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Government planning to borrow full £800m for new hospital

Government planning to borrow full £800m for new hospital

Friday 23 July 2021

Government planning to borrow full £800m for new hospital


The Government wants to fund the £800m new hospital at Overdale through two bonds of £400m each - costing the island £1.4bn by the time they are paid off in 40 years.

This borrowing, it says, would be paid back over 30 and 40-year period, with each bond carrying an annual charge of 2.5%.

The preferred method for financing the new build is included in a newly-published document called the 'Outline Business Case' (OBC), which explains funding requirements in depth.

However, the document doesn't propose exactly how the bonds would be paid back, noting that the "payment of the annual bond coupon is a new cost to Government and a funding source will need to be identified."

The previous hospital project to refurbish the current site, which was thrown out by States Members two years ago, was estimated to cost £466m and was due to be financed through a £400m bond, 'topped up' by dipping into the island's so-called Rainy Day Fund.

Table_37.png

Pictured: Borrowing £800m is estimated to cost the island £1.4bn by the time its paid off.

Before Ministers' preferred funding option for the new hospital at Overdale can be implemented, it will have to approved by the States Assembly in a debate scheduled for October, with the above figures used as "estimated bond charges and funding requirement."

If there is any delay, the Government says in the OBC that it may dip into its £500m covid loan.

The document also provides a clearer breakdown of the £804m spend on building the hospital, whose main works should cost £312m.

By the end of 2026, the Government will have racked up a Design and Professional Fees bill of around £34m and the staff costs for the Our Hospital Project team will stand at nearly £40m.

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Pictured: A breakdown of estimated costs up until 2026.

"Preliminaries" - the element of the costs related to providing general plant, site staff, facilities, site-based services and other items not included in the main works costs - are estimated to cost £53.4m, factoring in the "unique challenges of delivery in Jersey". 

However, the OBC document says these are still being worked out and could be subject to change.

In addition, £34.3m will have been spent on purchasing sites and properties, an estimate that includes a number that are "still being negotiated" and the potential costs of compulsory purchase.

Previously, the Government said it was expecting to spend around £16m on properties, and latest available records show that more than £12m has been spent so far, primarily on the acquisitions of residential properties, with two more homes currently being eyed up.

What the budget does not include is the operational cost of running a new shuttle bus service to the new hospital, as well as facilities management, which will be laid out in a separate plan under development.

While the project cost may seem high, the OBC predicts that the cost of simply refurbishing existing health facilities over the next 40 to 50 years would be £140m higher at a total of £940m - estimates some States Members told Express they were sceptical about.

The main works - which in this scenario would be spread across the General Hospital, Five Oaks, Maison Le Pape, 14 Gloucester Street, Le Bas Health Centre and Overdale - are listed as costing £406m.

General Hospital

Pictured: The Government estimates that refurbishing the current hospital, and complementary health facilities, would cost £940m.

According to the OBC, building a brand new, all-inclusive health centre at Overdale would create opportunities to save - or even earn - more money by, for example: 

  • not having to work or maintain some existing sites because of the new building (maintaining the General Hospital is currently set to cost £20m over the next four years);

  • the option to make money off of buildings that become vacant as a result of the new hospital;

  • productivity savings from "more efficient flow of services, technological solutions and staffing resource";

  • more money from private patients due to an "expanded" private patient unit (previously predicted to bring in up to £3m a year);

  • derogating from building standards where doing so is acceptable clinically and functionally;

  • and moving some existing furniture, fittings and equipments into the new hospital.

These savings are not quantified in the document, however.

Deputy Chief Minister Senator Lyndon Farnham, who has political responsibility for the project, said: “The business case has clearly demonstrated that our new hospital can be achieved within the budgeted cost and in time to be fully operational by 2026.

“At the same time, it will provide a health facility that is greatly improved on the previous iterations of the project. The main hospital building will consist of four hospitals in one: general, acute, ambulatory, and maternity and children’s, together with a knowledge and training centre and mental health facility. It will be supported by a modern and highly efficient energy centre, and entirely set within landscaped gardens and parklands, in an elevated and peaceful location.”

CLICK HERE to read the Outline Business Case in full.

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Comments

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Posted by captain sensible on
The OBC, who exactly are behind the OBC?
Posted by L Brindle on
How can the government tell the tax payer that the cost of the hospital will be 800 million, when the amount will be 1.4 billion using bonds? People aren't stupid, so stop treating them as if they are. It's government debt, being paid for by the ordinary people of theisland. Honesty and transparency? Always promised, seldom delivered. Bit like the hospital project itself.
Posted by john garner on
A 40 year bond at 2.5 % doesn't have much appeal with inflation at 4% and tax on the coupon ....unless I missed something here
Posted by Martin on
HELLO,
My name is Martin - I would ALSO like to borrow £800 MILLION pounds to buy something which has no firm legal location/destination, it has no final cost - it will be repaid by person/S 99.999 % other than myself with an interest rate of 2.5% over four decades!

I will likely/possibly be leaving my Political term of office for this loan in a year leaving me 39 years to see what the effects of my political career has on the youth of today and indeed their children!

By the time 40 yrs has passed EIGHT more "lots" of politicians will have been and gone!!

IF the next lot of politicians keep borrowing at this rate and then wafting into obscurity after their term finishes we are as Fraser said - DOOMED!
Posted by Scott Mills on
bargain!!!! why not supersize it and make one that'll cost £2 billion. Still it'll have a lovely view of one of our lovely beaches.
Posted by Keith Marsh on
I really do not get the current Government ~ they produce a comprehensive Outline Business Case for Overdale Hospital, which in thousands of words states the obvious in that "we need a new hospital" but nowhere do they detail HOW the Loans are to be repaid.
We are not talking peanuts but almost £47 million per year (based on 30 yr term) ~ Time for the Treasury Minister to come out and say how she is going to pay this, and what increase in Taxation is needed 2p in the £1 on Income Tax ????
Answer please.
Posted by Roy Dean on
Looking at the old building...it looks like thousands of other hospitals in the UK
It seems to me better to keep the facilities separated makes more strategic sense...the existing buildings could be expanded and added to depending on need....
Trying to cram everything in one place is always a bad idea
The Plan looks advantageous to everyone but not the Jersey taxpayers
Posted by Jon Jon on
Years back ,decades really,we had very good politicians,nothing was borrowed for anything,paid for out of taxes raised.Now we have politicians who throw the island into debt,I know we live in the world of borrowing money,something I don’t agree with.If you can’t afford something it stays where it is.
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