It’s no to external debt
Saturday 27th June 2009, 2:30PM BST.
TREASURY’S borrowing plans were overwhelmingly rejected yesterday as the States decided not to put future generations into external debt to help fund its £301m. wish list.
Deputy Matt Fallaize’s amendment to the department’s proposal to borrow £175m. externally won by 28 votes to 17.
It means that projects such as rebuilding Les Beaucamps High School and upgrading mental health facilities have been given the amber light to progress in the coming years – although each project on the capital list will come back for detailed approval.
The margin of the vote against Treasury surprised many in the Assembly as the final day of the prioritisation debate concentrated on how to fund the list.
In the end Deputy Fallaize (pictured) and his four colleagues behind an alternative model, which includes internal borrowing and spreading the programme out until 2016 instead of 2014 as proposed under the department’s plans, were successful.
But Treasury minister Charles Parkinson warned the States that his department would need to come back with a report outlining when each of the projects could begin.
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The people of Guernsey elected one of the finest financial brains to the position of Finance Minister.
The members of the States ignored his advice and have chosen to follow that of a newspaper roundsman.
Wow!
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Roy
I agree that Charles Parkinson has an astute financial brain but sometimes we need imaginative and brave ideas instead of textbook solutions.
I for one am grateful that we have not burdened this island with years of debt. One think is for sure – once we had embarked on a policy of external borrowing we would never have gone back to the fortunate position we find ourselves in now – unencumbered by external debt interest repayments.
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Now that Parkinson has declared no interest in standing for re-election, presumably as a direct result of the democratic process, how will this impact on his motivation to keep trying his best for Guernsey? Are the public to have confidence with his decision making processes?
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The finest financial brains are to blame for the current global economic downturn aren’t they?
I think the States made a brave decision – and the right one. We need to find some way of harvesting some of the profits now being made by the financial sector in light of zero 10.
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Will those who voted for zero 10 now come out ,admit they were wrong and say sorry?
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Bryn
No.
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Thanks Matt.
For making them see sence.. yes the next few years are going to be hard for everyone… But at least we won’t have a 175m debt to try and cover as well..
As my granny always said.. “If you haven’t got it.. don’t spend it”.. We’re going to have to mend and make do..
Thank Matt for a job well done.
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Charles Parkinson has a very valid point about inflation. Nobody in truth knows how what inflation will do over the next 5 years given the massive amount of money that has been pumped into the global economy. If inflation does rise significantly then this decision will one day be viewed as one of the worst ever made by Guernsey politicians.
Also, the truth is that all of those that claim that zero-10 has proven to be wrong do not know that to be correct. Yes, the island’s tax take is down, but wjat would have happened if zero-20 had been brought in instead? Nobody knows whether that would have caused a large reduction in the finance industry with the resultant loss of jobs and income.
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Roy…
Some of the finest financial brains in the world have created the “Credit Crunch”.. What’s wrong with good old commen sence ????.
Why should we the commoners allow TR to run this island deep in to the red.. Poeple of Guernsey don’t what this leaval of debt..
Wasn’t it 10m a year pay back over 25 years… £75m of interest ??…
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Quite possibly the blindest and most cowardly decision the States has made in the last decade. What a disappointment.
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Why blind and cowardly Holly?
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Hmmm. I am not in favour of the States embarking on one of their gold plated capital spending plans, and I have yet to be convinced that the plans put forward have sufficient layers of camoflage to disguise the glint of gold!
I’m glad the “grand Plan” was voted down. However, there is do doubt the need remains, especially in places like Les Beaucamps. I believe that we, the public, should be given the opportunity to invest in our Island, either via some kind of “National” savings scheme, or the development of guernsey “Gilts”. I believe both would be oversubscribed and would, with the right structure, provide sufficient funding to address some, or possibly even all, of the projected shortfall. Simplistic? Maybe. An option? I certainly believe so.
