In 2021, the States agreed P&R’s request for authority to borrow a further £200m., at a time when the Bank of England’s base rate of interest was 0.1%.
The following year P&R told deputies it had proved unnecessary to take on further debt. But it has now released proposals to borrow another £350m., at a time when the Bank of England base rate has increased to 5.25%.
P&R’s treasury lead Mark Helyar rejected claims that P&R had made a mistake by not timing borrowing to coincide with historically low interest rates.
‘Borrowing for the sake of it, just because interest rates were low, would not have been the thing to do,’ said Deputy Helyar.
‘Actually it would have left us in probably more difficulty because fundamentally we need to resolve how we repay.
‘It’s easy for us to go out and borrow tomorrow. The point is what do we spend it on and how do we repay that? It’s revenue that we need to address.’
The States’ authorisation for an additional £200m. of borrowing in 2021 was not linked to funding any particular capital projects and at the same time deputies rejected a proposal to stick to a long-established convention of borrowing only for projects with an income to service the debt.
But Deputy Helyar insisted that borrowing then would have been allowed only for trading bodies or projects with an income stream.
‘The reason why that wasn’t taken up is that one of the fiscal rules in place prior to these [current proposals] being put together was that borrowing would be used only to lend to trading entities or those that produce some revenue, and there aren’t many of those. Schools and hospitals don’t,’ he said.
Deputy Jonathan Le Tocq, P&R’s external relations lead, understood why some people felt that any additional borrowing required should have been arranged before interest rates started to climb.
‘But if we don’t have the income stream to borrow, and if we don’t protect the lower income bracket, I’m not in favour of borrowing,’ said Deputy Le Tocq.
‘It might have been slightly cheaper, that’s true, but we didn’t have that [income] package in place, so I don’t think it would have been easy to justify at all.’
P&R member Bob Murray argued that the pressure of rising inflation had changed the financial challenges facing the States over the past two years, pushing up the cost of some planned capital projects by as much as 40%.
‘All the capital projects we had allowed for were within a reasonable budget and now they are way beyond any possible reasonable budget,’ said Deputy Murray.
‘That is one of the major drivers. We already had a substantial amount of projects, both inherited and desired, and there is no way we could fund them from reserves now, and we would not want to do that.’