Islanders could be left with a £1 billion hospital bill

Monday 27 July 2015

Borrowing costs for the planned £400 million hospital could take the total price to the taxpayer to a billion pounds.

Ministers have given the clearest statement yet that they will go back into debt to fund the estimated £400 million cost of the new hospital. If they managed to secure a loan on the same terms as the £250 million housing bond issued last year, the combined interest and repayment amounts would reach £1 billion.

An announcement is expected in September about the location of the new hospital, with the Waterfront or the Overdale site believed to be the last two options on the table.

At the same time, ministers will also have to reveal the expected cost of the project, which will easily be the biggest capital project in Jersey’s history. The original estimate of £297 million went out of the window in March, when the Treasury Minister said a two-site option would be an extra £50 million, and a one-site option would be even more than that.

The latest rumour is that ministers are bracing themselves for a £400 million bill for the project – but with the deficit looming, that’s money that the States don’t have to hand without ripping a huge chunk out of the strategic reserve. Although more borrowing would enable ministers to take on the cost of the hospital and spread it over a long period instead of paying for it all at once, it would have a massive implication for the total cost.

Last year, when the States secured a £250 million loan to invest in social housing, they managed to agree terms on a 40-year bond at an interest rate of 3.75%. If the same terms were secured for a £400 million loan, interest payments would total £600 million over 40 years, with the £400 million also having to be repaid at the end of the term.

But there is a potential complication – ministers justified the housing loan on the basis that the renovation and construction work that it would fund would generate money to pay off the loan.

It is difficult to see how the hospital would generate £15 million per year to meet the interest payments, let alone generate an additional £10 Million profit each year to meet the final capital repayment of £400 million.

In a Scrutiny hearing last week, Treasury Minister Alan Maclean was being questioned by the Corporate Services panel on the question of borrowing, when he revealed that early discussions had taken place about going back into the bond market to fund the project.

Asked about whether States spending could be funded by deficit, he said: “That option has not been discussed, with regard to operational revenue matters. It has been discussed in general terms with regard to major capital projects and in particular, I am talking about the hospital.

“It’s too early for further detail. It’s just a consideration.”

In response to follow-up questions, the minister confirmed that no professional advice had been sought with regard to a new bond yet.