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George
Can you (or the moderator or anyone) let me know what Charles Parkinson said about inflation and the borrow or use reserves argument?
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So the States has passed up the chance to improve our island by borrowing at historically all time low interest rates, in favour of borrowing “internally”? Ludicrous!
It seems to me that, unfortunately, most of the posters on this thread (and the majority of States members) are rather un-edcuated when it come to financial matters. And whilst this is not a problem for posters on this thread, it is a major problem that our elected representatives are so clueless.
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Greg I might remind you that the government of this Island has done rather well without getting into debt. Over the last 30 years or successive States and its members have spent millions on the islands infrastructure and here is a list of what has been done over that period to remind you.
A new Dairy
Post office
Police Station
New Custom Sheds and offices
New Courts
Prison and extension
Beau Sejour
5 phases of new hospital development
Several new schools and the
6th form centre.
Fire Station refurb.
4 Marina’s
2 new RO RO ramps
New passenger terminal at SPP Harbour.
New Airport Building
New Jetty re- construction
New cranes at St Sampson Harbour
The Pavilion at Foots Lane
Govt Buildings at Frossard House and Burnt Lane.
States Works Garages and offices at Le Mare
Hundreds of new homes for social housing
And hundreds more refurbished to modern standards.
Main Drain schemes.
Endless Road schemes and Car Parks (North Beach / Salerie)
Not to mention the replacement of hundreds of govt vehicles from Police cars and fire trucks to sewage and refuse carts, vans and pick up trucks. Harbour Boats and pontoons.
On top of that we have spent money on protecting our Fuel Supplies (The 2 Tankers)
And protected our air slots to the UK with the purchase of the islands own airline.
And do you know what? All this has all been done by successive States without borrowing a single penny. So I don’t think we need to take lessons in how to run our affairs without getting into debt.
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Deputy Jones
Yes, of course all this investing took place without having to borrow.
What has changed is the loss of £80million plus of each years incomes – courtesy of zero 10.
Does put the pressure on finances a little and makes borrowing an option.
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No, Dave, the states haven’t borrowed a single penny. Recently they’ve spent millions setting up quangos to do the borrowing for them, though, eh? Particularly since you’ve been housing minister.
They borrow more than a few coppers off me each year, too. Estimated assessments in May – pay June and December, rebate (loan repayment, actually) probably around next September. Interest free loan of a couple of grand for an average of nine or ten months.
They also pay on credit like everyone else, so borrow from their suppliers, individual departments often having the cheek to ask that invoices be dated to suit their budgets, then paying late!
As for the cash pool. At 300 million annual spend, the states could take an extra month to pay their bills. This could raise (without borrowing, of course) an additional 8 or 10 million – simply by paying later – permanently.
My guess is that they’ll almost certainly need to do this to fund Matt’s spending plans without being seen to borrow directly. They may even need some temporary overdraft facilities for many accounts (not real borrowing, that). Once they’ve spent the last 2p they found down the back of the sofa, they will need to (real, this time) borrow. By then the requirements will simply be too small to be economic or will have to be made directly available to the local public in the form of bonds. So that will become a green light for more capital spend – in order to bring the amount borrowed up to “benchmark” size.
On balance I’d rather have avoided borrowing by having a proper tax base and a more stringent vetting of budgets. This way, it appears we get neither.
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I have to agree with Dave Jones. We need to invest in our public services however borrowing huge amounts of money externally to do it is unwise. There is good wisdom in the Biblical book of Proverbs:
“The rich rules over the poor, and the borrower is the slave of the lender.” [Proverbs 22:7]
At a time when what’s left of Guernsey’s independence in being threatened, now does not seem a good time to put ourselves and our children in the pockets of lenders who may well have vested interests.
I do think however there is a case to investigate well regulated privatisation of certain services.
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Martini – I like your idea, it certainly warrants some consideration.
