Would more public sector capital projects provide the boost to growth?

 

The Coalition government has some sympathy with the idea that the public sector needs to boost its own capital investment. The Chancellor has made modest increases to the inherited much cut plans. He does not do more, because he says if he undertook to borrow more markets might lose faith in his fiscal management. If markets drove up the cost of state borrowing, that will take demand out of the economy as interest rates generally rise. That not only hits borrowers, but also undermines confidence and knocks business. It would of course offer some offset as savers had more to spend.

I think there is a larger problem with rolling out big public sector capital programmes. So often the projects the public sector chooses fail to raise productivity but instead gives the state large new future liabilities. The state has to maintain and staff the new buildings and pay the often large losses on the trading assets acquired. The UK is not competitive enough. It needs to raise productivity. It needs to have an affordable public sector. The wrong kinds of public “investment” can make these aims more difficult to achieve.

Some might think, for example, that a new library would be a welcome project. The state then has to provide tax revenue to pay all the future running costs of the library for many years, as it will not bring in any revenue. Meanwhile it leaves open the question of how and when will the UK adapt to the new technology of the web and ebooks. Some believe that HS2 is a crucial economic project that can open up business to the North. However the business plans show it will be heavily loss making and struggle to attract enough passengers. It is twentieth century technology, when China is pressing on with maglev, and the US with its digital revolution allowing good communcations from remote locations.

It seems unlikely that the state can come up quickly with a series of projects that could raise productivity in the state sector, thereby boosting growth and helping reduce future costs of state provision. Short of that it is difficult to see how an enhanced public sector capital programme will lift us out of low growth. Japan has tried this for many years, and just ended up with even more massive state debts than we have. Tomorrow we will consider a larger  privately financed capital programme. This has the advantage that the projects need to meet commercial tests, and do not lumber taxpayers with any failures.

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129 Comments

  1. Nina Andreeva
    Posted March 11, 2013 at 6:23 am | Permalink

    I am in two minds on this one. When you have a truly great leader it does work. The US economy still derives benefits from projects that FDR put in place like the Hoover Dam and the TVA. However we have Cameron and can you imagine Nicholson left in charge of an NHS hospital building program? So just forget it, the UK is beyond repair its time to just let the trust fund kids and the public sector elite pick over whats left of the carcass.

    • Single Acts
      Posted March 11, 2013 at 8:27 am | Permalink

      Coolidge authorised the dam in 1928. The FDR stuff is propaganda.

      One might wonder why the US depression was so persistent despite all this spending if it worked. In fact its counter-productive.

      Ever heard of the US depression of 1920? No?

      If you find out why, you will know what we need to do now and its not spending.

      • Acorn
        Posted March 11, 2013 at 9:00 am | Permalink

        The Great Depression in the US culminating in the 1929 crash has been replicated with the recent event. US 1920 to 1934 equals UK 2000 to 2013. Same debt boom, same debt bust.

        • zorro
          Posted March 11, 2013 at 6:05 pm | Permalink

          Is that really so, speaking fro memory now, but the 1920-21 US recession was a very sharp deflationary depression. There had been a short readjustment after WW1, and the economy started to grow, but was still readjusting from a wartime to peacetime economy. and the concomitant effects of a surge in civilian labour, and changes in price expectations.

          Some also think that the FED raised interest rates too quickly in response to post WW1 inflation and this might have contributed to the extreme downturn. Following the 1920-21 recession, Warren Harding’s laissez-faire economic policies, combined with a rapid government downsizing (the exact opposite of what happened following the dot come recession in 2000), had a direct influence on the rapid and widespread private-sector recovery. There needed to be a proper shake-out after WW1 to quickly realign investment and consumption.

          The UK also cut government spending quite rapidly during that period (Geddes’s Axe)…..For this reason it is difficult to equate it with the continuous government expansionary boom from at least 2000 until now.

          zorro

          • zorro
            Posted March 11, 2013 at 6:37 pm | Permalink

            sorry for spelling errors, I wrote that very quickly.

            zorro

      • Nina Andreeva
        Posted March 11, 2013 at 9:09 am | Permalink

        If you wanted to have been a real clever dickie you should have suggested that I read “The Forgotten Man” by Amity Shlaes, I do not need any lectures in economic history

      • uanime5
        Posted March 11, 2013 at 1:25 pm | Permalink

        The USA had a boom period in the 1920s due to easy credit, which ended in 1929 when the Stock Market crashes and took the economy with it.

        The Depression lasted so long because Hoover didn’t start spending until there was an upcoming election (Hoover also didn’t raise taxes until 1932, the year of the Presidential election). It wasn’t until FDR was elected and provided a huge stimulus that the US economy started to recover.

        • Richard1
          Posted March 12, 2013 at 10:07 am | Permalink

          Check the facts. There was no recovery in the US until the late 30s, unlike the UK where tough public spending controls produced a strong recovery from 1933. There is no evidence the New Deal is what got US recovery underway, it is a Keynesian myth.

          • uanime5
            Posted March 12, 2013 at 4:09 pm | Permalink

            I have checked my facts Richard1, you just chose to ignore them because you didn’t like them.

            The USA economy didn’t recovered until 1936 because it wasn’t until 1932 that FDR was elected and the Government started trying to fix the problems. After being elected FDR raised the upper tax rate to 98% and stimulated the economy, which resulted in the USA recovering. He also ended prohibition, which was cause major problems throughout the USA.

            By contrast in the UK pay and welfare cuts reduced purchasing power and increased unemployment. It wasn’t until the UK abandoned the gold standard and the pound massively devalued that the UK was able to recover through increased exports. As result of the Conservatives’ economic policies in the 1930’s Churchill lost the 1945 election by a huge margin to Labour and remained in opposition until 1955.

          • Acorn
            Posted March 12, 2013 at 7:47 pm | Permalink

            Where were these tough spending controls in 1933? The government boosted spending to counteract the depression, and GDP responded. http://www.ukpublicspending.co.uk/spending_brief.php .

          • Edward2
            Posted March 13, 2013 at 4:54 pm | Permalink

            Uni, you really need to get another history text book because the one you are using is wrong.

      • zorro
        Posted March 11, 2013 at 5:46 pm | Permalink

        This when I normally wheel out the 1939 quote from Roosevelt’s Treasury Secretary Henry Morgenthau…. i.e… from the horse’s mouth

        ‘No, gentlemen, we have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong, as far as I am concerned, somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…
        But why not let’s come to grips? And as I say, all I am interested in is to really see this country prosperous and this form of Government continue, because after eight years if we can’t make a success somebody else is going to claim the right to make it and he’s got the right to make the trial. I say after eight years of this Administration we have just as much unemployment as when we started.’

        zorro

        • zorro
          Posted March 11, 2013 at 5:47 pm | Permalink

          Then some demand was created…..WW11.

          zorro

        • David Price
          Posted March 12, 2013 at 9:52 am | Permalink

          What a marvellous statement – why can’t our political leadership be so plain spoken, honest, focussed and respectful of the electorate.

        • uanime5
          Posted March 12, 2013 at 4:21 pm | Permalink

          Care to explain why FDR was re-elected 4 times if he was so bad for the economy?

          Regarding your quote since FDR was elected in 1932 then Henry Morgenthau would have been speaking in 1940, at a time when unemployment was falling and the economy was recovering. Odd that he’s talking about unemployment being the same as when he started. Odder still is that this quote isn’t mentioned in any national newspapers or in any of Congress’ records. Care to provide a source for this quote Zorro.

    • Acorn
      Posted March 11, 2013 at 9:16 am | Permalink

      Nina, there is some hope from, of all places, Italy’s recent election.

