UP until relatively recently, the States of Jersey would only spend money it already had in its pocket: the £2.65m cost of the development of Fort Regent in the late 1960s, for example, was funded by the proceeds of the Island lottery, which had launched in 1966.
Next year’s Budget also allocates money to redevelop Fort Regent, but this time the government wants to borrow £43m to fund the first phase of work, which includes replacing the skin of the distinctive waved and domed roof.
Total approved borrowing next year will be £1.3m, which will remain the same until 2029, which is the period covered by the 2026 Budget. This includes past borrowing for social housing, pension liabilities and the proposed new hospitals at Overdale, Kensington Place and St Saviour.
Jersey has certainly had national debt in the past – the Island owed millions after the Occupation, for example – but the post-war consensus was that the books should balance.
That changed in 2014, when the government took out a £250m loan to pay for new and upgraded social housing. The financing costs of the bond were low and the source of repayments – rental income and property sales – was easy to identify.
In 2020, the government also set up a ‘revolving credit facility’ – a flexible loan agreement – to borrow up to £500m to cover Covid costs.
A year later, borrowing took on a more systemic note when the States Assembly agreed to borrow up to £756m for the now-shelved Our Hospital project. The Council of Ministers of the day also published a ‘Debt Framework’, which established some borrowing guidelines for the next 40 years.
In essence, it limited borrowing to capital investment in public assets; temporary blips, such as covid; fiscal stimulus to give the economy a kick-start, and deferred income and cashflow.
Proponents of borrowing argue that it makes economic sense if debt is limited and follows clear rules: fundamentally, that it is used for capital projects – similar to a mortgage – and not for day-to-day expenses – like a credit card.
Opponents, however, fear that Jersey’s appetite for debt could increase. They add that borrowing erodes prudence and restraint, and the Island becomes more vulnerable to the vagaries of the global economy, not least because it has no control over interest rates.
Recently, the Government published its draft Budget for next year, which includes spending plans for the following three years.
The only new borrowing proposed for next year is £43m to kickstart the redevelopment of Fort Regent.
The Budget says that the funding is for the ‘enabling works’ that represent the critical first step in unlocking the Fort’s long-term potential. They include “the strip-out of obsolete infrastructure, major upgrades to mechanical and electrical systems, and essential repairs to the listed roof structure and historic walls.”
The £43m for the Fort will run alongside the financing / borrowing mechanism for the New Healthcare Facilities, so using something called a Revolving Credit Facility.
This is a flexible arrangement, where you take as much money as you need and only pay interest on that amount. The idea is that you keep drawing down money, and when you have enough debt – and/or interest rates are low enough – you take out a longer-term bond to clear the facility’s debt.
With a bond, you are loaned the entirety up front – so you are paying interest on the whole amount even if three-quarters of it is sitting in an account or fund waiting to be used.
With an RCF, if you only draw down £50m, you only pay interest on that £50m. You do have a pay a ‘non-utilisation fee’ on the unused balance but it is a lot smaller than the interest on a bond.
And the interest rate on, for example, a UK 30-year gilt has jumped in recent months as the markets respond to concerns about tax rises, which are expected when UK Chancellor Rachel Reeves announces her Budget on 26 November.
Jersey borrowing tends to be associated with UK borrowing so when it’s expensive for Ms Reeves to take a loan, Treasury Minister Elaine Millar and her team feel the impact.
Approved in May 2023, the government currently has a £300m RCF, with something called an ‘accordion option’, which gives the Treasury the ability to extend that line of credit to £500m without too much complication. This option runs out in 2028.
At the moment, the government is repaying two bonds: in 2014, it took out a £250m loan for social housing, the lion’s share of which it gave to taxpayer-owned Andium Homes.
That bond needs to be repaid by 2054.
The government also took out a £500m bond in 2022 to refinance existing pension past service liabilities, with the remainder of that, £23m, used for the new hospital. That bond – which effectivity swapped one liability for another – has to be repaid by 2052.
The approved debt for the New Healthcare Facilities remains £523m for the next four years.
The government proposes paying for the first phase of the programme, which centres on building an inpatient hospital at Overdale, through a ‘blended approach’ of borrowing from the RCF and taking £277m from the Strategic Reserve, or ‘Rainy Day Fund’.
The Budget ‘assumes’ that the costs of servicing any debt will be met from general reserves, which include an anticipated £50m a year in extra tax receipts following an international ruling that all large multinationals should pay 15% tax on profits.