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Greg- you talk about the opportunity to borrow when interest rates are at an all time low but inevitably they will go up again, before too long. The sort of external borrowing that would have been put in place would undoubtedly involve complex and re-negotiable contracts. If anyone thinks that a consortium of banks etc would lend a government the sums involved over many years on a simple basis of the current, low, rates then they are naive in the extreme.
Granted the first year or so would have benefited from low rates but what then?
Perhaps the “un-educated” you refer to include those States members who thought that because rates were low we were on to a good thing?
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Stephen Jones, it was in the GP, but I don’t have it any more.
Dave Jones, I find your post above very worrying! As Stephen Jones pointed out, you’ve completely missed the point that the island’s income has dropped massively. I think some lessons may be in order!
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I would still prefer the States to be expending their energy on ways of NOT spending money, rather than inventing new ways that allow them to keep spending, but appear prudent!
The ongoing charge of the Guernsey tax and spend brigade is alarming as is the waste of time and money by infighting, posturing and ill conceived projects that are invariably badly managed! Does this sum of money include any sort of reserve for budget overrun…bearing in mind recent history, another 30% to 40% might be required to cover the usual “cock up” factor?
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Valdubon, as far as I’m aware the suggestion was to pay a fixed term of interest over a fixed amount of years with the capital required for the repayment of capital to be accumulated over the term of the debt.
Therefore movement in interest rates in the future would not be relevant, unless the States did not make provision to make repay the capital sum borrowed.
Dave Jones, your point is irrelevant. In fact, it actually illustrates that the States DOES need a lesson in how to run things. One does not set out future policy by concentrating 100% soley on the past. As Stephen John points out, the loss of income due to zero-10 is going to make it rather difficult for you to sustain any sort of capital spending without borrowing, and for the States to not take advantage of such advantageous conditions for borrowing money is foolish.
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George how have I missed the point? It is because we have lost some of our income in corporation tax that I don’t want to spend 10 million every year in interest payments on unnecessary external borrowing. I also believe that we should earn the money first before we decide what to spend it on
Carts
I wish we could stop spending on projects and services, however it is the Guernsey people who demand more and more services, there is never a day goes by that one group or another is not urging the states to do something that will cost more money and add to the yearly bill. By the way there has been no project over runs since the Policy Council was formed all the overspends are historic and go back to the days of the old Board of Administration.
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Dave Jones, I take it that you’ve done a detailed study into the loss of interest/earnings on the internal funds that will now be used and the possible increases in the project costs due to inflation vs the cost of the interest payments?
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George
Good questions.
I look forward to the anwswers
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Dave Jones, you state that you shouldn’t spend money unless you’ve earned it. Therefore, do you think people are wrong to take out a mortgage to buy a house?
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We can borrow or we can increase our income by levying a nominal rate of tax on the financial services sector.
The former means we will spend years paying off the debt plus goodness knows how much in interest.
The latter doesn’t.
The only think stopping us is the fact that States members would have to admit that they got it wrong with Zero 10.
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In response to CD, the States’ decision is blind to the future, its needs and economic climate. It is cowardly because saying yes to external borrowing would have been initially unpopular, not to mention hard work.
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DJ, Thanks for responding to my post…I agree that your “customers”, some of whom are tax payers, will always want the best of everything and demand services from the States. My point is that a “tax and spend” regime never gets good value for the tax payer. If there is always more money available then they will inevitably spend it, rather than wait, plan, prioritise etc.
Real money, that could be used on front line service provision, is frittered away on Consultants, over blown civil service remuneration, legions of experts etc etc, all paid for from a dwindling number of income tax payers.
If the pot is limited then prudence and common sense will always prevail.
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I am not convinced some States departments understand inflation.
Time and again they tell us that if a decision is deferred it will cost more in a few years time.
Do they understand that the larger cost will be paid for in devalued money?
By the way, I don’t know if I’ve been sleeping through all the Press reports on Tribal Helm, but I see that Tribal Helm is part of the Tribal Group who are deep into privatisation, PFI, and PPP in the UK.
