Speech – Capital Investment


Capital Investment

To insert at the end of the words in Proposition 1: “, but subject to the deletion of the words: “in the medium-term” and the insertion in their place of the words: “in every States term” immediately following the words “Actual capital expenditure averaging 3% of GDP per annum” in the first line of the part entitled ‘6. Sustainable investment in public infrastructure’ on page 6 and in the seventh bullet point of paragraph 8.2 on page 9 of Appendix Two.”


I have the dubious honour of proposing the only amendment which the Policy and Resources Committee are specifically opposing. Wiser people than I might have advised me to hold on to my reputation a bit longer before coming out as a trouble-maker – but that cat’s out of the bag now, anyway. I promise not to end up in tears if Members don’t vote with me on this one, although of course I hope they will. But I’ll have a bit of fun with it, and I hope we’ll have a bit of a lively and useful debate on the States’ approach to capital spending.

Right now, we have a target of achieving an average capital spend of 3% of GDP per year, over the medium term, which the Fiscal Framework defines as a fifteen year period.

For the past seven years, since the Framework was introduced, the average has been much closer to 2%. So if we want to hit our target within this fifteen-year period, we’re going to have to double our spending, to an average of around 4% of GDP each year, in order to balance it out. The reality is, that’s just not going to happen. But fifteen years is such a good long period that we can keep promising success tomorrow, and never really have to face up to the fact that we haven’t made it.

Having targets we never intend to achieve, or rules we never intend to obey, is pointless and dispiriting. We would be better off without this rule at all than to keep it, and keep breaking it. This amendment is a challenge. Are we serious about capital spending? If so, let’s stop putting off our targets til tomorrow. If not, let’s reconsider this rule altogether. I haven’t proposed an alternative, because I genuinely want the States to hit its 3% target. But if this debate shows that most States Members believe that is unrealistic or unnecessary, I hope we will give some consideration to modifying the Fiscal Framework to reflect our ambitions more honestly in future.

It is undeniable that capital has been the poor relation in States’ financial planning and policy-making. I’ve been told not to mix up the amount of money that the States allocates to the capital reserve each year, and the amount it spends on capital projects. That’s fair enough – the two aren’t directly linked. But they share a common problem – they are both unloved by the States. In this year’s Budget, we were told that if we’d followed our own policy, the allocation to the capital reserve should have been nearly £37 million. As we kept shaving bits off it to balance our books, we’ve ended up putting less than £13 million aside – just a third of the original figure. We’ve squeezed our capital allocation year after year, effectively trying to mop up some of the deficit by moving money between our bank accounts.

Likewise, our capital spending keeps falling short of the target we’ve set ourselves. Deputy St Pier has said that the problem is the lack of suitable capital projects. It’s a slightly baffling claim, to say that we’ve been warned the capital portfolio next year will be worth nearly £700 million, and we’re going to have to try and prioritise what we can afford to do with less than £300 million at our disposal. We haven’t historically been good at managing the capital pipeline – it’s often feast or famine for infrastructure projects – but it’s in our power to do better.

Good public infrastructure is integral to the provision of good public services. If we’re serious about efficiency or transformation, we need to be serious about investment in our infrastructure.

But there’s more to it than that. Steady capital investment could have a powerful role as a form of economic stimulus. The people who work in construction and related industries make up about a fifth of our workforce, or one in ten islanders – that’s a substantial group of people who could benefit from a boost in this area. Incomes in this sector are not enormous – half of all workers earn between £20-£40,000 per year. They are more likely to spend their money in the local economy, rather than off-island – and that has a secondary, positive effect on our economy. This kind of thing is generally a virtuous circle. But while our Budget included measures that played to High Net-Worth Individuals, the opportunity to raise up other sectors of the population through similar policy measures – dignified measures that allow people to enrich themselves through work – was completely missed. It doesn’t have to be that way.
This is a Fiscal Framework in which all rules are equal, but some rules are more equal than others. We have a rule that “the level of gross borrowing by the States may not exceed 15% of Guernsey GDP.” We were quick to max that one out with the bond in the last couple of years. But in the last seven years, we have got nowhere near achieving our target of investing 3% of GDP in capital once.

So what will happen if this amendment is passed?

Version One is the optimist’s take on it. The States will knuckle down to the challenge of averaging expenditure of 3% of GDP on capital each year. It won’t pinch from the capital allocation in order to balance the books – rather, it will recognise that saving the right amount towards capital expenditure each year is as much of a core financial duty as is funding the operational budgets of the Committees. It will carefully plan and prioritise its pipeline of capital projects, which we’ll be debating next June – to make sure it hits its targets, but also to release projects in a thoughtful and staged way, rather than flooding the market all at once. The island will benefit from economic stimulus and from safe, strong and fit-for-purpose public infrastructure.

Version Two is the more cynical take. Nothing will change in the way the States approaches capital. I do hope I’m wrong there. I’d like to hope this debate might change the way we think about it, however the vote goes. But at least every four years, we’ll weigh our performance in the balance and find that we’ve failed. That will force us to talk about upping our game, or changing the target. Either way, it will keep us honest. The current rule just gives us too much wiggle room. One of the members of P&R said to me, “Forget about the last seven years. What if this were Year Zero? We might be in a better place to achieve a 3% average over the next fifteen years, starting now.” See how slippery the medium-term target is. It gives us far too much room to break our promises without admitting it; far too little transparency or accountability. As one States Member said to me just before the debate, we must be responsible for our performance, in our time.

Is the 3% target right? I don’t know. But it is the target which the States has adopted. All I am asking is that we adopt a meaningful timeframe for achieving that target, so that we can measure and be held accountable for our performance. If we’re not willing to do that, we would be better off walking away from this rule altogether.

I believe that, if we take this target seriously, we stand to benefit all islanders, from the provision and maintenance of sound infrastructure, and the positive impact of capital investment on employment and the local economy. I believe it is a nonsense to have rules we are not sincere about, and I would ask any States Member who wants us to up our game on capital investment to support this amendment.

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