      . “And it is in this spirit that Grillo has claimed that even though his movement will not enter into a coalition with any other political party, they are open to giving their support to specific policy proposals, to be evaluated on a case by case basis “on their own merits”. Far from the ideological discourse we are used to associating with traditional populist movements, Grillo’s flaunted pragmatism suggests that if he is to be considered a populist at all, we may have to admit the existence of a new specifically ‘technocratic’ populism. The Five Star Movement’s programme reinforces this impression. It is a long list of concrete measures, backed up with evidence from local experiences: there is no justification of the underlying values or assumptions of the movement, and no political vision. Challenging the empty professionalism of career politicians, Grillo claims that his parliamentarians, selected from all walks of life, are the real experts.” ….. ” Populism and technocracy are the political styles that best correspond with widespread public cynicism and an elitist disregard for majoritarian democracy. They are symptoms of the demise of politics, not expressions of its renewal.”

    • zorro
      Posted March 11, 2013 at 6:10 pm | Permalink

      I think that QE to pay for necessary and useful infrastructure for private companies to build is appropriate, and even better, if it is associated by a reduction in government spending. The situation we have now is artificially created. Even if the banks wanted to lend on sensible risks, the BASLE III regulations are effectively stopping them from doing so…..

      We should not be using QE to prop up government spending on wasteful things, or bailing out zombie banks.

      zorro

      zorro

  2. Robert K
    Posted March 11, 2013 at 6:23 am | Permalink

    The state loves grand infrastructure because it demonstrates that only the state is capable of tackling projects of such an immense scale. Sadly, the reason the state will take on such projects when the private sector will not is that schemes such as HS2 make no economic sense. If they did, they would pay for themselves through higher fares and the private sector would take them on.
    At a time of record high borrowing and inflated tax rates, the state should have one thing on its mind – reducing the enormous burden it places on taxpayers of today and tomorrow. Sadly, with a social democrat coalition government, this is unlikely to happen.

    • P O Pensioner
      Posted March 11, 2013 at 1:06 pm | Permalink

      Robert K – so very true!

    • Carol Hulme
      Posted March 28, 2013 at 9:06 pm | Permalink

      Absolutely agree.HS2 has a flawed business case, but unfortunately most MP’s are in favour of this vanity scheme and of course borrowing billions over the next 20 years plus to build it. The Public Sector is always reckless with money, after all it is the taxpayers who continues to cough up. Most people that I talk to about politics are extremely fed up with attitudes of the political elite, and astounded that they, the politicians , cannot see what what most of the electorate can!!

  3. lifelogic
    Posted March 11, 2013 at 6:38 am | Permalink

    Exactly as you say:- It seems unlikely that the state can come up quickly with a series of projects that could raise productivity in the state sector, thereby boosting growth and helping reduce future costs of state provision.

    Indeed it does, HS2 is clearly worse than paying people to dig holes and fill them in again. This as at least the filled in holes will not require further future subsidy and do not cause huge disruption during the work and the blighting of properties and lives all over the place.

    Good investments for the state sector are removing the road blocks, “environmental areas” and anti car traffic lights (they have pointlessly installed) and paying redundancy to the 50% of the state sector that is pointless or actively damaging, 5 runway Heathwick which could be self funding, perhaps a minor few roads schemes and a new bridge at the Blackwall tunnel. Mind you petrol is getting so expensive the roads are rather clear as few can afford it after the deliberate currency devaluation and high duties.

    They should also invest in stopping silly regulations like Cameron’s gender neutral insurance, easy hire and fire employment laws, cutting redundancy payments, the green guff, pointless subsidies for, the energy certificates, the banker bonus nonsense and all rest of the drivel he nods through.

    Release the state sector to put their (profitable) and delayed projects back into effect with bank lending, simplified planning, some confidence and lower taxes.

    • lifelogic
      Posted March 11, 2013 at 6:48 am | Permalink

      I see on Questiontime last week they even had three/two panelists for coming out of the EU. This must be a first for the BBC, they usually choose panelist to get a 4/1 pro EU position or 5/0. With a similar stance on the gross AGW exaggerations, not cutting taxes, not cutting benefits, being Keynesian, anti landlord, anti business and not getting out of the European Court of Human Rights.

      But what on earth in Clarke doing in the Tory party and cabinet at all. Every time he opens his mouth it must cost so much support. He is neither Liberal nor a Democrat, so the absurdly named LibDemocrats is clearly where he should be at home.

      • alan wheatley
        Posted March 11, 2013 at 12:33 pm | Permalink

        Yes, David Dimbleby was very surprised!

        • lifelogic
          Posted March 11, 2013 at 8:51 pm | Permalink

          He must have a word with his selectors to prevent any outbreaks of the real feelings in the country over the carefully contrived, right on, “BBC think” panel – that is usually rammed down the throats of the public by the BBC.

    • outsider
      Posted March 11, 2013 at 1:04 pm | Permalink

      Dear Lifelogic,
      “paying people to dig holes and fill them up again”.
      There is no need to dig holes. As an expat you may not know that the country has an epidemic of potholes that local authorities have no budget to fill. In many cases, resurfacing of stretches of local road is needed to solve the problem. This is not capex but if a two year central fund was created for local authorities to call on, it would save future public and private costs as well as improving local road networks.
      In my part of the world there is also a single line railway track that needs to be restored to double track and a modest three-village single-track bypass waiting to be built but lacking funds.
      None of these are grand projects but they would raise productivity a bit and (in two of three) cut future costs. I guess that many round the country could tell a similar story.

      • lifelogic
        Posted March 11, 2013 at 8:56 pm | Permalink

        Clearly there is much maintenance to be done, but governments like daft grand projects not pot holes or drains. They want glamour and maximum bling – Hs2 and the Olympics. Alas they do not have a magic money tree, even Cameron has worked this out, at long last.

    • Bazman
      Posted March 11, 2013 at 7:24 pm | Permalink

      Employment laws again? Easy hire and fire? Umbrella companies, agencies, short term contracts, Tell us specifically how you want easy hire and fire? You cannot can you? More ‘think’. “you’re sacked. I don’t have to give a reason or any money.” is what you are talking about.

  4. Steve Cox
    Posted March 11, 2013 at 6:51 am | Permalink

    One possibility for state capital spending (though it may be anathema to many Conservatives) that I can see is for the government to wash its hands of the mainly foreign-owned companies that are either refusing to invest in new nuclear power stations or else stalling in order to extract the highest possible profit margins from future customers and build them itself. We’ve done it before and we can do it again – I hope! Or has the quality of engineering in Britain declined so far that we can no longer do this ourselves but would still have to sub-contract it to foreign companies.

    We are all aware that we need new sources of (ideally low carbon) power, and that nuclear is a front-runner but the capital costs are so enormous that private companies are very wary of putting up the money unless future returns are both large and guaranteed. So let the government, or Bank of England, put up the £20 or £30 billion needed. As the sites considered are all currently homes to old nuclear reactors planning should be straightforward and construction should be able to start quite quickly – this year perhaps, if the government legislates to remove any pitfalls.

    We get the benefits of a rapid start to a massive new building programme, plus long-term low carbon energy security. Japan ended up throwing money away, concreting over the countryside and building bridges to nowhere. We would end up with a new generation of nuclear power stations. Running costs for nuclear power plants are very low compared with the capital cost, so the risks you mention of the government ending up with huge maintenance bills are minimal. And anyway, once built with a price tariff that the government would know was profitable it could presumably always privatise them if it wanted to.

