Wednesday 29 January 2014
The following statement was delivered to the States of Deliberation on 29 January 2014 by the Minister of the Treasury & Resources Department, Deputy Gavin St Pier.
[CHECK AGAINST DELIVERY]
Mr Deputy Bailiff
Treasury & Resources' comment on this Requete appears at p.58 of the Billet. This is self-explanatory. But I do want to expand on one point, namely: whatever the outcome of this Requete and whatever the outcome of the work undertaken by the Public Services Department in looking at the options for securing Alderney's airfield for the next 25 years, under no circumstances should the Contingency Reserve be used to fund any work.
Over the years, the Contingency Reserve has - in common and popular parlance - been referred to as "the Rainy Day Fund." Both terms are in appropriate. Both terms are misnomers. The term 'contingent' implies that assets in the Contingency Reserve have been set aside for use dependent on a particular event - presumably that a rainy day has arrived. But this has never been defined. This is, I expect, why at paragraph 7 of the Requete, the Petitioners say that they "consider that the risk of a spiral of decline is the type of emergency for which the Contingency Reserve exists." I disagree. In fact, I strongly disagree. The Contingency Reserve is our savings account. The Contingency Reserve was set up to receive budget surpluses back in the glory days when we ran a fiscal surplus. In other jurisdictions, these surpluses aren't called 'rainy day funds', they are called 'sovereign wealth funds.' That is what this is: it is our sovereign wealth fund; it is our 'Family Silver Fund'; it is our 'Core Capital.'
We have budgeted that this Core Capital will be £150m by the end of 2014; with a further £50m set aside to fund the transition following the adoption of the 0/10 corporate tax strategy. £200m sounds like a lot of savings to have in a savings account; and as a lump sum, £200m is a lot of money, but actually, this only equates to savings of £3,000 per resident. Compared to the UK with a trillion pounds of borrowings, or £15,000 of debt per citizen, we are in a very favourable position; but we cannot be complacent: by way of slightly flippant comparison, only this week, Norway revealed that every one of its citizens is a millionaire, as its core capital amounted to the equivalent of one million Norwegian Kroner per person. A more serious observation is that this position does not truly reflect our net worth. Like a family, we also have to take into account our debts and the mortgage on our family home. 'But we don't borrow in Guernsey', I hear the cry. Sorry, folks. We do. We currently have to take account of around £150m of public sector agency debts which are guaranteed by the States - now those really are 'contingent', in the true meaning of the word - albeit liabilities, rather than assets. So that £200m or £3,000 per person of savings is, now down to a net £50m or £700 per person. So you see, the safety net is somewhat lower than we thought it was - or might wish it to be.
However, whatever the gross value, or whatever the net number per person, there will be many people who think that there is absolutely no point in having a savings account, if you can never use it. I totally agree. The problem is we have never articulated or defined when it might be appropriate - other than this nebulous and unsatisfactory concept of it being a 'rainy day.' This is not a criticism. It is not a surprise: we have never needed to think about this, when all we ever did was add more surpluses to the fund each year. That era is over. And we now we need to give some serious thought to what are savings account is for and how it can be used for the benefit of our community.
One of my predecessors, Deputy Trott - perhaps with the benefit of the experience of having previously occupied my role - has in the past said that the investment return on the Contingency Reserve - on Core Capital - could be used to fund capital spending. The logic of this is sound; provided, of course, that the real value of our savings is preserved. I would like to take this thinking one step further. Up to now, if the value of the Contingency Reserve goes up in any year with good investment performance, we simply add that to the balance on the Reserve; and if it declines in any year, we just hope that investment performance is better the next year. We need to develop a more dynamic and sophisticated view of the impact of investment performance on our savings.
So my Department intends to spend sometime this year, really identifying our Core Capital requirements and developing our thinking on how any excess investment returns - in other words, any outperformance above and beyond that necessary to maintain the real value of our Core Capital - could be safely used for the benefit of our community without imperilling our savings - our Family Silver Fund.
In the meantime, under no circumstances whatsoever should the States consider dipping into the Contingency Reserve, to fund any future redevelopment of Alderney Airport or indeed any other capital project. It may seem like a good idea; it may seem like a painless way to fund this or other projects; it may seem like we can afford it; but the reality is, this would be like a family selling off a strip of land at the end of the garden, thinking that as we don't use it now, it'll be OK; in short, this would be like a family selling off some its family silver. We would regret it. We already have a capital reserve for funding capital projects and this should be no different for this project. It is for this reason, as stated in our letter of comment, that Treasury & Resources would strongly oppose the use of the Contingency Reserve; and we are pleased that the Policy Council, in its letter of comment at p 60 of the Billet takes the same position.