How good is public capital investment?

There is in the UK debate a general assumption that all capital investment is good. It is true that the UK could boost its productivity – and therefore its incomes – by investing in more machine power, internet processing power and the like. The more people have better tools to do their jobs, the more they can produce and deliver to customers. This is the main reason people automatically assume investment is a good idea.

Not all capital spending achieves this aim. Public investment in particular may not achieve this to the extent planned in the way intended. Indeed some desirable public investment is not in anyway about raising productivity. It is about keeping up with the big growth in population we are experiencing.

Capital spending is treated differently from day to day or revenue spending because it is meant to create an asset of value which will be available for use for many years to come. If the state builds a new school, there will be many years of use. The costs of the building can be spread out over many years of teaching by borrowing the money and repaying it gradually. Making such an investment, however, usually increases future costs, as it is usually built to accommodate growth in population and pupil numbers. It is not necessarily going to raise productivity or cut overall costs. Similarly, building a replacement school may be desirable or necessary to provide a better modern environment for staff and pupils. Again it may not reduce annual costs.

In the public trading sector where people pay for use of the service provided there is meant to be a proper analysis of the productivity and revenue consequences of the investment. Unfortunately the public sector often gets its sums wrong. Look at the case of the railways. Commuters often pay the cost of their travel but other railway users are in the main heavily subsidised to go by train. Major investment programmes often fail to raise productivity much, and sometimes fail to capture the extra use and fare revenue they estimated. HS1 has never reached the optimistic forecasts for use, and HS2 looks as if it too will fall well short of the bullish estimates of how many people will use it once built.

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91 Comments

  1. Anonymous
    Posted July 29, 2017 at 5:24 am | Permalink

    Commuters subsidising other rail users ?

    It’s the other way around. Other rail users are helping to bring in extra revenue and keep costs to commuters down, by encouraging use of off peak trains (which are often being moved to position for other peaks.)

    What is the alternative to commuter railways ?

    – City overcrowding in impossibly expensive housing

    – Impossible road congestion

    Besides – the railways make 50+ mile distances commuterable and deliver the regional wealth redistribution that everyone agrees is so important. It enables people to escape the hell that is inexorably rising population in cities.

    Yes. Stop building vanity projects such as HS1 and HS2 and put it into the existing railways instead – where people are rammed in like cattle.

    • agricola
      Posted July 29, 2017 at 8:16 am | Permalink

      There is an alternative to all this commuting. Computers and the internet allow vast numbers to work from home, but large lumbering organisations do not encourage it, preferring to view their workforce as irresponsible and needing visual control. I did it for thirty years to great effect.

      • Bryan Harris
        Posted July 29, 2017 at 4:01 pm | Permalink

        Absoulutely agree – more companies should be encouraged to allow workers to use broadband at home for most of their activities, and limit the reasons for people going into the offices.

      • Lifelogic
        Posted July 29, 2017 at 4:52 pm | Permalink

        The trouble is much of the workforce is alas irresponsible and does need a lot of direction and control.

        Furthermore getting rid of the dead wood staff is often very difficult indeed and can be very expensive and very time consuming for management.

        But lefty Theresa May (always one for rowing in the totally the wrong, PC lefty direction) wants “to retain EU worker rights and build on them. Not alas the right to work without having to carry slackers working alongside then who cannot be fired. Or the right to work in a vibrant jobs market and a rapidly growing economy.

    • NickC
      Posted July 29, 2017 at 8:38 am | Permalink

      HS2 is top down mushroom management: we decide, and you will pay. But Mr Gove’s ice car ban virtue signalling will cost untold £billions more than HS2 and all rail subsidies, just when there are real improvements in emissions from ice cars (eg Bluemotion).

      Yet Gove’s wheeze, because we will need dozens more fossil fuel fired generators for all that extra electricity, won’t cut pollution to any significant degree, and may increase it. Just like the diesel fiasco.

      The reason that public investment is so often wasteful is the problem of politicians and bureaucrats with more power than they deserve spending other people’s money. Yet we need public goods. Looking around the world the best option is to copy Switzerland, where the average wage is twice ours, and the people have much more control. Funny, that.

