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Budget reveals "dreadful" effects on States' finances

Budget reveals

Monday 16 November 2020

Budget reveals "dreadful" effects on States' finances


The financial impact of the pandemic has exceeded £120m so far this year, with the States harvesting its reserves to help cover a £59m budget deficit for 2020.

No tax increases have been proposed at this time, however Policy & Resources has warned that an urgent review of Guernsey's tax structure is needed in order to bridge a long-term funding shortfall, which had already been identified as a problem prior to the "devastating" impact of the pandemic.

Events during 2020 have also led to a significant negative swing in Gross Value Added (GVA) - a measure of the economy's effectiveness - which is now expected to contract by 6-8% compared to original growth forecasts of 1 - 1.5%. P&R is hoping it will bounce back by around 3% in 2021, which has been given as a "conservative" but "sensible" estimate. 

The level of financial support to businesses paid out by the States to support the economy is estimated to cost £52m in 2020, which, combined with the impact of loss of revenues, will have directly impacted General Revenue by some £80m. 

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Pictured: A table summarising the overall position for 2020 and 2021.

Aurigny is forecast to lose £24m this year - attributed in part to flight restrictions - while £4m losses for Guernsey Waste contribute to a total of £40m worth of losses from the States' Trading Assets. 

With Income Tax receipts £30m lower than originally forecast, P&R is proposing to take £32m from the General Revenue Account Reserve – leaving just £3.5m in that account - and a further £50m from the Core Investment Reserve – taking that down to £148m.

No funds will be transferred into the Capital Reserve either this year or next - to put that into context, at the start of the year P&R was planning to transfer £40m in 2020 and £49m in 2021. 

"We have effectively been selling off the family silverware to pay off the deficit," admitted P&R Treasury Lead Deputy Mark Helyar. 

P&R President Peter Ferbrache added: General Revenue budget deficits of £59m and £23m are forecast for 2020 and 2021 respectively, even without an appropriation for funding capital expenditure. It has been necessary to draw-down on our accumulated reserves in order to fund these deficits.

"This is clearly a short-term response to manage the immediate issues we are facing including lost revenue and expenditure pressures."

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Pictured: A lack of traffic is predicted to put Guernsey Ports £19m in the red over 2020 and 2021, while the new waste strategy is currently losing almost £4m a year due to a 21-year financial model.

On the other hand, the committee has vowed that money will be "committed" to infrastructure projects that bring immediate benefit through helping the economy to bounce back. P&R has also pledged to "sharpen its focus" and cut out unnecessary capital projects. 

Without any changes being made, a whopping extra £80-130m could be needed every year in order to pay for government's long-term expenditure needs.

"A key priority for this Assembly has to be to address the fundamental question: “what level of public services should be provided and how much tax are we prepared to take from the economy and community in order to provide these?” said Deputy Ferbrache. 

This Budget does not propose major tax increases, however, a review of Guernsey's taxes has been launched that will mark "the beginning of a difficult journey" towards increased taxes. 

The budget measures proposed include: 

  • a 2.6% increase in Personal Income Tax Allowances, increasing an individual’s allowance by £300 to £11,875; 

  • an increase of £10,000 (to £40,000) in the Income Tax Standard Charge; 

  • an increase of 1.5% (RPIX forecast) in the excise duty on Alcohol, increasing the duty on a pint of standard-strength beer by 0.6p to 50p (25p if produced by a small independent brewery); 

  • an increase of 1.5% (RPIX forecast) in the excise duty on Motor Fuel, increasing the duty by 1.1p per litre to 73.4p per litre; 

  • continuation of gradually increasing the commercial TRP tariffs for the general Office and Ancillary Accommodation category to the same tariff as the other Office and Ancillary Accommodation categories, resulting in an increase of a further 29% 

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Pictured: The 2021 Budget on a page. 

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