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Policy & Resources is today picking up the pieces after the States voted through huge swathes of unfunded spending in the 2025 Budget.
Having overwhelmingly failed to secure support for its proposed 10% hike in income tax for the next two years to cover spending commitments, the senior committee has been forced back to the drawing board.
The increase in income tax from 20 to 22% was designed to raise £34m. towards spending next year and that is a hole that senior P&R figures say has to be filled.
An emergency budget is expected in the new year, and it is likely to need a combination of measures to make the books balance.
So what could happen?
First up will be pushing back spending on capital projects to free up the cash to move into the revenue pot instead. Only in October did members agree to spend £95m. in this area. The most likely victim here is the next phase of the hospital extension, it was mentioned several times in debate and already has its doubters because of rising cost estimates.
The Alderney airport extension is another at risk, having already been delayed, again because of rising cost estimates.
It is harder to make the case now for some of the spending around the edge of the 2025 Budget. Money to spend on consultants to look at a wind farm, cash for the work of the Guernsey Development Agency as it reimagines the Bridge, match funding for the Victor Hugo Centre. Just because they got supported this time around doesn’t mean it can’t be changed.
P&R made a play in announcing its Budget about the fact it had frozen alcohol duty (at a cost of £540,000) and only raised property tax and fuel duty in line with inflation. They are all levers, although often unpopular ones, that could be pulled on to help raise more money now.
The original 2025 Budget contained no central savings target, which put the States out of step with much public discourse. The Budget debate heard a lot about how there were still savings that could be made, with some backing another FTP, the cost-cutting drive which closed a decade ago. But that would take time to deliver. Previous Budgets have simply included a flat target, say 1%, for each committee to find themselves.
The States has a resolution in place from the Funding and Investment Plan debate to maintain the current level of the General Revenue Reserve this term. It stood at £348m, or £508m. once borrowing was added in at 1 January 2023. This reserve is used to fund all of the States’ General Revenue expenditure, including all capital, transformational and GWP initiatives. P&R has been firmly against eating into these reserves further, with warnings included how doing so could effect the island’s credit rating - but it can change the resolution.
This is more of a long shot, but a lot of work has been done on GST since it was first an option in the days of zero-10. If it was the only measure, to cover the income tax loss and protect reserves there has been talk it would need to be set at 8%.
P&R seemed firmly set against looking at how much money it has agreed for everyday committee spending for 2025, often stressing how the committee’s had asked for £32m. more than it eventually agreed to. But the fact remains it was still an above inflation rise they backed £650m. in committee spending.
States paves the way for GST package by 2027, rejects income tax rise
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