      • Mitchel
        Posted July 29, 2017 at 2:11 pm | Permalink

        Indeed,Switzerland is a true democracy whereas most other advanced countries are oligarchies,which,throughout history,has proven to be the worst form of government for a sovereign state.

      • Lifelogic
        Posted July 29, 2017 at 3:48 pm | Permalink

        And the people have far more real and direct democracy.

      • BobE
        Posted July 29, 2017 at 6:19 pm | Permalink

        Not enough Lithium on the planet to make the batteries. Virtue signaling it is.

        • hefner
          Posted July 30, 2017 at 1:58 pm | Permalink

          What are the time scales for the so-called peak lithium? Without them, your comment has limited value.

          • Narrow Shoulders
            Posted July 31, 2017 at 7:50 pm | Permalink

            There is a post a couple of days back that shows the calculations @hefner

    • Mark
      Posted July 29, 2017 at 9:37 am | Permalink

      The only franchises that are not subsidised overall are SWT and Southern, both predominantly commuter networks:

      https://www.gov.uk/government/publications/rail-subsidy-per-passenger-mile

    • Lifelogic
      Posted July 29, 2017 at 11:24 am | Permalink

      What is the alternative to commuter railways ?

      People living closer to where they work. If stamp duty was not up to 15% and planning were more relaxed they could do.

      More road capacity and tunnels, tubes and the likes. Stop blocking the roads. Stop subsidising rail and have fair competition in transport.

      • Anonymous
        Posted July 29, 2017 at 4:02 pm | Permalink

        Take away subsidies as much as you like. Cars are poor for commuting over 30 miles.

    • alte fritz
      Posted July 29, 2017 at 12:28 pm | Permalink

      Absolutely. HS3, another vanity project, may be built when there underused Transpenine routes and even closed lines which could be brought back into use and all serve a much wider area. Most of this sheer vanity and opportunism for those who grow rich on vanity projects.

      • Lifelogic
        Posted July 29, 2017 at 3:37 pm | Permalink

        That is clearly what drives it all. A ways of diverting tax payers money to well connected rent seekers.

      • BobE
        Posted July 29, 2017 at 6:20 pm | Permalink

        The HS trains are to allow MPs to commute to Westminster, First class at our expense.

  2. Duncan
    Posted July 29, 2017 at 5:34 am | Permalink

    It is my firm belief that a political culture now exists, and as been deliberately constructed, in which the private person is seen as nothing more than a source of funding for the expanding activities of the State and by the State I refer to politicians, bureaucrats and those entities who rely on the taxpayer for their existence

    HS2 is just another example of this type of contempt for those that pay the bills. HS2 represents political arrogance. It represents political largesse. It represents Govt who know they can spend and spend without limit.

    The State (especially under Labour) has worked hard to make people feel guilty about wanting to keep more of their money to themselves and away from the hands of politicians and bureaucrats because they understand that the more money the State has to spend and to call-on the more power it possesses

    It is absolutely shameful that the Tories, once the party of tax cuts, are now completely silent on this issue.

    The more money the State has as its disposal the more damage it can do, the more waste it can expend and the more power it can accumulate. The BBC is a classic example of this.

    I now see tax cuts as the only way to reduce the power of the State. The less it does the less damage it can do

    • Duncan
      Posted July 29, 2017 at 6:08 am | Permalink

      I despise the idea that politicians can take my money in the form of taxes and spend it in a manner that increases the probability of themselves becoming re-elected. It’s almost as if I am financing the political careers of people that I genuinely disapprove of

      It is why I have always elevated Thatcher to someone beyond politics. She was a civilian in public life and she had an instinctive appreciation of what people are and how they think.

      Tax rise politicians are a bad for they desire more power. Tax cuts politicians are a good for they desire to return power back to you

      • matthu
        Posted July 29, 2017 at 6:35 am | Permalink

        Well-spoken!

        Many, many people already agree with you and will rise up and support any outspoken politician to speak out forcefully along these – without getting side-tracked into more dangerous waters where government have no right intruding in any case.

