States should borrow, not raise taxes

The States of Guernsey are now considering ways to recoup the debts that have built up during the pandemic. They are nervous, and brought up as they have been in the Micawber-like ‘year-on-year-balancing-of-books-school-of-accountancy’, their focus is now on three options for increasing tax.

But Guernsey has almost no long-term public debts. Usefully, the Bailiwick’s politicians seem willing to accept borrowing as a route for paying for infrastructure that will have an economic return, but they have not yet fully embraced it as the best tool for replenishing the treasury in the post-Covid recovery period.

In normal times it would be foolish to borrow in order to pay for consumption. These are not, however, normal times. The war against Covid has been a war just like any other – and the UK and others have used all manner of bonds/borrowing in order to fund their recovery from more conventional wars.

The Bank of England has, moreover, just raised its forecast of inflation to 4%. For every million pounds we can borrow at the current low interest rates we should, therefore, be repaying substantially less in real terms. Heavy borrowing in these circumstances is a no-brainer. And it is a much better option than raising taxes. A million pounds borrowed at 2% per annum interest and 4% inflation will lead in ‘2021 real money terms’ to total real repayments (interest and capital) over a 20-year bond life of just £720,000.

And finally note, if Guernsey raise taxes it will also put off new businesses that might otherwise locate in our Bailiwick.

An immediate rethink of this damaging double-edged new policy is needed.

JAMES DENT

Former chairman, Policy and Finance Committee, Alderney