Financial prudence

The Jersey Liberal Conservatives are sometimes asked what differentiates them from the Alliance Party which is, in some respects, synonymous with the current Government. One answer is that the JLC is committed to financial prudence. By contrast, the Alliance Party has an attitude to spending and borrowing which is very different. For centuries Jersey has not had a national debt. The Island has paid its way and been proud of that independence from any creditor. The so-called Debt Framework lodged by the Treasury Minister, (a member of Alliance) on 10 August 2021 reveals that that proud history is coming to an end. Jersey is going to become for the first time a debtor nation. It will borrow up to £500 million to repay the Covid debt, £756 million to build a hospital, and up to £500 million to refinance pension fund liabilities – a total of £1.756 billion. There is also a £250 million housing loan but there is an income stream (rents) through which the interest, and ultimately the loan itself, will be repaid. But for the rest, there is no income stream other than the general revenues of the States.

The Government/Alliance Party tells us that there is nothing to worry about because the Strategic Reserve (the “rainy day” fund) will grow over the 40-year period of the loans and enable the new debt burden to be repaid. No detail has been offered but we are told that repayment depends upon the investment performance of the Strategic Reserve. When the huge costs of the Jersey Care Model, the re-building of Cyril Le Marquand House and other Government plans are added in, taking the total to well over £2 billion, it seems that government spending is all but out of control.

It is argued that it is sensible to pay for this spending by borrowing when interest rates are low. It is true that interest rates are currently very low, and borrowing is cheap. But that will undoubtedly change. All debts must be serviced, and interest paid, and eventually the capital repaid. The assumptions around the anticipated growth of the Strategic Reserve seem to the JLC to be fraught with risk. Jersey cannot control the level of interest rates or investment returns; we cannot print money like the Bank of England (the so-called quantitative easing); and most importantly, we do not know what other crises lie just around the corner. We are proposing to mortgage the Strategic Reserve with the consequence that we will have nothing in the next 40 years with which to meet any other urgent need for funds. All we can then do is raise taxes or borrow more money. The more you borrow, the more that you must pay each year to service the debt. And once politicians have started to borrow, it is easy to justify borrowing more and more. There seems to be no real plan for the repayment of the debt. When the time comes in 40 years to repay the hospital loans, there will, we are told, be a need for another new hospital. So, the debt is likely to be carried forward, but this time interest rates may be much higher. The Government seems to be reconciled to creating a permanent National Debt which could spiral upwards at great cost to future generations.

In their Debt Framework report, the Government/Alliance Party say that the Social Security Reserve Fund and the Public Employees Contributory Retirement Scheme fund lie within the Government’s so-called liquid assets, but that is truly alarming. Those funds do not belong to the Government, even if they do appear on the balance sheet. They belong to pensioners and prospective pensioners.

The States have not yet approved the whole of the Debt Strategy, but they have started by voting, by a narrow margin, for the huge expenditure of £804 million on a new hospital to be funded by borrowing of £756 million. The Island is at the top of a very slippery slope. Individuals are entitled to bet on the stock market with their own money; the Government should not do so with money belonging to taxpayers. It is neither prudent nor sensible. We are being committed to levels of borrowing which are frankly frightening for a small nation like ours. The JLC considers that there are other ways in which existing liabilities can be managed and repaid, and that Jersey should not become a debtor nation.