        • ian wragg
          Posted July 29, 2017 at 9:20 am | Permalink

          The ultimate arrogance is the likes of Hammond. Yesterday telling all and sundry via the Brussels Broadcasting Company that nothing will change after March 2019. We will commence an unspecified transition period which every time the end is near, so and so is not ready yet so we will extend it another 2 years etc. etc.
          In the meantime we continue paying £20 billion gross so that the EU gets its £100 billion only by stealth.
          Hammond has it would seem decided that it is worth destroying Parliament rather than disrupt the Goldman Sucks Brussels project.
          You will not be forgiven.
          The only plus side is Jacob Rees-Mogg who appears to have the chancellors measure.

          • RDM
            Posted July 29, 2017 at 2:49 pm | Permalink

            ….transition period for three years?

            Mmm…

            2019 + 3 = 2022 General Election !

            What would happen if the Conservatives were divided (aided and abetted by BBC & Sky)?

            Labour & Lib Dem win, they would accept Single Market and the Customs Union!

            And, we’d be no where.

            Can’t be allowed to happen.

            Hammond must go!

          • rose
            Posted July 29, 2017 at 7:06 pm | Permalink

            Is Hammond counting on importing millions more immigrants and enfranchising them all so he can have another referendum? What happens if they agree with us that this island is impossibly crowded and the importations must stop? Lots of foreigners do think that, especially comparing our plight to their own countries.

          • Anonymous
            Posted July 30, 2017 at 8:22 pm | Permalink

            We were promised grammar schools and immigration control at the election – both manifesto pledges were ditched and we got arbitrary sex changes instead. What a shower.

            For a second time I was duped into voting Tory. For a second time I am exhasperated with my choice.

            Never again. Prepare for Corbyn.

      • Posted July 29, 2017 at 11:08 am | Permalink

        I agree with Duncan. It seems to me that for many politicians – from local councillors to cabinet ministers – spending money is an end in itself. They”re always boasting about it. “Politicians” in senior management positions in business – at least, in large businesses receiving significant public funding – are the same, in my experience.

      • Mitchel
        Posted July 29, 2017 at 2:21 pm | Permalink

        Welcome to the new feudalism!What is to be done?

        Personally,having already made the appropriate safeguards,I’m actually looking forward to Corbyn – with a bit of luck the whole rotten edifice will collapse and something better (including a proper Conservative Party) will ultimately emerge out of the rubble.

      • Lifelogic
        Posted July 29, 2017 at 3:43 pm | Permalink

        Exactly and Thatcher won three elections (four if you count the one with Major as her chosen man). That before everyone very rapidly worked out what a lefty, greencrap, pro EU, ERM enthusiast dope he was. One who never even apologised or even learnt anything from the experience and thus buried the party for many terms. Still not recovered really.

        So who does May decided to copy. The left, election losing, PC dope of course! She if anything is even worse and has less excuse as she is not quite as daft.

    • Nig l
      Posted July 29, 2017 at 7:02 am | Permalink

      Agree totally and the general assumption is only amongst ego centric politicians and people that do not understand that an investment needs a quantifiable return. Massive spread in the Thunderer recently showing HMG in total denial about HS2 costs, I see the Hinckley point project has turned red, massive cost overrun for nuclear submarine reactors, and these are just this week, total denial of course from government and with no wish to be repetitive or boring, the overseas spend makes your case.

      Bullish, Mr Redwood? You have missed the ‘t’ out.

    • alan jutson
      Posted July 29, 2017 at 7:17 am | Permalink

      Duncan

      A lot of truth in what you say.

    • Peter Martin
      Posted July 29, 2017 at 7:38 am | Permalink

      Duncan,

      You need to understand the way things actually work. First of all we can all agree that central government doesn’t create that much wealth. They create the structure of law that keeps everything cohesive and allows society to function as it is.

      Also they create the money which is worthless on its own. So Government imposes taxes to create a demand for their issued currency and thereby give it a value. The money you have in your wallet either originates from Government or it is counterfeit. That’s the reality.

      Furthermore the Government can never recover all the money that it has issued in taxation. That’s impossible. So it is a mistake from a right wing perspective to argue that the government should ‘balance its books’. It’s not a mistake to argue for lower taxation. We can always have lower taxation providing inflation isn’t an issue and that the economy is growing in such a way as to meet the rising expectations of those who then have more Government money in their wallets!

      • RDM
        Posted July 31, 2017 at 9:55 am | Permalink

        I have never heard such ruddish!!!