    To my mind this suggestion meets all the criteria needed and would solve several problems at the same time. The government might have to ride roughshod over some local objections, but compared with HS2 and its 2030++ delivery schedule, enormous environmental objections, new technology, and not to mention its dubious economic benefits, the government fronting the construction of a new generation of nuclear power stations seems like an obvious way to go. It has to be done one way or another, and since private industry is unwilling or highly reluctant to commit the capital, let the government do it instead, and reap the rewards instead of EDF or RWE.

    • backofanenvelope
      Posted March 11, 2013 at 9:42 am | Permalink

      Good thinking. I have no idea how much it costs to construct a nuclear power plant, but if your figures are right, it is only a couple of months of current borrowing and will be spread over ten years or more.

      We have some of the best civil engineering companies in the world, plus Rolls Royce and Centrica, just build some ourselves.

      It has never ceased to amuse me, that having privatised the electricity suppliers, we end up in the hands of a company owned by our old enemies, the French.

      • outsider
        Posted March 11, 2013 at 1:27 pm | Permalink

        On the back of my enevelope, this would not be posssible because of EU state subsidy rules and it would be ruinously expensive to restart an industry that was deliberately shut down/sold off with all-party support just just to build “some” nuclear stations in the UK.

        On a commercial basis, Rolls-Royce shares would plummet if it said it was going into the nuclear building industry and Centrica has just pulled out of a deal to take a minority stake in planned new French-owned nuclear stations.

        The nuclear industry is one of the many, many cases of successive governments destroying British industry either intentionally or, more often, by not caring a jot. As this case illustrates, “rebalancing” the economy is, to put it mildly, easier said than done .

        • uanime5
          Posted March 12, 2013 at 4:27 pm | Permalink

          EDF is 85% owned by the French Government, so under EU rules the UK could create an energy company that was mostly owned by the Government.

    • alan wheatley
      Posted March 11, 2013 at 12:38 pm | Permalink

      A good point.

      But I am concerned that we have run down our nuclear specific know-how – as opposed to general engineering – to the point that we either have to re-generate it or look abroad.

      Also, I think there is a good case for building thorium reactors rather than uranium.

    • Nicol Sinclair
      Posted March 11, 2013 at 1:22 pm | Permalink

      Agree totally but only if the reactors are to be Thorium…

  5. Mike Stallard
    Posted March 11, 2013 at 7:27 am | Permalink

    If you are a businessman and you borrow money then you can either go bankrupt or else survive, or else make money. It matters very much if you have to remortgage your house and therefore your marriage/children’s schooling to play the risk.

    If you are in government, however, you are taking no risks at all. If you are sitting in Westminster, you have no real idea what is going on in Wisbech. You don’t know the key people or the underlying facts. The other people involved usually don’t either. It doesn’t matter though because at the end of the day, they are not risking anything except for other people’s money. Therefore what you say is totally right: lots of useless prestige projects.

    If the people are sitting in Brussels and they distrust England (Guy Verhofstadt’s speeches), then even more of other people’s money will be spent (HS2).

  6. margaret brandreth-j
    Posted March 11, 2013 at 7:40 am | Permalink

    Perhaps I don’t understand, but I am not hearing about the public/ private interaction, spending and growth and how one sector bounces off the other. My observation is particularly in the building of hospitals and how private contractors benefit out of huge bulding projects ,solicitors, project managers , computing systems.. ad infinitum. The state buys and private concerns benefit ,their products are incoroporated in GDP.The private sector is sustained because the state allows it to. Are you saying that the state should nationalise more of its manufacturing to make it more sustainable?

    • Nick
      Posted March 11, 2013 at 8:20 am | Permalink

      And have it end up like the railways and the NHS?

      • margaret brandreth-j
        Posted March 11, 2013 at 2:06 pm | Permalink

        We have a couple of chains of supermarkets , who have insurance, holidays, durable goods , furniture and much more…We joke about *e*co land .. Why not have NHSland.?

        • lifelogic
          Posted March 11, 2013 at 9:05 pm | Permalink

          “Rolls-Royce shares would plummet if it said it was going into the nuclear building industry”.

          They are already involved in nuclear. Their shares would surely soar if they moved out of Cameron’s suffocating and anti-business UK though. Is this not a duty of the directors to consider this for shareholders?

  7. Johnny Norfolk
    Posted March 11, 2013 at 7:42 am | Permalink

    Trouble is communists and socialists like David Cameron do not see it that way. They just print more money. We are doomed with people like this.

    • Nick
      Posted March 11, 2013 at 8:21 am | Permalink

      Interesting comments on Pravda (BBC) this morning.

      More laying the ground for taking the state pension away from people

      “State pension is Welfare”, is being trotted out.

      • Jerry
        Posted March 11, 2013 at 9:01 am | Permalink

        @Nick: They are, otherwise what is the difference between NI (pensions) and NI (benefits) when the contribution was made, prey do tell…

      • MickC
        Posted March 11, 2013 at 9:44 am | Permalink

        Yes, of course the state pension will be eroded-the state quite simply cannot afford it.

        In the meantime, with the inevitable Labour landslide at the next election, some form of wealth tax will be introduced (on the basis of “equality”) and the proceeds will go on current spending.

        What happens after that will be a problem for the future-and a different government.

        Even now, saving is not sensible (inflation, taxes, etc.)-it will be less so in the future.

        • A different Simon
          Posted March 11, 2013 at 11:16 am | Permalink

          MickyC ,

          “Yes, of course the state pension will be eroded-the state quite simply cannot afford it.”

          It has been established that in a civilised society if someone cannot pay for themselves society has to pick up the tab .

          It costs the same amount of money for an old person to subsist whether that is met by a pension or by the kludge of means tested benefits .

          A state pension which pays out at the point at which means tested benefits would cut it in is therefore cash-neutral .

          Means testing discourages private saving and costs a lot of money to administrate .

          Why is it that every politician sees the solution as increasing wages rather than reducing the cost of living ?

          My opinion is that the state pension needs to be partially funded and that the assets it owns should be primarily be based in the UK to provide a benefit to the next generation .

          A mass house building project which reduced the cost of accommodation would reduce the cost of future benefits and lower the cost of living .

          • A different Simon
            Posted March 11, 2013 at 11:30 am | Permalink

            PS ,

            I bought “The Daily Express” this morning because the front page headlines were “Guarantee for every pension” .

            Apparently “the government” cannot guarantee growth but they are going to guarantee the investment performance of private pensions meets minimum levels as a way of encouraging people to save for their old age .

            This is termed “Pension Protection Insurance” , something the public sector get for free on a notional investment performance of over double that returned by gilts .

            Perhaps we will see the value/cost of this guarantee quantified .

            I wonder whether “the government” is only looking at guaranteeing the size of the pensions pot or whether it is also going to guarantee inflation linked annuity rates ?

            It should be obvious from the difference between inflation linked annuity rates and fixed annuity rates that much of the cost of a guaranteed pension is the guarantee itself .

            I mention this because once again the state is making promises it might not be able to keep and saddling the next generation with liabilities .

            The Government should be closing down defined benefits pensions in the public sector and reacquainting the country with the concept of risk , not trying to extend the fantasy that outcomes can be guaranteed .

            I despair .

          • lifelogic
            Posted March 11, 2013 at 9:11 pm | Permalink

            @ A different Simon.

            Indeed we need a tax to cut the private sector pensions down to size. Private sector ones are around 1/6 of the value.

        • Bryan
          Posted March 11, 2013 at 11:48 am | Permalink

          Remember that in the dialect of New /Old Labour that current spending is defined only as investment.

          And when will this coalition stop giving grants under various disguises to the Unions – this is tantamount to the tax payer funding the Labour Party.

