More borrowing - not new taxes - to pay for hospital

Wednesday 30 November 2016

Ministers are planning to borrow up to £400million to part-fund the new hospital, rather than introducing new taxes or charges. In total, a 40 year bond for that sum will cost the Island more than £820million.

The plans have been published on the day States Members are deciding whether to put the £466million development next to the current site on Gloucester Street, or on the Waterfront instead. A few weeks ago they decided not to bring in a new health charge to fund the development.

And they are warning that the £466million is an "indicative estimate"only not a final cost, and more work needs to be done on "...design, planning and procurement." They also say it does not include any work needed to adapt or demolish redundant buildings.

Their plan to pay for it all is to issue another bond for up to £400million, which the Island would pay back over the next 40 years, in addition to the annual costs of around £10.5million (2.6%), making a total repayment over the full term of £820million not including the initial transaction cost of up to £2.5million - it follows the States' previous decision to issue a £250million bond to pay for social housing, which put the Island into debt for the first time. Once both bonds are taken into account, the Island's debt will be 16% of its GDP. 

The rest of the cost for the hospital will be made up from the Island's reserves.

Ministers also plan to use the annual interest on those reserves to pay for the bond, and they are assuming growth of around 5% a year. The average annual return from 2005 to 2015 was 7%. 

The Treasury and Resources Minister, Senator Alan Maclean, said “By borrowing at historically low rates of interest, we can leave our existing reserves in place where they generate returns that are expected to exceed the cost of borrowing. We have calculated that the cost of our borrowing can be funded from the ‘excess returns’ on the Strategic Reserve – these are the returns that are over and above the capital amount the States Assembly has agreed to protect. The money raised through the bond would be placed in a specific fund set up for the hospital construction.

“Every funding proposal carries some risk, but this proposal makes the most of our considerable reserves and strong balance sheet, and it does this without requiring direct contributions from Islanders through additional charges or taxes.

 “This will increase our borrowing, but Jersey will still have very low rates of borrowing compared to elsewhere. It would take our debt to GDP ratio from its current level of 6% to no more than 16%. The UK has a ratio of 88%. We are confident we can service the debt while also balancing our budget by 2020. We are taking the logical step of matching a long term asset with a long term liability.”