        First; You need to understand the ways things work!

        And you do???

        Government doesn’t create anything, it makes Executive decisions.

        Democracy and the Rule of Law, that which most us decide to live by was created, in this country, by a process debate, challenge, and even civil war!

        By it’s People!

        Not any by any Government or King/Queen !

        And Government certainly did not create Money, Money itself, goes back millennium!

        In Economic terms; Money has five functions like Store of Value, Unit of change, …

        Legal tender was created by Fugal Barons or whoever, trying to getting money to pay for wars, etc,…. First bank holding money was in Italy ???

        Legal Tender, in this country, is printed and it’s Supply controlled by the Bank of England, not part of any Government. And, it’s the private banks that hold our money for us.

        Government and it’s Taxes does not create demand, and certainly not Value ???? What red book did you get that from?

        Government and it’s spending, Consumption, does! Driving inflation!

        Have you not taken responsibility for anything? “Balancing the Books” is an Accounting principal used to measure the health and wealth of an organisation.

        It has been shown, quite conclusively, that Lower Taxes increases the Tax Take, and it becomes a question of balance, minimasing the Taxes imposed and Government spending.

        And we have not mentioned Debt yet!

        I suppose greater Government debt is your means of getting us, as a country, growing again?

    • Ken Moore
      Posted July 29, 2017 at 7:59 am | Permalink

      Something has to give. The landscape is one of escalating demand for services at a time of falling GDP per capita and rising debt.
      We are now too poor to maintain our current standard of living and politicians should be honest about this. Peak prosperity has been reached it’s downhill from here It could have been so much different but it’s now too late for the Uk. Decades of bungled decisions and chronic lack of long term strategic thinking has crippled us.

      • Turboterrier.
        Posted July 29, 2017 at 7:18 pm | Permalink

        @ Ken Moore

        Absolutely correct Ken, they can run and they can lie and they can hide but the massive debt this country is in will not be going anywhere, only getting bigger.

    • Ken Moore
      Posted July 29, 2017 at 8:02 am | Permalink

      I firmly believe that HS2 got the go ahead because of cosy relationships between construction companies and the Conservative party. The whole thing stinks of corruption. It’s time that patronage of political parties by big business was brought to an end – if like the Conservative party they can’t be sustained by the membership of ordinary people they should be allowed to die.

      • getahead
        Posted July 29, 2017 at 7:03 pm | Permalink

        And this same cosy relationship is the reason Hammond is promoting an extension to the Brexit leave period. He doesn’t care if the Tories are not re-elected, he is working his sinecure.

      • Turboterrier.
        Posted July 29, 2017 at 7:27 pm | Permalink

        @ Ken Moore

        The party as it is is already on the ropes and half way in the grave down to its final resting place. The people controlling the descent are mostly in the cabinet and the those members who are hell bent on destroying the will of the British people.

    • bigneil
      Posted July 29, 2017 at 10:09 am | Permalink

      ” in which the private person is seen as nothing more than a source of funding for the expanding activities of the State and by the State ” – -you should have added – – “then ignored – until they want our votes “.

      Absolute power corrupts absolutely – those who want to keep us in the EU want to be on the power side.

  3. Dame Rita Webb
    Posted July 29, 2017 at 5:42 am | Permalink

    JR how many millions did the government spend on improving the A1 between Newcastle and Gateshead last year? That was obviously money well spent as it acts as a by pass for the Tyneside conurbation and it is part of the main road leading to Edinburgh. However Mr Gove announced this week that diesel vehicles could be banned from using it. Week after week your party just keep coming up with more vote losing ideas and show you could not give a toss ask to bow are taxes are spent.

    • Roy Grainger
      Posted July 29, 2017 at 7:53 am | Permalink

      One other aspect of Gove’s ban on petrol and diesel cars that he hasn’t explained is how many job losses it will involve in the oil supply chain – refining, distribution, service stations etc. Just their bad luck I suppose.

      • Turboterrier.
        Posted July 29, 2017 at 7:34 pm | Permalink

        @ Roy Grainger

        Don’t forget the mechanics and the factors that build and provide all the engine and support parts including all the electronic testing equipment.

