Treasury Minister urged to draw up £500m borrowing repayment plan

Thursday 10 December 2020

The Treasury Minister has been urged to draw up a detailed plan of how the Government will spend and pay back the half-a-billion it has borrowed to cope with the effects of the virus crisis.

The recommendation featured in a report by the Corporate Services Scrutiny Panel - a group of backbenchers that have been reviewing certain aspects of the new Government Plan - who suggested the creation of a detailed borrowing policy and a “debt strategy.”

Currently, the Government is looking at drawing a total of £385m from its £500m ‘super overdraft’ - officially known as a ‘revolving credit facility’ - to finance the costs of covid-19. That, in turn, is expected to cost £29m.

In their report, the panel noted that the Government had not provided any information about the professional advice Ministers had received to inform their borrowing strategy.

Pictured: Deputy Susie Pinel, the Treasury Minister. 

When they asked the Treasury Minister what evidence there was of the cost of borrowing being less than the returns they would reserve on their reserve funds if left untouched, Deputy Susie Pinel referred to “experience and history”. 

“I have been here before talking about what I thought were historically lower rates of interest,” she said. 

“I think we are definitely now at even lower levels of interest than those previous times. The forecast at this point suggests that that will stay with us for a while but that may change.”

In their report, the Panel noted that the short-term borrowing strategy from the Council of Ministers was based on the fact that the £890m Strategic Reserve - known as the 'Rainy Day Fund' - should be maintained and that borrowing would meet the shortfall caused by the pandemic while maintaining investment in services and infrastructure. 

An advisor told the Panel that the strategy appeared to be based on the principle that it would be better to borrow than liquidate investments because of low borrowing costs have and the potential for existing investments to make positive returns over the medium term.

Pictured: The Panel advisor noted that some of the proposed options to repay the debt were “speculative at best”.

The advisor said this would be logical within “a steady state economic horizon” which is not currently “within contemplation”, with “expected economic cycles and financial markets being significantly distorted due to the current covid-19 pandemic."

The advisor also noted that some of the proposed options to repay the debt were “speculative at best."

The Panel has therefore recommended that the Minister for Treasury and Resources publish a detailed borrowing policy and debt strategy be established in the first three months of 2021 to ensure “clear direction and leadership is delivered” and in the principles of “openness, predictability and transparency."

They said the debt strategy should include the modelling adopted by the Government against best practice guidance, its attitude and structure to risk as well as how it compares to theoretical literature on public debt management to provide assurance. 

In addition, the panel have requested an annual debt management report that will include the debt management policy, debt portfolio information and provide context for decisions and clarify the agents remit. 

The first of these reports should be published before the end of next year.