Island ‘must borrow to avoid £400m. shortfall’
GUERNSEY must borrow to accelerate its economy post-pandemic, or risk a gap in public finances of about £400m. over 10 years, said the vice-president of Policy & Resources.
Deputy Lyndon Trott has written to the Guernsey Press setting out the facts about the island’s borrowing in the wake of a number of questions and statements about the States’ level of indebtedness and the burden this places on taxpayers.
Not all of these have been accurate or well-informed, he said, and has written to provide ‘the real picture’.
‘Are we in debt up to our eyeballs? The answer to that is a categoric no.’
He goes on to explain how the island is in an excellent financial position thanks to a prudent financial approach lasting generations.
The States started this year with a strong financial position which included a budget surplus, significant reserves and modest borrowing.
In 2014, the States agreed to issue a bond and borrowed £330m., but this was not to fund public services but to lend on to others, the States’ own trading and associated entities, to reduce their cost of borrowing.
So far about £163m. has been lent with another £25m. awaiting finalisation. Deputy Trott stressed that there is no cost to the taxpayer of this lending.
In addition, a bond reserve was set up to record all of the investment returns on the un-lent portion of the bond issue and to pay all of the costs. At the end of May this stood at £10m. and this provides a buffer which again means that there is no burden on the taxpayer.
The States this year approved borrowing up to £250m. but Deputy Trott said it might well not need to borrow all of this.
But the island must borrow to help its recovery: ‘Our economic modelling suggests that without any intervention, recovery of our previous levels of “wealth” in the economy (our GVA) could take up to a decade.’
‘If we do nothing, that will translate into a fall in taxes received by the States leading to a gap in public finances of roughly £400m. over that period.’
He would like to see the island using borrowing to invest in its recovery by, for example, helping create jobs and opportunity and improving the island’s environment and infrastructure.
A plan for Guernsey’s recovery from the pandemic is due to be published this week for debate at next week’s States’ meeting.
