; BBC Guernsey; States of Guernsey Budget 2026; gov.gg/pillar-two; P&R Committee update, June 2025. Audited 2025 accounts due 2 June 2026.
