States likely to borrow £250m

Thursday 30 April 2020

States members appear likely to support an amendment to borrow £250m rather than £500m so that a more detailed investment plan can be drawn up for that spending.

Debate began yesterday on Policy & Resources' proposals to use £100m from the States' rainy day fund and borrow up to £500m.

Policy & Resources Vice-President Lyndon Trott's opening speech was delayed until the afternoon due to technical glitches with States emails and the ability to hold the virtual meeting.

When he was able to speak, he made the case for increasing the States' financial firepower by acting and investing decisively and substantially in the economy. 

"This is the worst economic downturn since the depression in the 1930s and that is just in the first three months," he said. 

"Our economic recovery is essential to driving our community’s recovery. We are dependent on that to help fund public services, and our economic recovery will in large part be driven by our fiscal response to the covid-19 pandemic."

Pictured: Policy & Resources Vice-President Lyndon Trott said there have been global warnings of a "deep, long lasting economic slump" because of the covid-19 pandemic. 

He said the States needs £250m to respond to the immediate, short-term implications, making up for a reduction in States income, deferred payments, an increase in States spending, losses for Aurigny and other trading bodies, plus the various business and hardship support schemes which have been introduced.

He said the same amount is then needed to respond to longer term implications as they become clearer.

"We need to invest in our future and that investment will be on a scale we could not have imagined just three months ago. We need to have the financial firepower to start the investment now," he said. 

"We have an exit strategy, we have a destination, but we do not yet for good reason have a time of arrival at that destination. Therefore the duration and magnitude of the economic shock as a result of this unprecedented situation is highly uncertain. We know that it will be bad, it is just a matter of how bad."

Deputy Andrea Dudley-Owen led the amendment calling for P&R to only be granted authority to borrow £250m for now. 

Her argument, which found a lot of support on the first day of debate, was that the States knew what that amount was going to be spent on and that it would be able to repay it.

The States meets again today to debate use of up to £100 M of reserves & up to £500 M in borrowing. Widely thought that the 1st £250 M is time critical & should be authorised asap but that need to see econ recovery plan before authorising 2nd tranche that isn't so time critical

— Christopher Green (@deputycgreen) April 29, 2020

Pictured: Deputy Chris Green crystallised the views of many States members that the long-term economic recovery funding does not need to be rushed through. 

Deputy Dudley-Owen said there were no such plans for how the second tranche of money, another £250m, would be used at this time, and that there would be plenty of opportunity to assess the case for further borrowing when the purpose for that borrowing becomes clearer. 

"We are moving from emergency responses to planned and more structured responses. We are moving away from our crisis operations and are moving into our phase two with a slow re-opening of our economy. 

"Many are more receptive to borrowing than they are at any other time [...] but any borrowing needs to be considered within the context of the government’s ability to repay. Guernsey has a very narrow economy and taxation base, it can be reasonably argued therefore that we shouldn’t be borrowing on a regular basis to finance our current account expenditure.

The decision P&R was asking the States to make may well be "expedient and effective", but it was also "quick and dirty". 

"No matter how much I can see the need for liquidity at this difficult economic time, I cannot support proposals that meet so few principles of governance. We have already extended our term by a year and we need more than ever to show that we are transparent, accountable and that we have integrity.

"Many of us are not prepared to nod through half a billion pounds of borrowing without any probity or transparency and that is what we seek in our amendment. We are accountable not just to Guernsey now but to Guernsey in the future."

In summing up she said she had tried to get P&R to embrace the amendment but to no success over the sum of initial borrowing. She agrees that £100m should be used from the rainy day fund.

The main difference between the the first and second tranches of spending was expressed as follows: "We know the purpose for borrowing £250m and the tenure of the borrowing and that gives a horizon to watch for. We also know that we have investments that can be converted to cash to repay the debt."

Without having that information and detailed planning for the further borrowing, she concluded that P&R should have to come back to the States for approval with a plan for that when the time comes - a sentiment was largely echoed in the speeches that followed.

Debate on this amendment is due to be concluded today.  

Pictured top: Deputy Andrea Dudley-Owen.