By Ben Shenton
IT’S a little like being the non-executive director of a large, regulated entity where information is fed to you by the management on a need-to-know basis, where knowledge is power, and opaqueness in everything is the company culture. Let’s call this company Humphrey Limited, named after Sir Humphrey Appleby of Yes Minister.
I’ll give you an example. As a non-executive director of Humphrey Limited you have spent months going over the business plans, and two weeks ago, after a really intensive board meeting you finally sign off the budget, comfortable that you fully understood the cashflow, assets and liabilities.
Then, a few days later, you read in the newspaper that Humphrey Limited has borrowed £100 million through a subsidiary for housing speculation and, surprisingly, there was no mention of this in the business plans or budget you signed off. Indeed, the budget included graphics showing no increase in lending for housing projects – just the £250m previously committed. Worried that the newspaper story was wrong, or that basic checks and balances were not in place, you speak to your fellow non-executive directors. None of them was aware of the extra borrowings either, albeit one did mention that another wholly-owned entity was borrowing £150 million for a harbour project.
After investigation, you find the loan was taken out by a 100%-owned entity, and signed off internally with no reference to the main board of directors. It was deliberately not included in the budget or business plan – the opaque need-to-know culture. The directors had therefore signed off a budget and business plan without any comprehension of the true liabilities. It appeared the company has the power, through its 100%-owned subsidiaries, to substantially, and perhaps dangerously, increase debt levels without reference to the main board.
Within the States of Jersey, the politicians could be viewed as the directors, clueless and in the dark. Last week, Andium announced that they had borrowed an additional £100 million at an interest rate of 5.11%, repayable in eight years. The total amount to repay will be over £140m (a 40% profit required to cover interest costs) and there was no mention of this debt in the business plan and no mention in the recent Budget, which politicians spent a week debating. Evidently, borrowing of this nature can be signed off by one person acting alone, the Treasury Minister, and the politicians don’t need to authorise it, agree it, or even know about it in advance.
This cannot be right. How can you incur a repayment liability of £140 million with such weak checks and balances, and it certainly goes against the protocols set out in the latest States of Jersey Debt Management Framework, a document of very poor quality. I am not blaming the good people at Andium, who have done well to build up an entity that can borrow on such favourable terms, for they were told they did not need States Assembly authority. The problem is that when it comes to the management of the Jersey economy, there is absolutely no one on the bridge.
It would be very unfair to blame the politicians for this deliberate deception but, believe me, this is just the tip of the iceberg. Another States-owned enterprise, Ports of Jersey, will be borrowing £150 million for the new harbour terminal. We also have the new hospital to fund through substantial borrowings, probably around £800m, which pushes the additional debt figure above £1 billion.
Surely the politicians need to fully understand the total debt mountain and the interest costs to work out overall affordability, and how it is to be repaid. Our debts will have gone from nothing to over £2 billion under ministerial government.
You cannot have entities such as Andium borrowing £100 million without looking at our debt liabilities on a holistic basis, and fully understanding it. This maverick mismanagement may eventually lead to credit-rating downgrades and an unsustainable debt mountain. I have little confidence in anyone in the Economic Development or Treasury Departments. They are not just asleep at the wheel they have gone AWOL.
My conviction that there is no one managing the economy is further confirmed by other developments that all our politicians will be clueless about, until they read this, because Sir Humphrey Appleby has them wrapped around his little finger.
I was surprised to see that the Minister for Treasury and Resources signed two ministerial orders in the weeks leading up to the Budget debate rather than include them within the numerous tax changes laid before the Assembly for formal debate and approval.
Ministerial orders are commonly used where legislation needs to be tidied up as it is obsolete or poorly phrased. However, these orders abolished certain tax provisions that are still relevant and will no doubt create additional tax for some taxpayers.
Was this an unacceptable oversight or was it a conscious decision by the Council of Minister to effectively bypass the Assembly? If a conscious decision, I wonder what else they are considering doing by ministerial order to exclude scrutiny by the Assembly?
The tax changes are complex, and won’t probably directly apply to the average man in the street, but they have annoyed some very large businesses, finance companies and large corporate retailers. In effect, the provisions will double tax some of the food companies/large retail/finance companies etc. The trouble is that if you raise taxes on food and other companies, they have to pass these additional costs on to the consumer.
And what do you think the implications are of injecting £1 billion into the relatively small Jersey economy, while simultaneously raising taxes? What are the implications of building new houses when we have so many expensive unsold flats for sale? Why buy a flat if you can hold out for a subsidised house? (One website lists over 1,600 properties for sale). Demand has declined, there is a stagnant housing market, and demographics are not working in the Island’s favour.
The probable answer is rising inflation and higher rents, as imported short-term building labour and construction material requirements increase demand. This will make life tougher for our pensioners and hard-working middle-income individuals, while simultaneously making Jersey even more expensive and unattractive for our young, who will continue to leave.
It does not even mean an end to the stagnation in the property market as negative short-term policies, and external factors outside our control, will increasingly eat into our property premium. Housing market activity won’t recover until prices reset.
Our government does not have a holistic debt-management plan. Our government increases taxation without reference to the States Assembly. Our government operates in silos and when it comes to managing the economy. Our government has no one on the bridge.
Ministerial government operates in silos, and Sir Humphrey Appleby and his colleagues are keeping the politicians in the dark. The public, and our political representatives, deserve better.
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Ben Shenton is a senior investment director. He is a former politician, Senator, who held positions such as minister, chair of Public Accounts Committee, and chair of Scrutiny. He also assists a number of local charities on an honorary basis.
