Jon Bond

Small Island, Big Ideas

Tag: public-services

  • 2025: £16m deficit to £100m Surplus?

    2025: £16m deficit to £100m Surplus?

    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.

  • If GST is Coming to Guernsey – Can we Learn from Others?

    If GST is Coming to Guernsey – Can we Learn from Others?

    Given the heat this debate is currently getting (Press report on Chamber response to Social Security Reform as part of GST, Bailiwick Express on Suggested Income Tax rise backed by CGi), I thought I’d reflect on the topic. This is not a post about whether GST is good or bad, it’s a post about whether Guernsey is going to be honest with itself about what’s coming, why it’s coming, and what we need to get right.

    If we’re not careful, we’re going to repeat mistakes that our neighbours made seventeen years ago.

    The Fiscal Reality We Keep Avoiding

    Guernsey has a structural deficit that, depending on how you measure it, is now approaching £100 million a year (according to the policy letter in November 2025). Let that land for a moment.

    This isn’t a temporary dip. It’s not a post-pandemic blip. It’s a gap between what we spend on public services and welfare, and what we raise in tax, that has been building for years while successive States committees warned about it, published reports on it, and then kicked the can down the road. Despite the evident squeeze, the States have been spending more on the day to day and continue to vote through capital projects at great cost.

    In 2024, 54% of total government revenues (including underlying entities revenue1 – 79% of headline revenue) were through personal income tax and social security (2024 States of Guernsey Accounts). That’s an extraordinarily narrow base for an island of our complexity. It means our finances are fragile. In practice it also means wealthy people with low declared income contribute less than those earning income from working. It means we can’t fund the hospital, schools, and infrastructure that people rightly expect without either raising income tax, which has its own consequences, or broadening how we collect revenue.

    Let alone the impending democratic time bomb that the island will need to deal with.

    A goods and services tax, at its core, is about broadening the base. That’s not a political slogan. It’s an economic reality.

    What Jersey Did – and What Actually Happened

    Jersey introduced GST in 2008 at 3%, having concluded there was a £40-45 million revenue shortfall that couldn’t be closed any other way. Sound familiar?

    To be fair to Jersey, they tried to cushion it. They raised income tax allowances, increased Income Support payments, and introduced a Community Costs Bonus for lower-income households. They did the socially conscious version of the introduction, at least on paper.

    But here’s what followed.

    Within three years, despite an election campaign where the then Treasury minister gave what he described as a “categoric assurance” that he would not bring proposals to raise GST, the rate went up to 5% in 2011 because the structural deficit hadn’t gone away. Jersey then endured over a decade of economic stagnation. By 2015, an austerity package cut £10 million from support for the most financially vulnerable in the island — the very people GST had hit hardest in the first place.

    A Jerseyman writing in the Guernsey Press put it plainly a few years ago2: if he had to sum up Jersey’s experience with GST in one word, it would be failure. Not because consumption taxes don’t work — they work all over the world — but because Jersey used GST to paper over a structural problem without addressing spending, and without being honest with the public about what was coming next.

    The lesson isn’t “don’t do GST.” The lesson is: don’t introduce a tax, promise it will fix everything, promise the rate will never change, and then be surprised when it doesn’t fix everything and you need to raise the rate.

    What’s on the Table for Guernsey

    The proposal currently in front of the States is known as GST-plus – and it’s more complex than just a new tax on your shopping.

    The full package includes:

    A 5% GST on most goods and services – modelled closely on Jersey’s system. If food is zero-rated, the rate would need to be 6% to raise the same revenue.

    Social security reforms – most people on low and middle incomes would pay less in contributions, because everyone gets a new allowance before contributions kick in. The rate on income above that allowance rises to compensate. However, the burden falls on local businesses (more on that to come another day).

    A new 15% income tax band on roughly the first £32,400 of earnings – intended to reduce the tax burden on lower earners as part of the overall redistribution within the package.

    Benefit and pension uprating — the States has committed to increasing pensions and benefits ahead of GST being applied, so recipients don’t face a 12-month wait to be compensated for higher prices. The estimated inflationary impact of GST on the island’s price level is around 3.2%. The RPI inflation rate currently sits at 3.4% for the UK3 – with the Iran conflict it is likely to be even higher, with an additional cost of GST to factor in for 2028 (expected introduction).

    In addition, the social security package which shifts the burden to businesses to the tune of GBP 17 million, may well be inflationary in itself.

    The net additional revenue target is £50 million a year. That’s roughly half of the structural deficit at current estimates, and the deficit is growing. For 2026, the budgeted deficit (before factoring in any investment returns is GBP 78 million)4.

    The earliest GST could be introduced is early 2028, given the systems, legislation, and business preparation required.