        Job losses, you ain’t seen nothing yet, all decided from the pulpit of the Church of Saving the World and Renewable Energy.

    • bigneil
      Posted July 29, 2017 at 10:11 am | Permalink

      Your last word is wrong Rita – it should be “wasted”.

    • Tom William
      Posted July 29, 2017 at 12:02 pm | Permalink

      Mr Gove announced the demise by 2040 of all but electrically powered vehicles. Apart from the absurdity of making such a commitment he did not consult anyone in the motor or electricity generating industries. He announced a prospective ban on chickens from the USA that had been washed in chlorinated water, again without consulting experts.

      He is becoming a very loose cannon and will soon become a laughing stock, for all his reported “brilliance”.

      • Dame Rita Webb
        Posted July 29, 2017 at 3:49 pm | Permalink

        Supermarket pre packed salads are washed in water that includes chlorine to a strength that is fifteen times greater than you would find in a swimming pool. Is he going to ban those too? If Mr Gove wants to be a successful minister perhaps he should copy Ms Greening and come up with ideas that only effect a tiny number of people. As if eliminating red tape if you want to change your sex is going to pull in loads of votes at the next election.

      • Turboterrier.
        Posted July 29, 2017 at 7:38 pm | Permalink

        @ Tom William

        He is becoming a very loose cannon and will soon become a laughing stock,

        He is already there by a mile.

  4. Andy Marlot
    Posted July 29, 2017 at 6:30 am | Permalink

    HS2 is a typical example of government “infrastructure spending”. Sold to us as a benefit to the people, actually a benefit to big business and paid off politicians. If you must spend money try spending it on the jammed road network that wastes millions of working hours every year.

    • ian wragg
      Posted July 29, 2017 at 9:22 am | Permalink

      The benefit is mainly to other EU countries as about 80% of the cost will go to foreign countries, Siemens and Alstom being the major beneficiaries.
      No doubt lots of the civil works will be done by foreigners and of course we will need to increase immigration because we don’t have the manpower or skills.

    • Lifelogic
      Posted July 29, 2017 at 11:27 am | Permalink

      Exactly, why tax motorists to the hilt then use the money to subsidise trains, buses and the likes that are less effient anyway. This while hugely under providing road space for them? Causing congestion, pollution and loads of wasted time for people and industry.

  5. keith
    Posted July 29, 2017 at 6:50 am | Permalink

    I read that as Chancellor Nigel Lawson always quickly reviews projects by halving the revenue and doubling the costs. Inevitably this five second calculation would prove more accurate than the expensively produced project documents.

    Remember how the cost of the Millennium Done kept increasing , including when they forgot about the VAT.

    Who has ever been held accountable for the project failures?? The quango bosses, the civil servants, the government ministers or even the mps…how many have been sacked? Or instead leave with gold plated pensions, a lovely gong and very frequently into another public sector job.

  6. Lifelogic
    Posted July 29, 2017 at 6:52 am | Permalink

    Most “investment” the government makes is nothing of the sort but they always call it investment. It is not their money so they do not really care if they make a real return or not. Look at all the so call “investment” in duff worthless degrees, HS2, Hinkley C, the Millennium Dome, the counterproductive wars, the absurdly structured NHS, the aircraft carrier without aircraft, the wind and PV white elephants, the electric car subsidies, the road blocking with bus lanes and the likes …. loads more in:-

    http://www.telegraph.co.uk/culture/books/historybookreviews/10323471/The-Blunders-of-our-Governments-by-Anthony-King-and-Ivor-Crewe-review.html

  7. Chris S
    Posted July 29, 2017 at 6:53 am | Permalink

    HS2 is a complete white elephant.

    Predicted to cost £3,000 per household across the whole of the UK but will only ever be used by 5% of them – and that is now looking to be optimistic, possibly wildly so.

    The idiots like Idonis who think up these grand schemes live in a different world. Financial probity is suspended and we look on in disbelief at how our money is being stolen and then wasted. But then again, he is a Labour politician. But why on earth was he put in charge of our Infrastructure planning by a Conservative Government ?

    Everything the state does seems to cost far too much – look at the M3 so-called Smart motorway project. It’s taken years to turn the hard shoulder into an extra lane and when ever I drive up there through the 15 mile road works policed with 50mph average speed cameras, I never see more than five or six people actually working at most ! The disruption has been appalling and it could have been built in a quarter of the time.

