From income tax to fuel duty: how Guernsey Budget 2025 proposals will affect islanders

Main takeaways from the budget include an increase to income tax, inflationary rises on tobacco and fuel duties, and a freeze on alcohol duty. Credit: ITV Channel

States of Guernsey has outlined its proposals for next year's budget.

The decision comes as the forecasted budget surplus for 2024 has now turned into a projected £24 million deficit.

To raise additional revenues, the Committee for Policy and Resources (P&R) has proposed to increase income tax by 2%.

However, several other budgetary factors could affect Guernsey residents, despite BDO's Tax Director, Mark Savage, saying more drastic changes might be needed.

He explains: "Looking at the budget as a whole, I was quite surprised by how radical it wasn’t. Apart from the headline income tax rises, most taxes are rising by inflation or potentially less.

"If you look for the budget for next year as proposed – even stripping out the income tax rise, what you would be left with is a small operating surplus.

"But we are looking to spend 16 million on infrastructure and investments and that would tip us from a surplus into a deficit and that’s been going on for a number of years and is likely to continue for a number of years."

See our breakdown of what costs will affect the everyday Guernsey resident:

Chief Minister Lyndon Trott has defended the decision to increase income tax, saying "responsible politicians have to face the realities". Credit: ITV Channel

Income tax

In an announcement that many Guernsey residents were expecting, income tax will increase by 2% for a limited period of two years under proposals.

It means earners will pay an additional 2p for every pound they earn.

States of Guernsey say they aim to counteract the impact on earners by increasing personal income tax allowance to £15,000 - a rise of £1,100 from the current level.

They say 80% of households in the lowest income quartile will be better or no worse off than they are today.

Deputy Lyndon Trott, Policy and Resources (P&R) President, defended the rise saying: "It is the prudent thing to do and we are crying out for more investment in infrastructure and this will enable that as well."

P&R believes the income tax rise will raise additional revenues of £34 million each year.

However, Mark Savage warns: "People might leave money that they don’t need right now in their companies until the income tax rate has gone back to 20 per cent in order to defer that and effectively reduce their overall tax liability."

A freeze in alcohol duty means the present duty for a pint of beer or cider between 2.8% to 4.9% ABV will remain at 56.9%. Credit: ITV Channel

Alcohol Duty

P&R has announced that they want alcohol duty to be frozen in 2025.

The decision is to help the struggling hospitality sector, which continues to be damaged by rising duty costs.

However, brewing businesses could pay more due to a change in the definition of small brewers and cider makers.

Currently, small brewers are defined as those who produce less than 20 million litres per annum (5 million litres for small cider makers). They receive a 50% discount on alcohol duty.

Under proposals, both limits are being reduced to 500,000 litres production per annum, meaning some brewers might now be exempt from a discount.

Changes also mean the alcohol duty discount will be increased to 60%.

The Budget estimates income on excise duty on alcohol will be £16.4 million for 2025.

Excise duty on tobacco would make an average packet of 20 cigarettes rise from £7.57 to £8.57. Credit: ITV Channel

Tobacco and cigarettes

Under proposals, taxes on tobacco products will rise by around 13.2% - 10% above inflation and equivalent to an additional pound per pack of cigarettes.

This change is recommended to cover the remainder of 2024 and into next year.

The Budget adds that Guernsey will follow the UK in bringing a duty on non-disposable e-cigarettes by 2026.

It states: "Work is ongoing with suppliers, importers and Customs to introduce this as smoothly as possible, and proposals will be included in the 2026 Budget Report."

Fuel duty will increase by 3.2 per cent in line with inflation, alongside Tax on Real Property. Credit: ITV Channel

Petrol

While motor fuel duty would rise by 3.2% under proposals, this would align with inflation.

It's an increase of around 2.7p per litre bringing the overall to 86.8p.

P&R considered increasing excise duty on marine use fuel but instead decided against an increase to support the island's fishing fleet.

The Budget says fuel duty volumes have declined with increased engine efficiency and the move to electric vehicles.

Recommendations on changing transport taxes are not in this year's budget due to the increase in income tax.

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