        • Vanessa
          Posted March 11, 2013 at 12:08 pm | Permalink

          MickC – I think it will be another coalition. None of the 3 main parties is believed on anything they say (they are all the same) so we will get another coalition of, maybe, cons and labs. Until either UKIP is in government or one of the main parties breaks away and begins to say something different we will never get a majority government. It is SO crowded on the centre ground !!!

      • Gary
        Posted March 11, 2013 at 12:44 pm | Permalink

        Default/restructuring by any other name. Expect more of the same under suitably weasel language.

    • Jerry
      Posted March 11, 2013 at 8:30 am | Permalink

      @Johnny Norfolk: Indeed we are if people like you think that Cameron is a communist, we do not want nor need a far-right wing junta thanks!…

      In any case, “communist” and “socialist” are NOT equal and exchangeable terms, attempting to make them thus just makes the writer look silly to anyone with more than a single clue.

      • lifelogic
        Posted March 11, 2013 at 8:51 am | Permalink

        He did not say Cameron was a communist – anyway it does not matter much, these words mean very different things to different people and at different times in history. The real divide is:- do you think the state should just do what it does bests (defense, law and order and a few other things), or do you think is should be tax, borrow and waste and become 50% + of the economy. As Cameron/the BBC/Labour and the Libdems all seem to think and push.

        • Jerry
          Posted March 11, 2013 at 11:34 am | Permalink

          @Lifelogic: Sorry but the terms “communist” and “socialist” have definite meanings, there is no ambiguity, if people; get there usage wrong then that just shows up their own lack of understanding.

          As for ‘small state’, what we need a functioning state, just as we need a functioning economy, many countries with ‘small state’ governments are even worse off economically than the UK is, on the other hand countries with a large state are also booming economically – why is it that for companies like Rolls Royce, Jaguar and Land Rover one of their biggest markets is China?…

      • Leslie Singleton
        Posted March 11, 2013 at 9:44 am | Permalink

        Jerry–If you meet anyone with a single clue let me know. Johnny Norfolk did not even begin to say that Communism and Socialism are “equal and exchangeable” (You have confused yourself because there is a lot of overlap). What he said (I am not here to discuss whether he was right or wrong) was that Cameron is both. He might like swimming and mountain climbing but it would be silly (your word) to say that they are the same thing.

        • Jerry
          Posted March 11, 2013 at 11:43 am | Permalink

          @Leslie Singleton: Context is everything, try actually reading the context, not just the words – “Trouble is communists and socialists like David Cameron do not see it that way”…

          • Leslie Singleton
            Posted March 11, 2013 at 9:17 pm | Permalink

            Jerry–Suggest you re-read your second para preferably with someone with a single clue if you can find one

          • Bob
            Posted March 11, 2013 at 10:07 pm | Permalink

            @Jerry
            ““Trouble is communists and socialists like David Cameron”

            I read “socialists like David Cameron”, as a discrete component of the sentence, suggesting some common ground between the two ideologies not that they are the same, but rather that they are both inclined to run out of other peoples money eventually.

          • Jerry
            Posted March 12, 2013 at 8:50 am | Permalink

            @Leslie Singleton: What ever… but I can assure you that I have more than a clue, more than several, unlike you and your right-wing is always correct dogma.

            The post war prosperity of the UK was built on post war socialism, as I’ve said before the Tory governments of the 1950s were more (small s) socialist than the governments of Blair and Brown were and certainly more than this government is!

      • Max Dunbar
        Posted March 11, 2013 at 2:19 pm | Permalink

        Correct. Socialists are Crypto-Communists who want to get elected.

        • Jerry
          Posted March 11, 2013 at 8:41 pm | Permalink

          @Max Dunbar: “Socialists are Crypto-Communists who want to get elected.

          That is like saying that all Tories or capitalists are right-wing despots or juntas who just want to rule the plebs… Ho-hum.

          Why do the extremes, both left and right, get so angry and thus start using hyperbolic descriptions? 🙁

          • Max Dunbar
            Posted March 12, 2013 at 12:44 pm | Permalink

            I would accept that describing Socialists as Crypto-Communists is a broad brush and provocative approach but I would guess that you would probably agree there is a degree of truth in the statement. How many communist MPs have been elected to the House of Commons? Virtually none and none in recent times as far as I am aware. However, we do know that it is better to judge politicians by their deeds rather than their rhetoric and on that basis I would claim that, without naming any individuals, there are communists in the Labour, Lib-Dem and SNP parties who have considerable influence. (words left out ed)I have observed the close relationship between the unions, various socialist parties and the Communist Party in Scotland. It would appear that the connections are intimate and that the only difference between them is one of pragmatism. The Communist Party is undoubtedly the True Church of Socialism.

            Reply Name calling can be both provocative and inaccurate. A Communist is one who joins the Communist party. Those who do not should not be called Communists. If they share views with Communists these can be exposed and criticised according to taste.

        • lifelogic
          Posted March 11, 2013 at 9:12 pm | Permalink

          Indeed.

          • Leslie Singleton
            Posted March 12, 2013 at 11:37 am | Permalink

            lifelogic–Hard to know whom you are indeeding. Suggest stick name up front.

  8. frank salmon
    Posted March 11, 2013 at 7:53 am | Permalink

    Yes. Most government ‘investments’ waste money. An exception would be our miserable road network.Here is some advice, forget tolls, build roads and cancel HS2. Bring all the existing tolls into our ‘free’ road network. Build a third tunnel at the Blackwall tunnel… With projects like these, the economy will thrive.

  9. Andyvan
    Posted March 11, 2013 at 8:01 am | Permalink

    You are quite right Mr Redwood. The state will not save us and it’s time the government and all the Keynesian fanatics realised it. Only private business can create growth and with the elephant of the public sector crushing the life from it simple survival is difficult enough. Cut the public sector, not with nail scissors, use a machete and a flamethrower. Every £1 that doesn’t go in tax is a £1 that will help business to correct the government run disaster masquerading as our free market economy.

    • Nick
      Posted March 11, 2013 at 8:22 am | Permalink

      The state will destroy us.

      When even John Redwood cannot bring himself to tell the truth about state debts its screwed.

      For example, between 2005 and 2010 the estimates (ONS) of what the state owes for the state pension, but has left off the debt figures went up by 736 bn a year. That’s a year. Each year.

      Reply: I have published figures for the unfunded state basic pension for those who wish to capitalise the cost of this item of current spending. Your figures seem to be an order of magnitude too large. If you capitalise such a current running liability, should you not capitalise the running asset/income from tax that pays for it?

      • Leslie Singleton
        Posted March 11, 2013 at 9:49 am | Permalink

        Comment on Reply–Maybe Nick wants to work on the basis that taxation (which of course funds pensions as we go along) is going to be done away with entirely–then there would be a case for capitalising outgoings that are only going to fall due in the future

      • Jerry
        Posted March 11, 2013 at 9:51 am | Permalink

        @Nick: The debt was caused by the private banks, we would have all been “screwed” had we lost all out money had the state not stepped in to secure both our current accounts and our homes (were the mortgage was still outstanding) or the hedge funds etc. that held vast amounts of money from pension funds etc. from the liquidators. I know that some advocated, and still do, that the banks should have been allowed to collapse in a controlled way but just how this would have taken place has not been completely explained even now.

        It’s funny how some right wingers seem to forget why the debt and deficit was caused in the first place – and before someone blames Blair/Brown, much of the banking crisis had its roots in the sorts of money gambling that grew out of the Thatcher era Big Bang of the 1980s, and was so rife and ingrained into how financial markets worked that by 1997 it would have been very difficult to stop short of the type of banking collapse we did have in 2007/8.

