Treasury and Exchequer
Ministerial Decision Report
Business disruption Loan guarantee scheme – September 2021 EXTENSION
- Purpose of Report
The Business Disruption Loan Guarantee Scheme (“BDLGS”) provides banks with government backed guarantees to ensure that they can lend to businesses which they consider to be viable, but cannot lend to in accordance with their usual commercial terms. This in turn creates new lending capacity in the Jersey economy, ensuring that credit is available to businesses which could not otherwise have obtained bank lending. The scheme formed part of a package of measures that were implemented by Government to support the businesses suffering from the economic impact of the COVID-19 pandemic.
This report outlines the current status of the Scheme and proposes the extension of the BDLGS Scheme until 31 December 2021.
- Background
Legal position:
P.28/2020 Draft Public Finances (Amendment of Law) (Jersey) Regulations 2020, approved by the States Assembly on 24th March 2020, agreed a number of temporary modifications to the Public Finances (Jersey) Law 2019. The added modifications included an increase to the limit on guarantees and indemnities that the Minister may provide in a financial year from £3 million to £100 million and the limit on the total outstanding guarantees from £20 million to £100 million.
The amendment to P.28/2020, brought by the Corporate Services Scrutiny Panel and adopted by the Assembly, clarified that:
• the amended powers expire on 30th September 2020; and
• where the Minister has obtained financing, lent money or provided guarantees or indemnities under Articles 26 to 28 while Article 24(8) applied, the financing, lending or provision of guarantees or indemnities remain valid and are not included in any monetary limits set out in Articles 26 to 28 as those Articles apply after the expiry of the modifications.
This in effect increased the limit on guarantees and indemnities that the Minister may provide in a financial year from £3 million to £100 million, and the limit on the total outstanding guarantees from £20 million to £100 million.
The Minister brought these amended powers into effect through MD-TR-2020-0029 by deciding that she considered there exists an immediate threat to the health or safety of any of the inhabitants of Jersey and to the stability of the economy in Jersey.
MD-TR-2020-0030 established the BDLGS and delegated management to the Treasurer. As part of this, the Minister approved “associated guarantees to Jersey banks of up to £40 million”.[1]
The Scheme has been extended by:
- MD-TR-2020-0113 until 31 December 2020;
- MD-TR-2020-0161 until 31 March 2021;
- MD-TR-2021-0032 until 30 June 2021; and
- MD-TR-2021-0081 until 30 September 2021.
Accordingly, the contract expires at 30 September 2021. In the absence of any further decision, the scheme will expire at that date.
Performance of COVID-19 business support schemes:
Various business support schemes providing public grants to businesses have been extended to March 2022. These include:
- Visitor Attractions and Events Scheme;
- Visitor Accommodation Support Scheme; and
- Fixed Costs Support Scheme.
The final month of the Co-funded Payroll Scheme is currently September 2021.
These schemes have provided significant public grants to businesses, which have cushioned businesses from needing to rely solely on traditional financing methods such as borrowing.
Lending under the BDLGS has been broadly flat since May 2021. Analysis of the total facilities guaranteed and those still active is as follows:
Total facilities drawn: 67
Total value drawn: £3,688,204
Total facilities active: 52
Total value active: £3,050,204 (Guarantee amount: £2,440,163)
Of the original 67 facilities 15 have now expired with a value of £638,000. Since the beginning of 2021, 6 new facilities have been drawn for a total of £299,500 with a guaranteed amount of £239,600. These figures are included in the overall total above.
In providing additional credit into the economy the BDLGS is closer aligned to traditional business financing than direct taxpayer grants. In the context of grant schemes having been extended, it is therefore appropriate to consider extending the BDLGS. The BDLGS is also a guarantee scheme which provides support to businesses with less direct costs to public funds.
As retail banks in Jersey operate businesses across Jersey, Guernsey, and the Isle of Man, the BDLGS was designed as a joint-Crown Dependency Scheme with near identical contracts between the 3 governments and participant banks. Officers understand that Guernsey and Isle of Man are intending to extend the Scheme expiry to 31 December 2021, so such an extension would be in line with Crown Dependency Governments and provide consistency of government backed bank lending across the islands.
In the absence of the States Assembly approving further guarantees the Scheme relies on the Minister’s powers to approve up to £3m of guarantees under the powers provided in the Public Finances (Jersey) Law 2019. The limited uptake of the Scheme during 2021 suggests that these powers are likely to be sufficient for the further extension. This risk is controlled by limiting the Guarantee Portfolio Cap allocated to each bank, as has been done with previous scheme extensions. Should demand for the scheme exceed the £3million limit the States Assembly’s approval would be required to extend the Minister’s powers.
- Recommendation
The Minister for Treasury and Resources (“the Minister) is recommended to extend the BDLGS to 31 December 2021. Final termination of the scheme is likely to be co-ordinated with the other Crown Dependencies to ensure a consistency of approach.
- Reason for Decision
The extension allows the scheme to be used until 31 December 2021, allowing businesses to borrow from banks participating in the scheme for an additional 3 months.
The BDLGS extension:
- Continues to ensure that additional credit is available to those businesses which are considered viable but cannot be lent to on bank commercial terms;
- Continues to ensure that exposure is limited to the caps in the Public Finances (Jersey) Law 2019, and controls are established between government and participant banks;
- Is consistent with the approach taken in Guernsey and Isle of Man;
- Allows a further extension of the scheme to be assessed against prevailing public health restrictions; and
- Ensures that COVID-19 business support schemes are not all withdrawn simultaneously.
Article 28 of the Public Finances (Jersey) Law 2019 provides that:
28 Guarantees and indemnities
(1) The Minister may, in the name of the States, provide guarantees or indemnities.
(2) The total amount of all guarantees and indemnities under paragraph (1) that may be provided during a financial year must not exceed £3 million.
(3) The total outstanding amount of all guarantees and indemnities under paragraph (1) at any given time must not exceed £20 million.
- Resource Implications
The approach does not allocate further funding to the scheme, but relies on the Minister’s ability to issue guarantees under the Public Finances (Jersey) Law 2019.
In the absence of the States Assembly approving further guarantees the Scheme relies on the Minister’s powers to approve up to £3m of guarantees under the powers provided in the Public Finances (Jersey) Law 2019. Accordingly, the extension of the scheme in this manner restricts the ability of the Minister to issue guarantees for other purposes.
Compliance with this limit is controlled by limiting the Guarantee Portfolio Cap allocated to each bank, as has been done with previous scheme extensions.
Government employees have been engaged in monitoring the scheme since its launch at the beginning of April 2020. This will continue regardless of whether the scheme is extended due to the need to monitor existing exposures, so the staffing impact of extension is limited.
Report author : Associate Director, Financial Services | Document date : 30 September 2021 |
Quality Assurance / Review : Director of Treasury ＆ Investment Management/ Head of Financial Governance | File name and path: L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DS, WR and SD\2021-0115 - Business Disruption Loan Guarantee scheme extension |
MD sponsor : Treasurer of the States |
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