WE WERE sitting at our normal P&R Committee meeting on a sunny Tuesday morning earlier this summer when we received a presentation on the urgent need to take action to repair the bridge to Castle Cornet. The expected cost was many millions of pounds. The chickens, as they say, had finally come home to roost, since we have known for many years that a considerable upgrade was necessary – yet the States could never quite prioritise it to be done. There was always something more pressing to spend capital on. This time, however, we cannot put it off any longer since it is becoming increasingly dangerous, with bits of masonry dropping on to the beach below with worrying regularity.
Castle Cornet is part of our iconic townscape and a much used and loved local and tourist attraction. We cannot contemplate anything other than finding the money – somehow.
That said, there are many capital projects amounting to hundreds of millions of pounds which also compete for prioritisation. Some (like the Castle bridge) have been waiting a long time. Some have been initiated by previous assemblies and are in progress. Others are the result of decisions from this States.
The harsh reality, however, is that for far too long, we have not been spending anywhere near what our own fiscal rules require us to, in order that we maintain our island infrastructure in a satisfactory condition, whether that be via replacement or maintenance.
We set ourselves a target of spending 2% of GDP annually on infrastructure, averaged over any eight-year period. We have not met that fiscal rule.
Consequently, we have now accumulated a substantial amount of capital projects that the States needs to reconsider since, while they were affordable at the time, we cannot now fund them with our present reserves – given considerable inflation. Perhaps more importantly, we are not generating enough additional surplus to replenish those reserves on an annual basis.
This is what can be seen from the diagram published here, which shows how our reserves (the grey boxes) would be depleted over a 10-year period, if we commit to all the current capital projects and to a 2% of GDP expenditure thereafter, without increasing our annual surpluses. The top (red) line plots the money required to fund capital projects. The bottom (yellow) line shows how our reducing revenue surplus cannot fund that spend. By about 2029, we are in a serious permanent deficit position.
We cannot permit that projection to become a reality.
So what is the plan?
The States will debate the proposed Funding & Investment Plan during October. It describes revenue raising measures, savings initiatives and three portfolios of capital project options, alongside those projects which are already ‘in flight’ or at various stages of completion.
It also considers the role that borrowing might play as part of the means of funding all that we wish to achieve in terms of capital projects. There are three scenarios or options being proposed and each one has a funding mechanism that is different and an associated portfolio of projects that permit various levels of affordability.
In flight (or core) projects
These projects total £96m. and they are already under way or have contracts in place. Consequently, these will have to be endorsed by the Assembly. There are 17 of them.
Some are ‘containers’ for a number of related and smaller sub-projects:
Our Hospital Modernisation Phase 1. Electronic Patient Record. Digital Infrastructure. Funding Affordable Housing Developments Programme. IT Transformation. Revenue Service Programme upgrade. VME Replacement. Guernsey Registry IT Systems Replacement. Online Passport & Workflow System. Footes Lane Refurbishment (near completion). Sarnia Cherie BWMS (near completion). Mont Crevelt Breakwater Reinstatement. Transforming Education Digital (secondary and primary). ‘Smart’ Court Phase 1. MyGOV Programme (near completion). Havelet Slipway Repairs. Tetra PSN.
All of the remaining projects currently under review have been re-prioritised based upon various criteria which includes any necessary timeframe, or regulatory requirements, or the ability of government to be able to manage delivery from a resources perspective.
That exercise further refined the projects by categorising them as ‘do as planned’, ‘do but review scope’, or ‘pipeline’. As a result, each of the scenarios contains projects to a greater or lesser extent within each of these three categories.
This scenario utilises the outstanding Bond proceeds of £160m. with no proposed borrowing. It has a considerably reduced portfolio of ‘do as planned’ projects:
Property Rationalisation Phase 2. Clinical & Animal Waste Solution. Community Services (Children & Families Hub). Supply Chain Relocation (Central Stores). Bridge Regeneration (Housing and Flood Defence). Future Harbour Requirements Survey. Alderney Airport Pavements Rehabilitation. Repair/Replacement of Castle Emplacement Bridge.
This scenario utilises the outstanding Bond proceeds of £160m. but also adds proposed borrowing of £200m. In addition to the Scenario 1 portfolio of ‘do as planned’ projects it further includes:
Our Hospital Modernisation Phase 2 (OHM). Transforming Education Programme.
This scenario utilises the outstanding Bond proceeds of £160m. but also adds a further borrowing beyond Scenario 2 of £150m. It also proposes the introduction of the progressive tax package first described by P&R in the tax debate in February. In addition to the Scenarios 1 and 2 portfolio of ‘do as planned’ projects, it further includes:
Future Inert Waste Facility. SAP Roadmap. There are a further 13 projects which fall into the ‘do but review’ or ‘pipeline’ categories across Scenarios 2 and 3. Full details can be found in the Funding & Investment Plan on the Gov.gg website
All the scenarios are workable. They are also affordable, for a period, within each funding package. Only Scenario 3 however, is sustainable. It is for the States to decide.