        • Peter Davies
          Posted March 11, 2013 at 11:20 am | Permalink

          The part you so conveniently miss is the fact that the lowering on the liquid asset holdings requirement on banks in 97 by Balls/Brown is the single thing that led to the collapse.

          The banks should have been put into controlled administration with loans rather than buying (not left to collapse) enough to keep current accounts and mortgages trading on the condition they sell bad bits off there would have been more pain but the issue would have been more of less fixed by now.

          • Jerry
            Posted March 11, 2013 at 8:48 pm | Permalink

            @Peter Davies: Sorry but had the (financial) Big Bang not happened in the mid 1980s there would not be casino banking, it matters not one jot who was PM or chancellor 20 years later. Stop putting the cart before the horse!

        • M.A.N.
          Posted March 11, 2013 at 11:30 am | Permalink

          The labour administration WAS responsible for the reckless expansion of credit during its tenure . This was a deliberate attempt to buy votes, as the fiscal drag and increased tax take was used to expand its client state. This was both reckless and treasonous I believe to the future detriment of this country. Was all a good laugh at the time , but now the party’s over , the government expects us to pay back both our own debts, so as in a few years we can have another boom, and thier debts too!!. It just won’t , sorry isnt working.

        • MickC
          Posted March 11, 2013 at 11:49 am | Permalink

          Brown spent “state” money during a boom-instead of taxing to control the boom.

          With regard to the banks, either Brown knew what was happening (Chancellor since 1997!) and did nothing-or he didn’t even realise there was a problem. Either way, he is culpable.

          And yes, the banks should have been allowed to go bust-the depositors should have been protected, not the shareholders and executives.

          • A different Simon
            Posted March 11, 2013 at 9:38 pm | Permalink

            Of course Brown didn’t know what he was doing .

            Surely the decision which guaranteed a banking crash sooner or later was Ed Balls reducing capital adequacy requirements for banks from 18.5% to 5% .

            If the Conservatives had of been in power I’m sure they would have done the same thing with the same resultant credit boom and quadrupled bank gearing .

            About the only difference is Balls did it because he believed the City could fund his insatiable spending ambitions whereas the Conservatives would have done it for political dogma .

            At best the crash would still have happened but we might have been in a better state to survive it but even that is not certain .

          • Jerry
            Posted March 12, 2013 at 9:02 am | Permalink

            @A different Simon: That doesn’t explain the banking and financial crashes/scandals that occurred before 1997 or ones that happened outside of UK regulation.

          • A different Simon
            Posted March 12, 2013 at 6:36 pm | Permalink

            I’ll take your word for that .

            Also , lobbyists from the Banking Industry must have been demanding this relaxation of capital requirements or Ed Balls wouldn’t have signed it off .

            Do you think Gordon Brown really believed he had ended boom and bust or was it just a sound bite from Mandelson ?

            We can just look back at RBS’s purchase of ABN Amro and ask how on earth the regulator allowed this to go through .

            Would have thought that the big pensions funds which invested in UK Banking giants and NED’s would have recognised that the executive directors were way out of their depth too .

            Who was it who said that the thing about tragedies is that they are absolutely inevitable .

            It is not revisionism to say that many ordinary people could see that the credit boom would end in tears yet were powerless to stop it .

        • P O Pensioner
          Posted March 11, 2013 at 1:29 pm | Permalink

          Jerry – I think you’ve chosen to forget that the Labour Government (Gordon Brown) handed rather over loose regulatory control of the banks to the ineffective FSA rather than the BOE. So, by your logic the whole blame must go to the Thatcher era rather than Gordon Brown, Ed Balls and Ed Milliband screwing up the regulatory controls that the previous Tory government actually had in place. Labour had eleven years to correct this so called problem from the Thatcher era but instead decided to let loose the banks with no real regulatory controls.

        • JimF
          Posted March 11, 2013 at 4:47 pm | Permalink

          How do you work that out?
          True, large depositors might have had to take a haircut, but most deposits would have been secured. Instead depositors have taken haircuts anyway over the past 5 years.
          Mortgagees would have had to pay a fair price to depositors instead of being subsidised by them.
          Shareholders would rightly have lost all, as in any business which fails.
          The Government would effectively have been buyer of last resort from the administrators.
          Employees would have been given statutory redundancy or the opportunity of working in a re-structured bank.
          By and large, it would have been a better result.

          • Jerry
            Posted March 11, 2013 at 8:56 pm | Permalink

            @JimF: “How do you work that out?

            Work what out? Are you implying that those properties that were owned by the banks would have become -for the use of a another word- council housing stock, if so what happens to the value already repaid, after it wasn’t the buyer who defaulted? Also I’m not quite sure were you get the idea that there would have been many re-structured banks, such was (and still is) the international nature of banking now that between the UK and USA crisis it would likely have crippled much of the worlds banking – hence why the solution was seen as international at the time.

      • JimF
        Posted March 11, 2013 at 4:36 pm | Permalink

        reply to reply:
        Which leads us to exactly where we are now. The state can’t afford the pension that you would have received based on the contributions you made. Great.
        So given the choice at 25 years old between contributing £x to a scheme which invests in real businesses and assets, or giving to the state with some vague promise that they’ll try to pay you a pension later, which would you prefer? Which is the true Conservative way and which is the tax spend and waste way? You seem to be in support of the latter, as are your party. Most 25 year olds in possession of the truth would, I think, prefer the former!

        You will say there is no choice as that is the way the system has always run. It doesn’t HAVE TO, though, does it?

  10. Alte Fritz
    Posted March 11, 2013 at 8:11 am | Permalink

    All true, and such projects tend to benefit the construction industry as well as, frequently, the property development industry. By definition, such projects create much sound and fury for a while then move on together with the profits. Surely we want businesses which remain for the long term, generating profit year after year.

    See James Dyson in this morning’s Telegraph. That’s what needs to be thought about.

    • lifelogic
      Posted March 11, 2013 at 9:09 am | Permalink

      I admire Dyson and his company though I have never been tempted to buy an over priced bright yellow vacuum cleaner, washing machine or fan and his airblade hand dryers clearly need ear protectors before using them. What is wrong with a towel?

      But patent and intellectual property laws tend now to stifle developments and research rather than encourage them as was initially intended. It needs severe restrictions and reforms to make sure it acts in the public interests. Particularly in medicine where over protection costs many lives and stifles developments.

      • Roger Farmer
        Posted March 11, 2013 at 12:53 pm | Permalink

        Towels in a public toilet!, guaranteed transmitters of disease.

        • lifelogic
          Posted March 11, 2013 at 9:16 pm | Permalink

          Well they used to have towel roll machines and paper towels but anyway what do you think the blowers do. Put the tiny droplets into the air so you cab breath them in to the lungs perhaps?

      • zorro
        Posted March 11, 2013 at 6:26 pm | Permalink

        Overpriced?…..I have found that they are reliable and worth the money – very good suction power.

        zorro

        • Bazman
          Posted March 11, 2013 at 7:31 pm | Permalink

          I have been using the same Electrolux Lite since 1996! Only a cheapy at the time.

        • Jerry
          Posted March 11, 2013 at 9:03 pm | Permalink

          Zorro: Indeed but nothing that other vacuum cleaners can’t provide for less money, you are paying for the Dyson brand name.

        • lifelogic
          Posted March 11, 2013 at 9:20 pm | Permalink

          Perhaps I will have to try one, but £400 when you get a perfectly good one for £40!