The latter two (PFI and PPP) are in effect horrendous ways of borrowing by the UK government.
I mention it because I heard that some of Tribal Helm’s recommendations for the States take the form of suggestions of privatisation.
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Quote Dave Jones “I wish we could stop spending on projects and services, however it is the Guernsey people who demand more and more services……”
This is so true – so many people on this island have unrealistic expectations. They seem to think we have a divine right to top grade public services whilst keeping low taxation – and they want everything NOW!
Deputy Jones – now that external borrowing has been thrown out, there seems to be a choice between either raising funds from other means, prioritising the projects or even cutting some off completely. Will the States consider other methods of raising funds such as Guernsey Bonds, GST, a rise in income tax, the removal of the tax cap for wealthy individuals or perhaps some privatisation?
Alternatively, will they seek to prioritise the many projects on the table, or take some off the agenda completely?
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David Cranch says “I heard that some of Tribal Helm’s recommendations for the States take the form of suggestions of privatisation”
David.
Guess who hope they will be advising the States on the wisdom of the PFI PPP route?
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P le P
I am sure the States will get a chance to look at all the revenue raising suggestions you have listed
My preference is to further tackle the waste in government which is what Tribal Helm are looking at, to outsource some of the services to private contractors, to stop immediately the huge amount of money spent on useless consultants. The Guernsey Bond issue is an interesting concept I do not know enough about its benefits or otherwise to make a comment but I do know there are some states members who want to explore the possibility using our own post office as the holder of any such bonds. I also think that it is inevitable that some projects will fall by the wayside until our financial position improves which ones they are will be a matter for the States but I knew that when I voted not to borrow millions externally and if we really are to live within our means then shelving some projects is the harsh reality of life. As for taxes Paul I am opposed to a GST as it will hit the poorest in our community harder than those who could afford it but I am willing to look at other tax raising revenues targeted at those who benefited most from the scrapping of corporation tax.
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Greg
Dave Jones, you state that you shouldn’t spend money unless you’ve earned it. Therefore, do you think people are wrong to take out a mortgage to buy a house?
Yes they are if they can`t afford to repay it, as has happened to so many people.
Can we (the states)afford to borrow.
I agree with DJ on this one
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There has been an lot of misunderstanding about T&R’s borrowing proposals. Both T&R and the Alternative Model included for borrowing £83million for the solid waste facility.
T&R then proposed retaining £42million of your current capital in the Reserves and borrowing an equivalent sum rather than simply spending the £42million as the Alternative Model proposed. Anyone who has taken out a car loan rather than spending their savings will understand that the interest you pay on the loan is offset by the interest on your savings to an extent and of course the advantage is that you do not leave yourself without any savings for emergencies (such as the solid waste facility coming in at £93million!).
That accounts for £125million (£83+42million) of T&R’s proposed £175million bond issue. Roughly speaking the remaining £50million of the bond issue would have covered the projects that will have to be delayed until the next States under the successful Alternative Model. £92million (£42+50million) sounds a lot but the airport & harbour pier works alone are on the Priority One list at £100million.
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Do the posters above not realise that a “Guernsey Bond” is external borrowing?
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Dave J
“no project over runs since the Policy Council was formed all the overspends are historic and go back to the days of the old Board of Administration”
Really? PEH Clinical Block is on time and on budget then? Hundreds of thousands of pounds aren’t being spent on remedying defects at Le Rondin then?
Anyone still in Government or the Civil Service who was a part of the old Board of Admin set up in any capacity whatsoever?
Of course the words “on time and on budget” can be met by way of the contractor being granted an extension of time and the budget allowance being increased can’t they.
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Dave Jones
I have said this elsewhere, however I will repeat it again.
The States has spent over $600m in the last 8 years on projects and more than 50% of those ran over and increased in budget exponentially, some examples, again, are-Jetty, Airport, Prison, Courts et al.
