Madam Bailiff, Before we resume debate on the Tax Reform 2026 Policy Letter, I want to update the Assembly on an important development in respect of Pillar Two revenue, and to explain what this means for the Committee’s recommendations to the Assembly today. Members will recall that our estimates for Pillar Two receipts in 2025 and 2026 have, until now, been prepared on a deliberately cautious basis, given the absence of any real-world evidence as to how these new tax arrangements would behave in practice. Members will also be aware of my view expressed at the time that, in reality, the numbers would in fact be higher. And here we are. Yesterday, the States of Jersey published its Budget for 2027 to 2030. Because of the way it structured its application of Pillar Two, Jersey has already received its first payments on account in respect of 2025 – a full year ahead of Guernsey and the Isle of Man. This gives us, for the first time, real-world evidence of the short-term implications of Pillar Two. It shows that the business behavioural change we had anticipated – as businesses adapt their international structures in response to Pillar Two - has not materialised to the extent Treasury assumed, at least in this first year of its application in Jersey. In light of this, we have revisited our own assumptions and are now able to look at our 2025 and 2026 estimates in a rather more optimistic light than before. That same reassessment carries through into 2027. Our estimate for Pillar Two revenue next year has also been revised upward to £79m, and Members will see this reflected in the 2027 Budget published next week. It is important that this should be considered as a short-term windfall, as it is in Jersey, and as it will be in other jurisdictions. Both our own and Jersey’s assumptions about these early Pillar Two receipts are likely to be a high-water mark, relative to the longer-term revenue from this source. Our revised baseline estimate for Pillar Two receipts is £93 million; however, we have applied a discount rate of 5% for 2025, 10% for 2026, and 15% for 2027 to account for uncertainty. That level of caution will need to increase the further out our forecasts go. Beyond 2027, the risk of businesses adapting their models to mitigate Pillar Two increases, and our assumptions for ongoing receipts reflect that increased uncertainty. The complication is that – because of the lag between accruals and remittances – we must account for Pillar 2 receipts in the year to which they relate, but we don’t start to receive the cash until typically around 18 months later. I must stress, however, that these remain high-level, indicative figures. They are built on a range of assumptions – about business behaviour, about the pace of adaptation to this new framework, and about how long elevated receipts will persist – that require further testing and validation. They are, at this stage, uncertain, and Members should treat them as such. This is not a moment for the Committee, or this Assembly, to bank a windfall as though it were guaranteed. This is not yet cash in our pocket. It will be another nine to twelve months before the first 2025 receipts are actually in the bank. Because of that uncertainty, I want to be equally clear that the Committee’s assessment of the States’ longer-term financial position has not fundamentally changed. Pillar Two receipts are expected to remain elevated for perhaps two to three years before declining as business models adapt, and they should not be treated as a sustainable source of funding for ongoing expenditure. The States’ finances will continue to deteriorate given the demographic pressures we face which are identified in our Policy Letter. Neither does this change the structural issues with our tax base and our over dependence on income-based taxes. Tax Reform therefore remains necessary, but what this does give us is a little extra time. Our previous planning assumed that, without further action, the States' reserves could be exhausted by around 2030. The updated modelling – though still provisional – suggests that point may now arrive around a year or so later than we'd originally estimated. That additional time is helpful in that it gives us more breathing space in terms of implementing tax reform changes. With a slightly later implementation date, the Revenue Service can progress its Recovery Plan further in advance of systems changes, and it will give more time for public confidence in the service to rebuild. Tangible progress is underway: as Members who attended last Friday's presentation will have heard, the number of outstanding work items has come down from over 166,000 in March to around 106,000 by the end of August. But the Committee has been clear throughout that tackling the backlog is only part of the job. The Programme's real purpose is to fix the underlying causes, not just treat the symptoms. That means building consistent processes and quality controls, putting in place the workforce planning needed to match capacity to demand, and developing the management information required to run the Service as the community expects. Given the revised data on Pillar 2 receipts and the breathing space that affords, especially given the compression of timelines caused by the extension of this debate, the Committee is recommending adjusting the implementation timeline for the income tax, social security and consumption tax changes to 2029. This is a change of pace, rather than a change of direction, and one which – through our decisions now on tax reform – is the most responsible course of action. We have been gifted an opportunity to restore some contingency to the implementation of these proposals and to proceed with it in a less pressurised time frame, but we will lose what has been gained if we continue to defer making the clear decision the community needs. There is a further opportunity worth noting here too. In the upcoming 2027 Budget, the Committee will be proposing a new Economic Growth Fund, taken from the Pillar 2 receipts, to help Guernsey remain competitive, productive and attractive as a place to do business. Once actual Pillar Two receipts are known and we have greater certainty over the revenues, the Committee will look to increase the level of funding available. The objectives of the fund will be to provide more money for economic growth, the finance sector strategy, early years and skills, productivity and participation in work, and housing affordability. Madam Presiding Officer, the case for Tax Reform has not changed. We now have better, if still provisional, information than we had when this Policy Letter was drafted, and we want to be fully transparent about it – which is why we are grateful to you for this opportunity to make this statement to clarify its effect on the timeline. Thank you.
