Selling the Family Silver to Pay for Caviar Costs

“St Saviour's Hospital to be sold to help balance books? States could sell off large capital assets to help solve projected £145 million deficit” (BBC News)

The problem with selling one’s assets like St Saviour’s Hospital is that it can only be done once.

It is worth looking at other countries to see how they’ve tried to flog off assets to fill their own black holes.

In 2012, Greece was forced to sell off some its beautiful islands to foreign buyers, to chip away at its enormous debts. As the Guardian noted:

“Greece embarks on a firesale - Islands, palaces royal estates and embassies must go as fears grow that country has entered full-blown depression. When you hit hard times, it is time to pawn or part with the family silver – and an unprecedented clearout is now under way in Athens. Greece has announced it will sell anything it can do without – and in the case of the debt-choked nation that means letting go of islands, royal palaces, prime real estate, marinas, airports, roads, the state-owned gas company, lottery and post office. Indeed anything, really, that can be sold.”

That was in 2012, and Greece is still in trouble. If you ask most economists, they will say that one fundamental problem was the failure to restructure public expenditure, which is something that Jersey knows very well about. Selling off capital assets could not cap the problem.

Former Senator Ben Shenton has noted that moves were afoot when he was in the States to reform the Public sector, but it has never really happened. What we have is “shroud waving”, cuts that are trivial, like the Christmas bonus, which could be funded by losing a few middle management posts.

“Joined up Government” was the cliché of the move to Ministerial government. Politicians like Frank Walker and Philip Ozouf were full of it. That never happened, and instead Ministers took over bolted together separate departments under one umbrella title, but still keeping under the hood as separate, giving very much a  “silo” mentality.

I remember one Deputy who had been at Property Services telling me that while he was trying to centralise administration offices, and get benefits from removing wasteful duplication, he was hitting a brick wall erected by some senior civil servants. It is pure “Yes Minister”:

Annie Hacker: Reform the Civil Service.
Jim Hacker: - Impossible. Catch 22.
Annie Hacker: - Why?
Annie Hacker: Supposing I suggested 50 terrific reforms, who would have to implement them?
(BOTH) The Civil Service.

In October 2013, Italy played the asset stripping game. As the Daily Mail reported:

“Never mind a place in the sun, if you’ve ever dreamed of owning your very own Italian castle, or an island in the Venetian lagoon, now’s the time. As the cash-strapped Italian government attempts to tackle its deficit, the state is to sell off some of the family silver. The sale of the 50 properties will raise £424.8million, Minister for the Economy Fabrizio Saccomanni said. The sale was approved as part of an emergency decree aimed at keeping Italy’s 2013 budget deficit within 3 % to avoid corrective action by Brussels. It is not the first time Italy has sold off assets. Last year a succession of lighthouses on the island of Sardinia were sold off to private businesses and converted into hotels, galleries, and museums.”

But as Cate Long noted:

“Hard asset sales will only provide a one-shot infusion of cash to fill a budget hole. There is only so much family silver to sell. Harold Macmillan, towards the end of his career in public life, is said to have likened the Thatcher Government’s use of privatisation proceeds – and this is a characteristically grand analogy that he was making - to selling off the family silver to pay for the grocery bills. “”

In 2013, a UK Parliamentary committee recommended that “When the government dispose off one asset, proceeds there from should be only used for fresh asset creation”. That should be a principle adopted here. Otherwise, in the words of Alex Salmond,  it is like winning the lottery jackpot and then not bothering to set up a savings account!

Failure to plug the gap by selling assets is something that Rob Duhamel also noted in his JEP column. The monies raised will not fill the predicted budget shortfall precisely because it is a one off and relatively small sale, and the problems of the shortfall are annual, and a temporary fix is like putting your finger into the hole in a dyke.

Dutch legend has it that there was once a small boy who upon passing a dyke on his way to school noticed a slight leak as the sea trickled in through a small hole. Knowing that he would be in trouble if he were to be late for school, the boy pocked his finger into the hole and so stemmed the flow of water. Some time later a passer-by saw him and went to get help. This came in the form of other men who were able to effect repairs on the dyke and seal up the leak.

That’s rather the effect of selling the major properties – they are putting a finger in the hole, but unless some real work is done to repair things, it won’t seal up the leak.

What we don’t want is a short term fix, selling large capital assets, and staving off the time for real reforms for a time, but leaving future generations impoverished

References
http://www.theguardian.com/world/2012/sep/19/debt-ridden-greece-firesale
http://www.dailymail.co.uk/news/article-2454535/Italy-selling-historic-castle-palace-entire-island-Venice.html
http://tonymusings.blogspot.com/2015/05/selling-off-family-silver.html