Tuesday 10 October 2023
The 2024 Budget is published today, and reflects the ongoing cost pressures facing the public sector as demand for services continues to rise.
The Budget projects a small revenue surplus for 2024, before taking into account any spending on infrastructure. After allowing for an infrastructure spend of 2% of GDP (the States' target for average capital expenditure over the long-term) this would be a deficit of around £50m.
This year's Budget is published at a time when the final amount the States will spend on capital in 2024 (and the following years) is to be decided, and is the subject of the debate on the Funding & Investment Plan and Capital Portfolio later this month.
That debate is the appropriate place to for the States to make some critical decisions on how it addresses the unsustainability of public finances, which becomes more serious and more urgent each year. However, the Budget for 2024 must take into account that unsustainability.
Guernsey has a structural deficit which it is managing through the use of reserves built up in the past. As these reserves get smaller so do the size of any investment returns which might be relied upon to 'prop up' the States' financial position, creating a 'double hit'. This is leading to an extremely precarious financial position for the Island. In addition, the Core Investment Reserve, sometimes known as the 'rainy day' reserve, continues not to be replenished. Its reserves should be enough to cover at least one year of General Revenue income, to protect the Island in case of an emergency where unforeseen costs need to be met. Right now, it only has enough to cover three months.
In preparing this year's Budget, Committees were asked to reduce their spending by 2.5% after allowing for inflation, with the exception of the Committee for Health & Social Care. This was intended to achieve an overall real-terms freeze in spending. While savings have been identified and these have helped prevent an even worse position for 2024, increasing cost pressures in other areas have meant almost all Committees have been unable to achieve that level of reduction for 2024, and overall spending is budgeted to be 1% up on 2023, after allowing for inflation.
The Committee for Health & Social Care, which is the largest area of expenditure, is facing a very difficult year ahead, and requested an additional budget of £10.4m on top of an inflation allowance of £5m that was already being applied for 2024. The Policy & Resources Committee cannot support that level of additional spending as it is not affordable and is instead proposing a £4m increase, but it fully appreciates the enormous challenge faced by the health service in terms of staying within this budget.
The 2024 Budget is geared at raising additional revenue from those who can most afford it. A real-terms increase of the main tax caps and a lower threshold for the withdrawal of personal allowances are both included in this budget raising more revenue from high earners. Income tax allowances are also being increased to particularly help those on lower incomes, and the phasing out of mortgage interest relief is being paused for another year.
Proposed TRP increases are weighted towards those with commercial or larger domestic properties. In addition, as a step to help address the shortage of available housing, large increases in TRP are recommended for unoccupied commercial and domestic properties, and for derelict glasshouse sites.
Deputy Mark Helyar, Treasury lead for the Policy & Resources Committee said:
"We're in an extremely difficult financial situation, and the Budget which covers the year ahead, is not able to provide all the solutions, that's really down to the longer-term decision the States will need to make in the Funding & Investment Plan debate. But we're looking to do what we can to minimise the deterioration of our financial position in 2024, while not impacting people on lower and middle incomes."