          • zorro
            Posted March 12, 2013 at 6:51 pm | Permalink

            It has a good guarantee and is solid, and really picks up the dust nicely, and you can see the difference – dead easy to clean – and cost me £220 – This is not an advertisement, I am not James Dyson and I do not work for him…..but am always open to offers….. 🙂

            zorro

        • Max Dunbar
          Posted March 12, 2013 at 3:02 pm | Permalink

          The upright Dyson that I had was very heavy and a sod to clean out. It sold on its alternative but attractive looks and was a clever marketing ploy. Lasted about 5 years and did a good job until the plastic body began to fall apart.

  11. Ben Kelly
    Posted March 11, 2013 at 8:16 am | Permalink

    Mr Redwood,

    Pseudo-growth can be stimulated in several ways but until the current adjustment hits the bottom we can not return to sustained recovery.

    Companies and banks that are being propped up need to fail and public spending must be slashed to levels that can comfortably be supported by tax take. There will be short term pain in doing this and your party will be out of power for a long time while the state’s clients express their dissatisfaction but it is the selfless thing to do.

    The baby-boomers have had their party and we need to pay for it so we can have the next one.

    • M.A.N.
      Posted March 11, 2013 at 11:34 am | Permalink

      There you have it in a nutshell. It would require several well placed individuals to forego thier salary, pension, and standing within thier clique, but for the future long term benefit of the country. Who is feeling lucky?.

  12. Brian Tomkinson
    Posted March 11, 2013 at 10:10 am | Permalink

    “The most terrifying words in the English language are: I’m from the government and I’m here to help.”
    “Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States.”
    “The problem is not that people are taxed too little, the problem is that government spends too much.”
    Ronald Reagan

    Sounds like good advice to me.

    • lifelogic
      Posted March 11, 2013 at 4:18 pm | Permalink

      Sensible words indeed. The problem is that government spends too much and in the UK they waste most of it or spend it on bonkers things like, HS2, wind farms and PV house bling and ever more pointless regulations beloved by Cameron.

  13. Richard1
    Posted March 11, 2013 at 10:10 am | Permalink

    The comparison with Japan on this issue is an important one. Japan has been practically concreted over these last 20 years by debt-financed infrastructure programmes. But it hasn’t given the boost to demand hoped for. The main reason why not seems to be that they never fixed the banks – zombie banks proping up zombie companies prevents a proper market-led revovery, even with very low interest rates over a very long time. (And low tax/GDP by the way). I think you should continue to push for and explain the need for radical bank restructurings as the key step to boost growth, not least because this should be one thing LibDems and Conservatives can agree on. Not many understand the issue so you should be patient but persistent!

    • Winston Smith
      Posted March 11, 2013 at 10:56 am | Permalink

      I think yo will find that Japan’s Govt debts are largely owed to its own people. The UK’s debts are largely owed to corporations and foreigners. Correct me if I’m wrong.

      • zorro
        Posted March 11, 2013 at 7:31 pm | Permalink

        The majority of UK debt used to be held by the UK private sector, in particular, UK insurance and pension funds. In recent years, the Bank of England has bought gilts taking its holding to 25% of UK public sector debt. Overseas investors own about 30% of UK gilts. The breakdown is as follows: (figures from HMT Sep 2012)….

        BofE – 25.7%
        Banks/BS – 9.3%
        Insurance – 23.1%
        overseas – 30.7%

        zorro

        • zorro
          Posted March 11, 2013 at 7:36 pm | Permalink

          Foreign holdings of Japanese government debt is 9.1% (Sep 2012)….

          zorro

        • Denis Cooper
          Posted March 12, 2013 at 8:49 am | Permalink

          Thanks.

          So as a round fraction the Bank of England now owns a quarter of all gilts in issue, or putting that another way of all the Treasury’s future payments of capital and interest on the gilts now in issue a quarter will be due to the Bank, and for the foreseeable future the Bank will remain by far the largest single creditor to the government.

          • zorro
            Posted March 12, 2013 at 6:53 pm | Permalink

            They will cancel it….

            zorro

  14. James Reade
    Posted March 11, 2013 at 10:28 am | Permalink

    How utterly fascinating to criticise one government-led project with another – HS2 with Chinese maglev trains! In other words, what you’re suggesting is that it’s just the incompetent UK government vs the competent Chinese one? And presumably there might just be a smidgen of public support for the US’s digital revolution?

    So the problem is the UK has elected an incompetent government unable to make the right decisions on public investments that can increase the capacity of the UK economy, rather than public projects per se?

    • James Reade
      Posted March 12, 2013 at 6:59 am | Permalink

      I’ll take your lack of comment as an agreement with what I wrote.

      Hopefully then, the next time you comment on it, you might reflect these sentiments in what you write.

      Reply It was no such thing. I just tire of having to make the same points to you time and again, to deal with your petty carping against me. How many more times do you wish to argue that the large fiscal stimulus administered in the UK (adjusted for the cycle) is no such thing? Why do you not agree with the OBR numbers on this point?

      • James Reade
        Posted March 12, 2013 at 11:35 am | Permalink

        Erm, it is you and Cameron who are out of line with what the OBR, IFS, NIESR, name the reputable economic institution and it’s in this list.

        I carp because you’re out of line with all sensible economic thinking.

        All macro principles textbooks teach from first principles that the fiscal balance, unadjusted, does not reflect the fiscal stance of the economy, nor is a good predictor of the effect of fiscal policy on the economy.

        Yet despite how often people tell you this, you ignore it, twist our words, and insult us instead.

        I hope one day soon the public spots this intolerable arrogance of the government’s economic position – but I don’t hold out much hope based on the latest polls.

        Reply I have made my case using the cyclically adjusted figures, as you well know

  15. oldtimer
    Posted March 11, 2013 at 10:30 am | Permalink

    The size of state spending, and state imposed/sponsored spending, is the problem not the solution.

    State funded capital spending is only justified if it helps the economy be more efficient (infrastructure spending potentially but not necessarily is in this category) or helps the country earn more income (spending that encourages tourism is potentially but not necessarily in this category). It is an unfortunate fact that the state`s record on evaluating projects is not very good; the recent West Coast main line contract fiasco and the HS2 projects make that clear, as does a long history of failed government interventions over past decades. The reason, I believe, is the different mindset that is used to justify state spending. The state is spending other peoples money, raised through taxation or, even worse, by printing it (QE), remote from the need to make it earn a return. Responsibilty is obscure. These are fundamental flaws at the heart of all state capital spending decisions.

    Private sector investment is mostly focussed on the need to improve or achieve a competitive market advantage; if successful it will generate more sales revenues or improve efficiency or both. The results are there for all to see. Responsibility for success or failure is clear.

    Some private sector spending must be spent on meeting regulatory requirements imposed by the state; some of these regulations are desirable, but usually they do little or nothing for efficiency or sales generation; they just add to costs. The worst exception is government sponsored spending that is only supported by taxpayer funded subsidies. The subsidies offered to wind and solar farms are obvious contemporary examples; these increase energy costs and only serve to make the economy uncompetitive.

    My conclusion: so far as state or state imposed/sponsored capital spending is concerned, less is more.

  16. English Pensioner
    Posted March 11, 2013 at 10:52 am | Permalink

    The main thing that I notice about the governments proposals, both for public projects and for the expansion of the private sector is that the bulk of them seem to involve the construction industry. Apart from the fact that most of these type of projects require mainly unskilled labour along with a few skills such as plumbers and electricians and do nothing to get the country into new technologies which might be sold abroad, one can visualise that most of the jobs will be filled by non-British EU citizens.
    Additionally, a cynic like me might conclude that there are those in government with interests in the construction industry, just as we already know there is at least one senior politician who has financial interests in wind farms.