    But then Germany is no better. Despite the huge trade surplus she has at her disposal, Merkel refuses to spend much of it on the roads. They have hundreds of Kilometers of Autobahn with defective bridges suffering from concrete cancer and speed limits across them for lorries as low as 20kph. On the A45 many bridges are reduced from three to one lane as the bridges can no longer take the load. The lane dividers are semi-permanent and have been in place for years.

  8. They Work for Us?
    Posted July 29, 2017 at 7:10 am | Permalink

    Decarbonisation is a major capital project to which the voter has not properly assented. Govt is trying to sleepwalk us into blithely giving up the convenenience of petrol and diesel vehicles, and gas central heating boilers no doubt next. This is a major change to our way of life, based on a green philosophical dream. It’s imposition is fundamentally anti democratic. If anything needs settling by referendum after fair an unbiased debate this must be it. Govt time and time again proves that it cannot be given a free hand on major issues.
    I heartily endorse the previous writer that comments that the population are but a cash cow for politicians dreams that have an ineffective vote as baggage.

    • David Ashton
      Posted July 29, 2017 at 1:16 pm | Permalink

      Pleased you picked up on the gas central heating issue. I have read an analysis of the consequences of meeting the Climate Change Committee’s recommendations for 2030, and this would require not just all new house builds by then to be natural gas free, but a large proportion of existing gas heated houses to have been converted. People buying new gas central heating boilers are not being advised that it may have a limited life.

  9. Lifelogic
    Posted July 29, 2017 at 7:12 am | Permalink

    The Any Questions panel last night was as absurd as it usually. The only voice and reason was Julia Hartley Brewer, the others (the Shadow Secretary of State for International Trade and Shadow Minister for International Climate Change Barry Gardiner MP, the Rt Rev. Nick Holtam the Bishop of Salisbury and the Minister for Climate Change and Industry Claire Perry MP were just appalling – all three greencrap, remainers needless to day)

    Having people with absolutely zero grasp of physics/engineering discussing for example electric cars is like having blind people discussing an art exhibition. Claire Perry another religious, Oxford geography graduate (and remainer) said electric vehicles are cheaper to run and do not produce pollution. Totally wrong on both counts. Of course they produce pollution both to generate the power they use and to build the vehicles and batteries – and they are far more expensive to run currently too. Despite the subsidies and huge (temporary) tax breaks on their electric fuel.

    Just do the sums dear they are not that hard. They also cost more to insure, depreciate more quickly, are lighter (and so more dangerous in crashes for the occupants) and generally are only suitable as a second city car due to the severe range problems.
    When they work fine people with buy them, but do not roll out duff technology early with tax payer subsidies – that is not an investment at all it is the reverse.

    • Turboterrier.
      Posted July 29, 2017 at 7:43 pm | Permalink

      @ Lifelogic

      You only have to ask “who gave them the position in the first place”?

      Says it all really

    • David Price
      Posted July 31, 2017 at 7:07 am | Permalink

      EVs are not “far more expensive to run currently”, quite the opposite, they are far cheaper to run than ICE vehicles.

      What tax breaks on electricity usage are there specifically for EV users?

  10. oldtimer
    Posted July 29, 2017 at 7:32 am | Permalink

    Spain provides countless examples of wasted capex after it joined the EU with access to low cost money. Notably among them are airports and motorways that are unused. Germany has managed to waste large sums on infrastructure and vanity projects – well documented by Spiegel Online over the years. In the UK we are building two new aircraft carriers the second of which, I read, will promptly be mothballed and over the first of which there has been chopping and changing over how to launch its aircraft – when and if they finally arrive in service.

    Waste is inevitable in a system without the accountability provided by the market place. That is why it is preferred by those with a producer, as opposed to a consumer, mindset. Especially if they are spending other peoples (taxpayers) money and not risking their own. Yet there is a significant body of opinion (aided and abetted by the BBC) that public spending is “good” but investing for profit is “bad”.