    In should be noted that much of the challenge about the above numbers is that the revenue service is so far behind, with inaccurate data, poor systems and an inability to even make repayments. The data behind these proposals has to be questionable, when the primary source of income is collected by a department which continues to be failing.

    The Arguments For and Against

    I work with businesses and individuals across this island every day, so I’ve heard both sides at length.

    The case for GST is genuinely strong. Guernsey is almost unique among comparable jurisdictions in not having a consumption tax. Jersey has one. The Isle of Man has one. The UK, Ireland, New Zealand, Australia – every developed economy you can name has one. The argument that it would make Guernsey uncompetitive simply doesn’t stack up when our main competitors all have it too.

    A consumption tax also captures what income tax can’t: the spending of people who are asset-wealthy but income-light. Anyone who has done tax planning work knows that high-net-worth individuals can legitimately structure their affairs to show very modest taxable income. GST doesn’t care about that. You spend money on this island, you contribute to its costs.

    The case against is also real. GST is regressive by nature. A family spending a higher proportion of their income on essentials will feel a 5% levy more sharply than someone with money to spare. The proposed compensating measures help, but only if they’re well-designed and properly maintained over time. Jersey’s experience shows they can drift.

    The food question matters enormously. Whether food is zero-rated isn’t a technical footnote – it’s the difference between a tax that hits lower-income households significantly harder and one that is at least somewhat fairer in practice. That decision is still to be made.

    And then there’s the question of trust. Asking islanders to accept a new tax requires confidence that it will be managed responsibly, that the rate won’t creep, and that it genuinely forms part of a coherent long-term fiscal plan rather than a short-term fix. Given that the structural deficit is approaching £100 million and the proposed GST-plus package raises £50 million, that question needs to be answered honestly.

    What I Think We Need to Get Right

    As someone who spends my professional life helping Guernsey businesses and individuals navigate financial decisions, here’s what I think matters:

    Design it properly. The exemption question – especially food – is not something to decide based on political convenience. Get it right from the start, because unpicking it later is much harder. Jersey was told it was too complicated to exempt food. Somehow it wasn’t too complicated to exempt yacht fuel. Complexity in law shouldn’t mean we fail to do the right thing. We’ve experienced a number of years of food inflation, with further inflation to come this year, there is a real argument for essentials to be protected from GST.

    Be honest about the rate. If there is any reasonable scenario under which a 5% rate isn’t sufficient in five years’ time, say so now. Don’t make promises that can’t be kept. The erosion of public trust in Jersey after the 2011 rate rise did lasting damage.

    Address the spending side too. £50 million of new revenue doesn’t close a reported £100 million gap. Any credible plan has to include a serious, accountable commitment to expenditure control alongside the tax reform. We’ve seen too many “savings targets” in States budgets that quietly evaporate. A civil service wage bill that was £318m in 2024 – up from £216m in 2014 (a rise of 45% compared to RPI during the same period of 38%) demonstrates growth beyond simple pay rises.

    Don’t delay indefinitely. The July 2026 debate is already being talked about as a candidate for postponement. Credit to Deputy De Sausmarez indicating it won’t be delayed. (But the reality is the (now former) political lead is embroiled in very public personal issues).

    Every year of delay costs real money and defers decisions that are only going to get harder. Guernsey has been debating this for the better part of a decade. At some point, not deciding is itself a decision, and not a good one.

    The Bottom Line

    Guernsey needs to raise more revenue. The numbers are clear, the structural deficit is real, and the reserves we’ve been drawing on to paper over the gap won’t last forever. Equally there needs to be real savings made by our States. People see waste, and that makes selling the concept of GST challenging.

    The question in front of us isn’t really whether something needs to change. It’s what that change looks like, and whether we have the political maturity to design it well and be honest about it.

    Jersey experienced what happens when you introduce a new tax to solve a structural problem and pretend you’ve fixed something you haven’t. Both islands’ finances are being propped up by financial asset gains which can very quickly evaporate. I’d rather we looked that reality in the eye now than spend the next decade discovering it the hard way.

    Jon Bond is Founder and CEO of Evans Bond Limited, an accountancy and advisory practice in Guernsey. He is also a non-executive chairman of CI Co-op and NED at Sark Shipping. The views expressed here are his own.

    1. This includes Customs Duties, TRP, Document Duty, and notably all States owned entities and services (Electricity, Aurigny, Guernsey Post, Harbour Fees etc) ↩︎
    2. ‘GST has been a failure in Jersey’ (https://guernseypress.com/opinion/2022/12/12/gst-has-been-a-failure-in-jersey) ↩︎
    3. https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/march2026 ↩︎
    4. https://www.gov.gg/CHttpHandler.ashx?id=199792&p=0 ↩︎