    Reply: Many construction jobs are skilled. Ministers are not allowed interests in commercial businesses in the way you suggest.

  17. Winston Smith
    Posted March 11, 2013 at 10:54 am | Permalink

    Well, your Govt is happy to invest in capital expenditure in Syria, supplying the Islamists with weaponary:

    Can you comment on this? What the hell is the FCO, and their ‘yes man’ Hague, up to?

    Reply Mr Hague has said they are supplying support items for the Opposition, not offensive weapons. I am personally against intervention by us in Syria.

    • Winston Smith
      Posted March 12, 2013 at 9:25 am | Permalink

      The link, which you deleted, suggests that (words left out-ed) arms have been secretly transported to the Islamist rebels (words left out ed). Its your job to question the likes of Hague to find out what is going on and why they seek to replace Assad with (the Syrian oppositions-ed) and what it is costing the British taxpayer.

  18. Neil Craig
    Posted March 11, 2013 at 11:04 am | Permalink

    Public projects cost 8 times what they can in the rest of the world. Thus, by definiton, 7/8ths is wasted in fraud, or what is more destructive from the economic point of view, the equivalent of digging holes and filling them in.

    Every serious politician knows how to get out of recession immediately and every party, except UKIP, doesn’t want to (none of them even deny this). Why they should want to assist in £100s of billions of fraud should be left to the student.

  19. Denis Cooper
    Posted March 11, 2013 at 11:05 am | Permalink

    “If markets drove up the cost of state borrowing, that will take demand out of the economy as interest rates generally rise.”

    But while Bank of England stands ready to prop up/rig the gilts market the cost of state borrowing is largely artificial.

    If the government wanted to spend hundreds of billions more on capital projects then it could fund that by indirectly borrowing from its captive gilts investor, the Bank of England, and in principle it could free itself from the constraints of the bond markets by getting the Bank to create enough new money to buy up almost the entire stock of gilts already in issue and then all new gilts that were issued.

    The role of private gilts investors would then be even further reduced towards that of intermediaries to effect the transmission of new money from the Bank to the Treasury without that being too obvious and without breaching EU law.

    Whether this would be a good idea is a different matter.

  20. Peter Davies
    Posted March 11, 2013 at 11:12 am | Permalink

    Your point on maglev “China is pressing on with maglev” is a good one which clearly indicates train technology will have drastically changed by the time HS2 is built making it a proper white elephant – if enough brains are thrown at something they will probably crack it at some point.

    The other thing to consider is the race to develop a 2D composite material which will make carbon look stone age and would more than likely mean we will be able to build super light aircraft and trains which use little energy – given the way technology advances these days we might even see this as the next technological revolution in the next 10 years or so.

    If that is true will we need trains at all? I suspect only tram type vehicles in local urban areas and planes for long journeys…..

    Any capital investment obviously must be purpose driven in order to

    a. lower overall running costs
    or
    b. provide something tangible in return

    The only thing I can think of right now that fills these criteria are the building of new N Power stations to bring overall energy costs down which will help industry, provide a return and help local economies, with the mix of private money coming in that no public project could ever hope to emulate.

    Why cant parliament just acknowledge that the UK is in an almighty mess and expensive green energy policy and most of the other things the EU tells us to do is a complete waste of time – scrap all the wind turbine projects and anything else that doesn’t truly solve anything and plough all efforts into building new generation N POWER stations which will pay for themselves over time?

    Maybe do the same with fracking and build a few gas ones as well.

  21. Jerry
    Posted March 11, 2013 at 12:16 pm | Permalink

    Just watched Mr Cameron doing a PR stunt in Milton Keynes, talking about the importance of apprenticeships, but what was the backdrop to all this – yes, a Mercedes-Benz built HGV… Says it all really! PR disaster in the making I fear. 🙁

  22. alan wheatley
    Posted March 11, 2013 at 12:30 pm | Permalink

    HS2 and the digital revolution make an interesting contrast.

    HS2 requires most of the capital to be spent before there is a chance of a return (other from those in receipt of the capital, of course). It’s benefit is very restricted and the disruption high.

    Fibre-optic broadband gives an incremental chance of a return, the benefit is to all and the disruption virtually nil. Where fibre is impractical there is the option of 4G, but you need to understand what you are doing to see the benefit and manage an effective outcome.

    There is also a good case for categorising rail as a largely obsolete concept which only makes sense in a niche market, where as digital communications is the future. Do you want to invest in the past or the future?

  23. Simonro
    Posted March 11, 2013 at 12:31 pm | Permalink

    The state could build house and then let them on a rent-to-buy basis (i.e. you could build up equity while renting, and thus after a number of years, afford a 90% mortgage). This would both provide the housing stock we lack and lift people out of the rental trap, while boosting manufacturing, services, and the building trade and lowering unemployment.

    The state could build power generation plants of whatever type it thinks is best, and then sell the electricity generated or the plants themselves to private owners. This would both add the capacity we will need, while boosting manufacturing & engineering and lowering unemployment.

    How much revenue neutral spending do you need? There’s an easy 50 billion in those two alone.

  24. Roger Farmer
    Posted March 11, 2013 at 12:37 pm | Permalink

    No. Put simplistically State Industry usually works out as follows.
    1. Capital cost is all too frequently at least twice as much as is budgeted for.
    2.Often it is subsidised by the taxpayer in use.
    3. Employs people but frequently at inflated rates, in greater numbers than necessary, and too often in none jobs only advertised in the Guardian.
    4. Usually incompetent at purchasing or any form of negotiation for services. Witness the Private Finance Initiative, GP salary negotiations, and the purchase of medical consumables
    Private industry tends to:-
    1. Use private capital at it’s own risk.
    2. Dies if it fails to be profitable.
    3. Emplys varying numbers but at market rates.
    4. Pays tax until it gets big enough to be able to organise avoidance schemes.
    5. Can earn overseas income to the benefit of the economy.
    I think the way forward is to do everything possible to boost private industry by drastically reducing the tax burden, removing it from the regulatory clutches of the EU, and producing a well educated workforce.
    If projects like HS2 cannot be financed by private capital it is because they are considered unprofitable. On that basis Government should not touch them. Better that Government ends it’s Don Quixote love affaire with windmills and facilitates a new generation of power stations, built privately to strict safety standards.
    If Government were to stop support for the feckless via welfare payments, and to kick the political EU into touch they might find themselves able to support those who really need support in the UK.

  25. David Langley
    Posted March 11, 2013 at 1:29 pm | Permalink

    Its called substitute spending, cut the EU budget to zero, axe foreign aid “the latest drivel just enhances major companies profits, and maintains dependency). Best case there is the case for blackmail which fails in the end. Therefore we should spend money we have on capital projects that are short term, housing, etc. (Where are the (possible large numbers of new mirgrants-ed) immigrants going to live)? (Recent migrants ed) have soaked up most of the cheap and rundown industrial age houses. They are now probably the biggest social landlords in GB, ask a University student what their landlord is called.
    Shovel ready and business capital is ready and waiting for sentiment and confidence to grow. In the long run we are all dead so we ned this to happen now.

  26. uanime5
    Posted March 11, 2013 at 1:32 pm | Permalink

    It is possible for the public sector to pay for itself in some circumstances, such as infrastructure spending that is beneficial to businesses and results in a higher tax returns. However these are long term benefits, which provide few rewards in the short term.