    • Mitchel
      Posted July 29, 2017 at 2:39 pm | Permalink

      Only a few days ago Boris announced he was going to send (both) those”colossal” carriers down to the South China Seas to teach those Chinese chappies a lesson or two about who rules the waves down there!

  11. Mark B
    Posted July 29, 2017 at 7:54 am | Permalink

    Good morning

    Are we not comparing apples to oranges here ?

    The State sector is not the same as the Private Sector and therefore cannot be expected to work exactly the same way. For example. The State cannot run out of money but a private concern can. It is this simple thing that attracts an awful lot of big business to the State and the fact that the State can raise capital through borrowing, taxes and cuts elsewhere to pay for such projects. No way would HS2 get built if it did not have the State financing it. Also. Projects can be politicised. Jobs, usually heavily unionised one’s, are used to blackmail the government to keep pouring more and more money into it because the fallout from just saying no more is too great.

    These and many other reasons why I strongly believe the State and its involvement should be rolled back and kept to a minimum. It is NOT our friend !

    Britain in the 17th, 18th, 19th and early 20th Centuries was a much poorer place than it is today. Yet, we managed to build roads, railways, canals, bridges, world leading science and industry, and an Empire all from private enterprise. Government way back then was small. Once government got involved and wanted a piece of the action (money), that’s when things started to go wrong eg Suez. Things became politicised and bureaucratic which leads to stagnation as investors flee to other markets.

    No ! When it comes to government, less is defiantly more !

    • Turboterrier.
      Posted July 29, 2017 at 7:53 pm | Permalink

      @ Mark B

      Rolling back the State and its involvement are you expecting that to impact on the national debt?

      Centuries ago we didn’t have the interest yoke around our neck for all the loans that are used to subsidise these vanity projects

  12. Ed Mahony
    Posted July 29, 2017 at 8:10 am | Permalink

    Interesting article

  13. Caterpillar
    Posted July 29, 2017 at 8:31 am | Permalink

    1. Other travellers are probably subsidising commuters if rolling stock has to be repositioned anyway. Also there might be some demand management in shifting non-commuters to off peak times.
    2. Public investment tends to crowd in rather than crowd out private investment (there is of course detail in this).
    3. A correctly structures Land Value Tax would encourage private investment and reduce misallocation of resources.
    4. High grade public infrastructure supports nation branding and the consequential spillovers.
    5. Eco 101 suggests that population growth is NOT good for GDP per capita. The Govt needs to issue a clear quantitative explanation of why continued population growth is necessary, and the effect it will have on GDP PER CAPITA, not simply GDP.
    6. As alluded to in Dr Redwood’s article much investment is needed in order to maintain the existing economic capital per capita ratio, the existing capital has accumulated over many years and is now being spread over more people. A transparent public explanation is needed by Govt showing a time series of accumulated capital per capita with future projections with different net capital formation and different population growth models. (Does Mr Hammond, the Treasury or the OBR have this?)

  14. Sir Joe Soap
    Posted July 29, 2017 at 9:21 am | Permalink

    It would have been more instructive to hear from you as to how your party in government carries out its analysis of ROI for the separate public sector projects in which it is involved. Also the ROI for the indigenous population of recruiting immigrants which are apparently desperately required to prop up the public services.

  15. Lifelogic
    Posted July 29, 2017 at 9:35 am | Permalink

    Taking about “daft investments” I read on the BBC web site that the sensible government advisor Prof Helm has said:-

    “In this reassessment of support and subsidies for farmland we have to put the industry on a long-term reasonable and fair basis with other perfectly legitimate industries and business in the economy.
    “If you’re producing 0.7% of output, receiving £3bn of subsidies on output of about £9bn and being exempted on rates, being exempted on diesel and being exempted on inheritance tax, this is quite a list and we’ve got there by accident almost.”

    A Defra spokesman said: “These ideas are not under consideration. I assume he will be sacked soon.

    Why on earth are they not under consideration and indeed all these daft subsidies withdrawn as soon as possible?

    Too many rent seekers in powerful places one assumes. Prince Charles (and the likes) clearly desperately need these vast subsidies. This on top of all the renewable and greencrap ones they get of course.

    • Nig l
      Posted July 29, 2017 at 1:34 pm | Permalink

      The DEFRA spokesperson also said ‘we will continue with our generous subsidies”. There you go, we will continue to shovel it out.

