By Richard Digard
FINANCIALLY speaking, as you know, Guernsey’s going down the tubes. The gap between revenue and expenditure was -£135m at the end of 2022 and is scheduled to worsen steadily all the way out to 2040 unless something fairly radical and unpleasant – if you’re a taxpayer – is done about it.
And that nasty “something”, as the people of Jersey are well aware, is GST, the goods and services tax that you introduced back in 2008 at around the same time as the islands scrapped tax on company profits to remain competitive because the Isle of Man had done so in a unilateral and rather high-handed fashion.
Guernsey, you’ll also recall, knew better, and declared that economic growth and reduced government spending would bridge the so-called black hole left by bringing in zero-ten in response to pressure from the EU on unfair tax competition.
In fairness, it might have pulled that off but for the global financial crisis which began at just about the same time and put a bit of a crimp in everyone’s plans. As, indeed, the Covid pandemic did as well.
The point, however, is that your neighbours in Guernsey have since been living off their wits and savings, both of which are proving rather inadequate for the task.
Hence us being in the soup now, with no credible plan to restore government finances to health, the likelihood of a further credit downgrading by ratings agency Standard and Poor’s later this month and – so the buzz is – a less than flattering judgment from Moneyval this year. Oh, and we’ve also dumped our chief minister, having rather lost confidence in him along the way.
That might sound familiar too, as your own political leader, Kristina Moore, is also facing her own vote of no confidence. Unlike our own Peter Ferbrache, who managed to lose the equivalent of a working parliamentary majority while also losing his flagship fundraising policy on GST, I’m assuming Deputy Moore will survive the attempt to remove her.
To be honest, it doesn’t much matter (other than to her) whether she does or not. Little will change either way. I say that because my fear is that your direction of travel is well established and pretty much irreversible. You’re going the same way as Guernsey, just more slowly.
Look at it this way. Bar the obvious differences of your 45 square miles with some 103,200 inhabitants and Guernsey’s 25 square miles with nearly 64,000 people, the similarities between the islands in the sense of what they have to overcome to survive is striking.
The first must-have is to maintain a population, support infrastructure and public services sufficient for the economy to be viable and self-sustaining and for social services to be at the right balance of scale and affordability. The second, as autonomous Crown Dependencies, is to do so without any external support or assistance from a larger neighbour.
This is quite an ask and, as we know, Alderney hasn’t managed it since the shock of the Occupation and Sark is struggling with providing something as basic as an electrical supply, child care and decent drainage.
Specialist islands consultancy Critical Economics, which now promotes its services under the brand Islestat, has done a lot of work on this and the Channel Islands aren’t alone in facing these macro issues.
So affecting those headline must-haves locally are the well-developed and increasing “brain drain” of brighter students seeking affordable housing and better lives off-Island, the sheer cost and size of government competing for staff against the more productive private sector, cost-of-living pressures, an ageing demographic and a growing chasm between the (often very) comfortable and the just scraping by.
Add to that the narrow economic base, hugely dependent on finance, vulnerable to external economic shocks either due to regulatory changes (public registers of beneficial owners, anyone?) or competitive pressures making financial services here unviable and it’s clear the islands are significantly exposed.
To illustrate that, look at the Finnish banking crisis of the 1990s, the financial crisis in Iceland in 2008–11, and the property-led economic crash in Cyprus in 2012–13. In each case, the lurch away from the key industry involved a fiscal cost of around 30% to 60% of GDP.
The lesson here is that one-trick economies can collapse swiftly, the cost of recovery is extreme and it takes a long time to get back on your feet, even if it is possible. Which is why prudent islands maintain significant surpluses, say around 50% of GDP, to be on the safe side. Which Guernsey, at least, does not have.
Jersey has the benefit of a much bigger economy but now employs nearly 8,000 public servants at a cost of more than half a billion a year and hired 431 new civil servants last year alone. That’s not sustainable.
In addition – and just like Guernsey – you’re living beyond your means. Despite having a States of Jersey Group (whatever that is) income in 2022 of more than £1.5bn, the Island ended up with a group deficit of -£63m, although that rises to -£268m if you include losses on investments.
It’s worth noting, too, that the general revenue deficit in 2020 was -£113m but +68m in 2021, despite a Budget forecast that it would have been -£173m. As you can see, there’s significant volatility there but the sums involved are massive and easily affected by rising States costs and/or economic uncertainty.
And that cost of government would be incomprehensible to Jersey politicians and officials of even a few years ago, much of it directly attributable to the regulation, standards and rule-keeping needed for these islands to remain as independent micro-states – a burden that will only become more onerous and expensive as the years go by.
In turn, unless taxes are to rise steadily, economic growth has to more than match the rising cost of government, despite the growing pressure on the “must-haves” I outlined earlier. It’s a tall order – and both jurisdictions are already running deficits.
Now, I’m not suggesting we throw in the towel and ask to become satellites of the Isle of Wight, but the economic pressures facing Jersey and Guernsey are going to get significantly worse in the years ahead – without any external economic shocks imposed on us.
Which is why if I were chief minister of either island, I’d be reaching out to my opposite number pretty urgently to see which of what you might call “costs of independence” could be shared and what was needed to make that happen, so that we could both benefit from the savings.
Don’t worry, it won’t happen, with the inevitable consequences for your back pocket. So, while you can, have a happy New Year.
