Can you afford it?
Thursday 28th February 2013, 5:00PM GMT.
THE chief minister’s recent comments about how to fund future capital projects were, to put it mildly, depressing. In fact, they called into doubt the one really positive feature of the current assembly – its determination that the island should live within its means.
So far, the States elected last year has been subdued to the point of dormancy.
A cynic might put that down to a lack of drive. Alternatively, it might be due to having so many inexperienced members who need to find their feet.
Or it might be for an even simpler reason. Nine times out of 10, government doing things means government spending more money and the States’ coffers are nearly bare.
The upside to all this frantic inaction has been the clearly stated intention of the political centre to come to grips with balancing the island’s books.
Sadly, the big deficit created by zero-10 has not been filled by the predicted economic growth, so more drastic (and unpleasant) measures are required. Not only must the States’ revenue budget break even, most of us have assumed it needs to generate sizeable surpluses in order to fund infrastructure projects.
Not so, says Deputy Peter Harwood. ‘The new reality is that the days of big revenue surpluses are over and we will have to find new, innovative ways of funding capital projects.’ Cue the alarm bells.
Of course, ‘innovation’ sounds like a very positive word. It means not being stuck in the past but looking at things with fresh eyes.
But when it comes to funding public-sector capital projects, terms like ‘innovative funding models’ should carry a strong health warning. As they would say on old maps – ‘here be dragons’.
Capital projects obviously need money. If that capital isn’t coming from the States’ own retained surpluses, then it has to be somebody else’s cash.
Unless that third party is the world’s biggest philanthropist, they are going to want a return on that investment. Whatever form they take, private finance initiatives are simply a form of borrowing by another name, and usually a very expensive way of borrowing at that.
When I was HSSD minister, I saw health trusts in the UK crippled by their PFI payments.
Others will argue for straightforward, old-fashioned borrowing to fund our capital requirements. ‘Why shouldn’t our children help to pay for the facilities they’ll benefit from? Why not borrow if you can do so at interest rates close to inflation – where’s the danger?’
We’ve seen these siren arguments used in country after country, but once they set out on that path, it always leads to a mountain of debt, which hampers their economies.
It would be ironic if Guernsey were to abandon its past prudence just at a time when the dangers of debt have been so graphically highlighted around the world.
Of course, it is sometimes prudent to fund capital projects in ways other than through the surplus on the States’ revenue account. Users’ charges, for instance.
It’s even OK to borrow for a project that has a secure income stream that can service and repay that debt. But beyond that, it’s simply mortgaging our island’s future at a time when that future is far from clear. I’m afraid warm, cuddly phrases like ‘innovative financing’ are just smoke and mirrors.
Talking of smoke and mirrors, I was bemused to hear Deputy Dave Jones’s recent attack on the idea of paid parking on BBC Guernsey, which he later repeated in a letter to this paper. Of course he’s free to be against the idea – I think that, instinctively, nearly everybody is. It was his rebuttal of the argument that paid parking could be used to fund the bus service that caught my attention.
Deputy Jones claimed he’d already provided cash to help fund the buses by an amendment to put up the cost of petrol. While it’s true he and Deputy Brouard persuaded the States to increase the duty on fuel, they failed to ring-fence that higher tax to help the transport strategy. That may have been their hope, but they did nothing to ensure it happened on an ongoing basis.
Instead, the extra cash taken from our pockets went straight to Treasury & Resources, who subsequently slashed the funding of the bus service under the FTP.
Net result? Pricey fuel and yet our whole public transport network at risk. Thanks a lot, Deputy Jones.
With cash so tight, these sorts of smoke and mirrors comments may become the hallmark of the current States.
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The penny and a half on fuel that was our amendment was used to help fund the bus service. The States and especially T&R, do not like hypothecated taxes but that is no reason not to find a way of helping to fund something through taxes that end up in general revenue. I think that paid parking is a different issue for all the reasons I laid out in my letter.
I am also bemused by the idea that it is that small increase on fuel from myself and Deputy Brouard that has been singled out by Mr Roffey as the specific FTP savings from the Environment department budget.
Further, the whole “public transport network is at risk”, because the bus service doesn’t serve the people, the buses don’t go where the people live because they are too big and can only stick by and large to the main routes made worse by constant road closures…
What we have now is a rubbish service from the peoples perspective, the States will never admit they got it wrong with these buses because that is not what they do “ever”. The current oversize vehicles are hugely expensive to run and are mostly empty as people prefer their own cars to a bus service that doesn’t work for them.
We need smaller 16 seat mini buses, that can go through the network of lanes including all the diversions in the parishes and with a hail and ride system pick up the people close to their homes. You could buy three mini buses for the cost of one of the single large buses we have now.
They will be significantly cheaper to run and it will also allow a lot more Guernsey people to have part time jobs as bus drivers, many who will have driven delivery vans and other similar vehicles most of their lives but do not want to drive the large oversize buses we have at present or have the responsibility that goes with it.
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This interesting and thougtful article should be studied by every Deputy and Minister. There is a danger that in seeking to avoid biting the bullet and choosibg to reduce spending, staff, servuces, and benefits, or inreasing taxes,contribionsm, and charges our leaders will be tempted to make use of ‘innovative finance’!
Let us set aside the detail and hustory. The situation is really very simple. Like any family, government cannot continually spend more than it earns without courting inevitable disaster when the chickens come home to roost.
We should suspect the worst if any charlaton or political ‘leader’ tries to suggest that we can avoid financial difficulties/problems by indulging in borrowing against the future; using the kind of novel financial instruments and manipulations that have recently caused disaster in so many countries and local governments in Europe and around the world.
Let us recall the wise words Charles Dickens: Mr Micawber’s famous, and oft-quoted, recipe for happiness:
“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
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