Under the new debt strategy, published by Treasury Minister Susie Pinel, the Island is set to take out borrowing over the next few years that would mean its ratio of debt to the total value of the economy would leap to 39%. Last year it was 5.4%.
Jersey’s plans to borrow almost £2 billion heralded a new era for an island that has previously been averse to taking on debt.
The increased debt is set to include a £250 million social housing bond, up to £385m through a revolving debt facility taken out to pay for the Covid-19 response and £756m to pay for the new hospital. The report also references a £450m to £500m debt for ‘public sector pension fund liability refinancing’ in 2023.
Senator Kristina Moore, chairwoman of the Future Hospital Review Panel, said that there were ‘holes in the evidence’ for the hospital funding business case, having recently labelled the proposed cost of the facility ‘staggering’.
On the advice of the Fiscal Policy Panel, an independent group of economists which offers expertise to the government, ministers have maintained the policy of retaining high-value cash reserves, such as the Strategic Reserve (the so-called rainy-day fund) and Social Security Fund, and taking out debt to pay for large projects while interest rates remain low.
Assistant Treasury Minister Lindsay Ash said that returns on these funds, which are looked after by professional investment managers, outweighed the interest that would be paid on debt.
‘Let’s say, for argument’s sake, we borrow at 2% for 40 years. At the moment the rainy-day fund would be more than our borrowing and at any time we could use that to pay off any borrowing,’ Deputy Ash said.
‘And if it continues as it has done for the last 20-odd years – and there’s no reason to think it won’t – we’re paying off debt at 2% and our strategic reserve will be growing at 6%.’
Senator Moore said, however, that this approach was ‘speculative’, particularly with the world facing economic challenges, such as Brexit and climate change, and added that there was no guarantee that the Island’s investments would continue to perform as strongly as they had in recent years.
‘They are speculating that future markets will continue to perform as well as they have over the last 30 years, which were years of stellar growth,’ she explained. ‘But there is no guarantee that the next 30 years will perform as well or even beat inflation. We are facing a lot uncertainty over the economy at this time and things like climate change are going to be very challenging to deal with.’
The Senator added that her Scrutiny team intended to employ an independent economist to assess the impact of the expected level of debt on the Island.
She also said that she had ‘not been convinced’ by the business case presented by the Our Hospital team for the States Assembly to approve the proposed level of funding for the new hospital.
‘We were promised that when the States rescinded the decision to build the hospital on the Gloucester Street site, which would have cost £466 million, that they would find and deliver an alternative which was cheaper,’ she said.
‘What we have ended up with is a project that is nearly double the cost. We are going to scrutinise this and look at the economic impact it will have on the Island. It is a significant change in position for us to be at 5.4% debt compared to GDP last year and, by 2024, that figure will be 38.6%.
‘It is a very important decision to make and we are not convinced by the evidence that has been put forward to support the hospital funding.’
As part of the 2014 budget, the then States Assembly approved £250m of borrowing to build new homes. At the time it represented the largest borrowing the Island’s government had ever undertaken and the law had to be amended to allow the States to borrow such a large sum.