Financing the debt for the new hospital, Fort Regent, past service pension liabilities and overdraft costs will be £33.5m next year, rising to £48m in 2028. The social housing bond is being covered by Andium and the other housing trusts which received the money.
The government’s appetite for borrowing is set out in a 2021 document called its ‘Debt Framework’, which is updated every year. At its core is the premise that debt cannot be used to fund day-to-day activities: if the UK, for example, spends more than it is earning, it can borrow money to fill the gap – but Jersey cannot.
While Jersey often looks to the north for best-practice, when it comes to debt, that is not a good idea: the UK government’s national debt was around £2.9 trillion as of last month, which more or less equals the state’s entire GDP.
Jersey does use debt but more as a mortgage – to spread the cost of something over the time you benefit from it. To use an analogy relevant to most households, one could save money to purchase a home in Jersey outright, but you would probably only enjoy it in retirement, and you would have paid a lot of money in rent in the meantime.
The urgency of need often requires borrowing and shifting political priorities makes long-term saving difficult – saving money for a project 50 years in the future is rarely a vote winner.
The Debt Framework also calls on the government to set money aside in reserves to pay off the debt capital when it is due. Some loans are ‘interest-only’ in the short term, such as the £43m Fort Regent debt, when capital repayments begin in 2029.
The government, like the average household, only has a few ways to have more money: it can raise revenue through taxes or duties, or it can cut spending. On top of day-to-day spending, which must be covered by day-to-day income, it has capital projects and it must also cover depreciation of assets.
Although the 2025 draft Budget only includes an extra £43m of borrowing, it does say that the borrowing could increase in future years through its proposal to establish a ‘Jersey Capital Investment Fund’.
This will replace existing departmental capital votes – which usually total £70m – £100m a year – and will most likely be funded by rental income, asset disposals, specific revenue streams such as fuel duties and car parking charges, and ‘prudent’ borrowing.
Chief Minister Lyndon Farnham has said that he wants to curb the growth in the public sector, which will allow him to put savings into the fund.
Any borrowing, the Budget says, will be within the rules set out in the Debt Framework; however, it adds: “It is not currently expected that borrowing will necessarily need to play a significant role in the funding of Investing in Jersey and the Island’s long-term capital requirements.
“Only the redevelopment of Fort Regent is currently intended to be funded through borrowing. The government will continue to review the balance of funding sources to ensure that capital investment remains sustainable, and that the Fund is maintained at a level sufficient to meet future needs without compromising financial resilience.”
The government’s own debt, however, is not the entire picture because companies it owns also have debts.
At the end of last year, in addition to £227.6m it owned the government for its 2014 social housing bond, Andium owed more than £200m: £100m from a ‘Private Placement’ arranged in November 2024 and £105m from a RCF arranged in 2020 and extended in January 2022.
That means that Andium owed up to £432.6m at the end of last year.
Ports of Jersey is allowed to borrow up to £150m and, at the end of 2024, it had drawn down £30m of a RCF.
Other States-owned companies, including JT, Jersey Post and Jersey Development Company are also allowed to borrow.
JT, for example, has various sources of borrowing, which stood at £36m at the end of last year. JDC also had borrowings of £36m on its balance sheet at the end of 2024.
The government has no legal liability to pay off the debts of limited companies it owns, should they default; however, it is questionable whether it would be politically or reputationally acceptable to let a taxpayer-owned firm go under.
Although it is not debt, the government has other forms of IOU.
For example, the extra money being invested next year in health and education is partly being funded through reducing its annual grant to the Social Security Reserve Fund. It is not borrowing from the fund; it is putting less money into it.
This year, the government put £90m into the fund; next year, it will put in £50m. A further £17m will be taken out of the grant to fund next year’s capital programme and another £10m will fund the Better Business support package.
The Budget says: “While a healthy Social Security Reserve is something the Island should be proud of, continuing to grow the fund today while other areas of government need investment is a sub-optimal allocation of resources.
“This Budget proposes sensible, temporary reductions to the States Grant to allow resources to be reprioritised to these needs, while safeguarding the Fund, ensuring that its size is maintained and that it can fulfil its purpose for future generations.”
The Social Security Reserve Fund also bought the new government offices in Union Street off Dandara this year for £91m and it now charges the government rent.
Although borrowing next year is just for £43m to fund Fort Regent, critics argue that Jersey remains in danger of paying for things now that it might not be able to repay later.