The problem is historic, neither Dave Clarke nor Lyndon Trott should have extended the expenditure on projects as much as it did – it should have consolidated its position and built on cash reserves, spending the interest and maintaining the capital sum. But it didn’t – despite these worries being flagged as long ago as 2003. Dave Clarke and Lyndon knew best, as only they do.
What concerns me is that Lyndon still controls the purse strings. I would guess that Charles Parkinson had sound rationale for proposed borrowing, however Lyndon would have used his influence on the young and impressionable Fallaize to bring about indirect reaction to Mr Parkinsons proposals. Its all political manouvering.
As for all the projects you list, Guernsey should be able to easily afford those things given the tax charged to businesses historically, and on property purchases in conge.
What aggrieves me is that you, not the other old hands will admit the errors you made in over extending the capital available and squandering it, imagining it would still be there in years ahead.
I do not believe half of the States members know the difference between gearing, depreciation or asset management and programme management.
Input versus output. You place monkeys in charge and you will get the output of what a monkey could reasonably produce – in this case, peanuts.
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Carts
I agree with much of what you say, in fact it is the problem I have with H&SSD
A health service that has adopted all of the so called NHS best practice which has led to duplication and a management team that reflects the over blown over managed NHS.
It now has a computer system that is still not working properly that has cost millions and has not made any of the savings Peter Roffey promised the States it would, I am angry that is the case and I didn’t believe it then and the more sceptical of us at the time have been proved to be right. Of course all of this takes money away from front line services.
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Darren
The Airport and the new jetty were as I said Board of Admin overspends. I am not aware the Prison or the Courts were overspent. Could you explain to me how Deputy Trott still controls the purse strings as he hasn’t been Treasury Minister for over a year and as for using his influence on Dep Fallaize, Deputy Trott voted FOR T&R’s proposed external borrowing, so I am not sure how or why he would have influenced a Deputy who was putting something forward that Dep Trott was opposed too and voted against.
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Deputy Jones – as I said, its called political wrangling or manouvering.
Show one thing and do the other.
‘Board of Admin’ ?? Are you kidding.
Who controlled the States purse strings at the time then??? I’ll tell you, ONCE MORE – Dave Clarke and Lyndon.
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Dave Jones
I’ll try again. You stated:-
“no project over runs since the Policy Council was formed all the overspends are historic and go back to the days of the old Board of Administration”
Really? So the PEH Clinical Block is on time and on budget then? And hundreds of thousands of pounds aren’t really being spent on remedying defects at Le Rondin then?
Is anyone still in Government or the Civil Service who was a part of the old Board of Admin set up in any capacity whatsoever? I recall that every time Bill Bell was asked about overruns on matters such as the airport he used to come up with the defence “it’s not down to us, it was the old Board of Admin who got the contracts wrong”. But prior to the reorganisation of Government – and at the time when the contracts for those specific projects were being let – the big cheese at the BOA was none other than Bill Bell! So how does it work then – I got it wrong when I headed up that department but it no longer exists and so you can’t blame me now that I’m heading up this new department which is trying to deflect the flak arising out of what my previous department left us with.
At best, a smokescreen. In reality, downright disingenuous.
Of course the words “on time and on budget” can be met by way of the contractor being granted an extension of time and the budget allowance being increased can’t they. And they so often are, aren’t they?
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Fin
Don’t know who you are – but I like your post!
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Thanks Darren. From that I can guess that you aren’t actually Dave or Bill posting under a pseudonym then……………!!
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Of course, when it suits, the T+R experts, together with their outside consultants musn’t be argued with – because they know everything (Zero-ten).
But when it doesn’t suit, the “backbench” view will do…(External borrowing).
How many of the Policy Council voted against T+R’s proposals? If any of them did, are they fit to be ministers – where’s the joined-up government? If it was only Dave Jones, well he’s got his own borrowing machine- £40 million plus and rising. He doesn’t need direct, external borrowing for Housing, as he’s given all the sites away to GHA, guaranteed their borrowings and is paying their interest out of Housings revenue budget.
