"No strong economic case" for more fiscal stimulus funding

Wednesday 01 September 2021

There are no plans to spend the £20m left in the Government's money pot for giving the economy a boost because recovery has been strong enough, the Treasury Minister has confirmed.

Instead, the money – the balance of £50m withdrawn from the Government’s £500m ‘overdraft ’ that it negotiated to pay for its covid response – will be held in reserve should the economy worsen later in the year.

Deputy Susie Pinel confirmed that no more projects would be considered for support from the Fiscal Stimulus Fund, which was set up and approved last year to kick-start the economy after the disruption of covid, in an update report to States Members.

Government departments, charities and not-for-profits were allowed to bid for their slice of the £50m on offer by applying for funding for specific projects that had to be ‘timely, targeted and temporary’.

In total, 47 projects successfully negotiating the bidding process, totalling £29.6m of funding.

CLICK TO ENLARGE: The success first tranche fiscal stimulus projects.

Earlier in the process, Scrutiny warned that most projects appeared to be construction-related, which could lead to overheating in that sector of the economy.

However, the Government argue that, with construction contributing around £1bn a year to the local economy, the extra 5% of work that the fund will generate in 2021 will not have a detrimental impact.

Concerns have also been raised that many projects – particularly the larger construction-based ones - will not be completed by the end of this year, which was the deadline that States Members agreed in approving the fund last November.

CLICK TO ENLARGE: The successful second tranche projects. Both tranches total £29,640,534.

However, the Treasury Minister said that only six of the 47 projects have been granted extensions, and these are only to next March. 

This number may yet rise as just over half of the projects, worth £14.3m, have signed grant agreements with the Government, which they have to do to access funding.

It is expected that all 47 will have agreements in place by the end of August.   

Explaining the rationale behind holding back on the £20m balance, Deputy Pinel's report said: “On the basis of the data available, the economic advice is that there is no strong case to be made that significant further fiscal stimulus is required in the near-term. 

“This view is supported by the Fiscal Policy Panel in its most recent advice. The extension of the pay-roll and fixed cost schemes should continue to support firms affected by restrictions.

“However, the economic advice states that it would be prudent to continue to follow the FPP advice to retain flexibility to respond to changes in economic conditions. Therefore, the most appropriate use of the £20 million which could be approved would be to hold that ability in reserve to allow a further round of fiscal stimulus to be implemented quickly later in the year, should economic conditions deteriorate.

“On the basis of the economic advice, the Fiscal Stimulus Oversight Group recommends that the remaining potentially available funds not be allocated at this stage and be held in reserve to provide flexibility in responding to economic indicators. 

“The ability to borrow the balance falls away in December 2022 when P.128/2020 sets out the process for winding up the fund. 

“On the basis that the proposition sets out that funds should be spent by December 2021 it is likely, therefore, that any decision on the potential remaining funding will be made by March 2022 at the latest."

Pictured: The National Trust will be given £2.16m to create a B&B and glamping at Morel Farm in St. Lawrence.

The report continued: “The Minister accepts and supports the recommendation of [the Fiscal Stimulus Oversight Group].

“This recommendation means that the remaining projects which have not been allocated funding at business case stage will not be considered further by the Fiscal Stimulus Oversight Group.”

The 47 projects range from £3.1m to renovate Oakfield Sports Centre as part of the Government’s ten-year sports’ strategy to £11,000 to build a new kitchen at Ebenezer Methodist Church.

Other recipients include the Opera House (£2.2m), the Arts Centre (£2.9m), the Education department (£1.7m), Springfield Stadium (£1.9m) and Customer and Local Services (£1.5m). The Scouts will also receive more than £438,000 for four refurbishment projects.

The six projects that have been granted extensions to next March are: Oakfield, Springfield, First Tower Youth Club, Brighter Futures, Healing Waves and Padel Tennis.