  27. David Langley
    Posted March 11, 2013 at 1:35 pm | Permalink

    By the way John, why is my state pension now called a benefit, in my latest letter from the Pensions department (not the Benefits office) I am also supposed to inform the department if I enter or leave hospital. Why, I worked 50 years to earn my state pension, I am not in receipt of disability allowance or any other handout except for winter fuel and bus pass.
    I am dismayed at the thought that I am now on benefits when I pay my way every day with money I earned.
    I rang the Pensions Department and they had no idea!!!! Are you softening us up for the big axe on pensions?

  28. David Langley
    Posted March 11, 2013 at 1:45 pm | Permalink

    I am sick and fed up with direct taxation being the only tax talked about, what about indirect taxation. VAT, Stamp duty etc. Liam Fox is bang on there, we get taxed dozens of times on the pathetic remnants of our pay which has already been decimated by the government. Hands off our money should be the rallying cry at the next election when the political tribes try and put some sort of blue water between their policies and the other tribe. We are slowly getting the tribal leaders to admit that a sensible policy is correct even if it belongs to the other tribe. Vote for policies not tribes.

    • wab
      Posted March 11, 2013 at 9:26 pm | Permalink

      “Hands off our money.” Well then the government should also cut spending to match. Shall we start with cutting your old age pension, then? Not surprisingly, you are a typical citizen of the UK, who wants all the benefits and none of the costs. And yes, you are on benefits if you are a pensioner. Presumably you think of anyone on benefits as a “scrounger” and yet there you are, on benefits, so perhaps it is time to think less badly of other people who are on benefits.

      Reply The basic pension is a contributory benefit, which people feel differently about to non contributory benefits.

  29. Paul Tattersfield
    Posted March 11, 2013 at 2:05 pm | Permalink

    Probably the biggest return form capital spending you could make is getting fast broadband rolled out to everyone. Aiming for Fibre to every home & business and rolling out fibre to every cabinet immediately.

    The current council led program getting signatures and affirmations squanders money, the money could be much better spent on getting more cabinets upgraded!

    Shifting the definitions of fast isn’t helpful either, where targets are simply downgraded to make it look like great achievements are being made.

    The investment needed is small in comparison with HS2 and the benefits much greater. It will reduce costs for businesses and government services, it will mean people need to travel far less and it will mean many people will be able to work from home. Much education could be delivered this way too, meaning the greatest minds could deliver courses and education to 1000’s of more people than ever could be delivered in a classroom or lecture hall.

    But most importantly it will also bring together more great minds and this can really put Britain at the forefront of shaping the future.

  30. Bert Young
    Posted March 11, 2013 at 2:10 pm | Permalink

    Governments do not make good use of money they have borrowed , so , this approach to economic stimulus should be avoided . Far better for Governments to make the capital available to the private sector – providing the banks are properly regulated and their managements monitored effectively .

  31. behindthefrogs
    Posted March 11, 2013 at 2:57 pm | Permalink

    Rather than spending so much time examining projects that do not have a cost effective return more effort needs to be made in promoting and bringing forward those alreadyidentified as cost effective.

    For example the capital expenditure necessary to bring troops back from Germany needs to be expedited so that the savings can be brought forward as much as possible.

    The other element that needs to be examined is where the capital expenditure on projects is actually spent. If the project employs British labour then in theory the costs can be adjusted by unemployment benefits saved and income and other taxes collected. We need the concept of gross and net capital costs to be brought into all government contracts. This I believe is allowed under EU rules and would result in more contracts being placed in the UK.

  32. Peter Stroud
    Posted March 11, 2013 at 4:41 pm | Permalink

    Governments rarely, if ever, succeed in organising large projects of any kind. The private sector is really the only route. What governments can do is to create the environment that encourages the private sector, by using tax and other incentives.

    What governments should never do is to encourage large capital projects via subsidies. An example of this is the idiotic wind generation programme. Here vast sums of taxpayer’s money has been poured into the pockets of rich landowners to cover the country with ugly and totally inefficient wind farms. Then,because of the poor efficiency, the public is forced to pay vastly increased energy bills.

    • uanime5
      Posted March 12, 2013 at 6:01 pm | Permalink

      The Government is also offering subsidies to energy companies to build nuclear power plants. I trust you also object to these subsidies.

  33. Iain Gill
    Posted March 11, 2013 at 6:16 pm | Permalink

    John,

    I did tell you quite a while ago that this government project was going belly up. And its much worse than this article appears to realise. I haad hoped the Consevatives had a better clue how to run big projects than the other lot, but sadly not. Please talk to IDS.

    Cheers

    Reply: Labour have put this allegation to Mr Duncan Smith recently in the Commons and he denied it strenuously, as he did when I asked him about it in a private conversation. He says the pilots will be ready on time, and that all will be tested in the pilots before rolling out the rest.

    • Iain Gill
      Posted March 11, 2013 at 7:06 pm | Permalink

      I am in the business somebody along the chain is lying…

  34. wab
    Posted March 11, 2013 at 9:21 pm | Permalink

    “China is pressing on with maglev.”

    And is that a good investment or is that just yet another group of politicians chasing a shiny object, like HS2 in the UK? Japan is going to spend over a hundred billion dollars on a maglev system and China will spend far more. Will they ever make it back?

    If you are looking for capital projects that make sense, then there is plenty of road building which will do, although of course the Lib Dems and Greens and their fellow travellers in the chattering class would become hysterical. The A14 is a classic example of a road whose current state is hampering economic development yet which the government is refusing to do anything about except to (idiotically) talk about making a new toll road at some point in the far future.

    What about airport expansion, which the private sector would happily almost totally finance themselves? But the government could offer to help fund a better London to Stansted train line for example. A far better investment than the things Mr. Redwood happens to mention.

    “Tomorrow we will consider a larger privately financed capital programme.”

    As long as it is not PFI, which was one of the biggest disasters inflicted on the UK by the last Labour government (and there is some competition for which of their policies was the biggest disaster). Well, the Tories thought up PFI in the first place, so deserve some of the blame, but Labour went to town on it.

  35. Electro-Kevin
    Posted March 11, 2013 at 10:21 pm | Permalink

    If the public sector capital projects result in those employed in them buying more imported goods, especially on credit in lieu of earnings… or taking money out of the country altogether.

    We ought to have gone for a lower population with a larger hi-tech manufacturing base than the one we have. Owned and registered in Britain of course. The roads and rail would have been adequate for that. (In fact they were with a much larger industrial base than we see today.)

    Otherwise falling standards of living are innevitible and is what we see now and ‘growth’ is being conflated with success.

    How on earth do we get back from this ?

  36. Freedom Lover
    Posted March 12, 2013 at 10:37 am | Permalink

    Though we do need (1) more gas & nuclear power stations as the coal fired ones are closed down under (ridiculous) EU rules, & the large number of wind turbines & farms fail to produce much electricity at all. Also needed are (2) more water reservoirs in the South where Britain’s growing population is concentrated, along with either (3) an extra runway at Heathrow, or better – a large new London airport. Also needed are (4) much better internal city transport method change hubs – ie places where trains, buses, & coaches all meet up, backed by large car parking facilities. At present buses & coaches often use different stations in British cities, & the bus station is often a long way away from the rail station. Alternatively, major rail routes may pass through a city – particularly Birmingham – yet changing from one rail line to another requires a walk involving lugging luggage between two different, & rather far apart, rail stations, in often inclement weather. All made worse by the lack of helpful information available to those who are new to the area or are foreign tourists with limited English. Finally (5), how about some more new housing developments – as long as they are not at the cost of the Green Belt or as yet unspoiled country areas.

    If private enterprise can resolve these needs quickly & affordably, let them do so – starting tomorrow. Otherwise some state involvement, in addition to that at the town & country planning level, may be needed.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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