Fin – how big is the “contingencies” pot on these contracts – 10% or so? Then there’s the fluctuations, which probably aren’t really overspends, and there may be some contract extras which aren’t overspends either, because they’re underbudgets. When you come to think about it, the states have to work hard to achieve an actual overspend, when they overbudget eh? Maybe that’s why RGF didn’t get the Clinical Block – they’d robbed HSSD of £3 million leeway on the job by pricing too low, and threatening to expose the department to an overspend!
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We are going to have to cut back on some of the more extravagant high cost items on the States wish list. This may be no bad thing. As far as the waste solution is concerned, there is an alternative that would be quicker, cleaner and infinitely cheaper….. An off-the-shelf twin stream micro-incinerator would cost a fraction of PSD’s bespoke Suez plant, and would enable us to benefit from all the improving waste technologies that are developing world-wide, especially in the recycling industry.
If having less money swishing around the economy is the stimulus needed for some sharper thinking then it will be a blessing in disguise. Guernsey will benefit from solutions more appropriate to our size and circumstance.
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Bob
Contingencies are not generally planned for with States Programmes or Projects, as the States planners expect to come in on budget.
As has been posted elsewhere what happens is that there is a ‘re-phase’ of the project status, i.e. phase 2, alterations, which means they apply for more money under a different title and therefore never go over.
Ask good old Dave Jones how much we went over on the airport and the jetty – also ask him who the contractors were……
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Bob & Darren
Well done guys – you’ve cracked the whole problem between you.
Everything is down to ‘underbudgets’ [what a great expression Bob - you should be a consultant] and so overspends have never happened.
In the remarkable event that they did happen, as Darren thinks, then they were on projects which were all the fault of the Board of Admin. Although as Darren points out, there is always the option of getting more money to cover Bob’s underbudgets by renaming the work.
Be careful to choose a new name which is on the BoA’s books mind you.
So, it’s never happened but if it has then it’s not the fault of anyone still walking the corridors of power. So what are we all going on about then?
Simples.
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Fin – I already am, and as with all good consultants, I am only re-hashing what you knew (or ought reasonably to have known) in the first place.
That’ll be £3 Squillion please.
£10k extra for copies of our “stock” incomprehensible report, which has been retitled for this specific, (ahem) bespoke piece of research. Each copy could run an energy from waste plant for about two seconds (or two micro incinerators for a second each), making it worth every extra penny.
Darren – that you tell me the states don’t “work in” contingencies on their budgets (like most of the private sector do) is surprising. If they don’t then I would expect them to overspend on every other contract. There’ll be “prime cost” sums (estimates) in there for all sorts of stuff, which they know/expect they can eventually cut down substantially.
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Well, £100 / hour for bricklayers to finish the airport in time for Mr Berry’s final ceremony? (according to a well know local architect). Built by Hochtief who worked at Auschwitz, used forced labour, and built the bunker where Adolf Hitler died. Whose local spin-off company collapsed, causing major problems for many local companies, in spite of assurances that all was ok by our Mr. Berry, then president of the Board of Administration.
A breakwater project (Alderney) that was put out to tender by the BoA when they had been specifically instructed not to by the States.
An unnecessary court house that is difficult to work in (a local magistrate), over which the local bar council were not consulted, and neither, I understand, were the prison service until the end. A building, that would be ‘built in the Georgian idiom’ (R. Berry)
Come on, the States have been hemorrhaging our money for years. That’s why there has been little effective accounting, and never the transparency that we were promised (but failed to demand). I remember audit reports from 1999/2000 criticising this.
And now, at last, locals are getting fed up and demanding better, and expecting less capital expenditure + more honesty; it’s about time. Don’t stop now – otherwise we’ll all be back to grumbling in the pub.
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