    • forthurst
      Posted July 29, 2017 at 4:55 pm | Permalink

      Until we know the trade deal with the EU we will not know how much unfair competition our farmers will suffer from the CAP, nor will we know how much fair or unfair competition they will face from Mr Fox’s trade deals. After we leave the EU our farmers will presumably be able to produce what they want and it may take a couple of years or more for it to be established how productive our farmers can be in terms of total production and in the face of foreign competion, therefore an interim support package would be in order; subsequently, the extent to which farmers need supporting in order that farming may continue in this country, a strategic necessity which only dimwitted economists would not understand, could then be established, but only a fool or an economist might suggest that farmers should be paid other than on the basis of what they produce like everybody else (except buy-to-let landlords, politicians and banksters etc).

  16. Bert Young
    Posted July 29, 2017 at 9:39 am | Permalink

    Like all investments – whether short or long term , should only be made subject to professional scrutiny and the value of return . Capital investments inevitably are longer term and often continue beyond the lifespan of the government who instituted ; an incoming government may not share the same view as its predecessor and may eliminate or modify them . This state only goes to show why the period that a government is elected for is changed .

    I have long believed that all MPs should not be elected at the same time ; perhaps only a third at any one go . This phasing would overcome most of the about turn conditions and wastage and allow for a longer term approach to government management and change . This condition exists elsewhere and , to my knowledge , has not been faulted . The issues that any government deals with are mostly long term ones and ought to be subject to a strategic analysis .

    HS2 is a serious mistake and if it had been exposed to the recommendation I suggest , would not have happened .

  17. Peter
    Posted July 29, 2017 at 10:17 am | Permalink

    The railways are a prime example of how a Tory government got things wrong.

    Privatised for doctrinaire reasons, individual rail companies extract as much as possible from the paying public and then blame other companies when things go wrong.

    A unified national rail service with sensible investment policy is far better. SW trains are a clear example of how standards dropped and fares rose in my area. They will soon be gone, but they made hay while the sun shone and there is no reason to believe the company that replaces them will be any better.

  18. Denis Cooper
    Posted July 29, 2017 at 10:38 am | Permalink

    “Indeed some desirable public investment is not in anyway about raising productivity. It is about keeping up with the big growth in population we are experiencing.”

    For a few decades immediately after the Second World the government was concerned about the rapid increase in population through natural growth, and actively sought to use the NHS to promote so-called “family planning” in order to slow down or preferably halt population growth. And during that period the preference was for a policy of “would be zero immigration” to complement those efforts to reduce the birth rate.

    However once the effect of the liberalisation of abortion laws kicked in and the rate of natural growth of the UK population started to decline sharply, even heading towards negative territory, they switched to the opposite concern and as the native people of the UK had been successfully persuaded not to have so many children the easiest option was to start the mass importation of other peoples’ children.

    And that is where we still are now, and the EU referendum has not changed the fact that domestically there is a kind of iron triangle of forces working hard together to make sure that we continue to have mass immigration, indefinitely, whether or not the established population ever want that – which the great majority very clearly do not.

    There’s the business lobby, which wants uncontrolled and unlimited supplies of cheap and biddable foreign workers to boost profits without companies having to bear all of the inevitable collateral costs; there’s the government, which knows that it has significantly over-promised and cannot keep its promises without constant increase in tax revenues through a kind of demographic Ponzi scheme; and finally there’s the principally left-wing anglophobic political lobby, which wants to disrupt and fragment our traditional society and minoritise the original majority population.

    And of course there is the EU, which is seeking to homogenise all the European countries and their populations by insisting that free trade must be accompanied by unfettered free movement of persons, not for any valid economic reason but for ideological or political or geopolitical reasons.

  19. Prigger
    Posted July 29, 2017 at 10:50 am | Permalink

    For decades my town has been a nightmare of so-named regenerations, improvements, rebuilds, replanning. Buildings, roads, rail-track demolished . Incredible way past satire wastages of money.
    Well they keep voting Labour. I see it is the same in some rock-solid Tory constituencies. So they deserve it. Many here do not vote and will not vote for anyone. The ruling parties put this down to voter apathy. I find all their spouses extremely ugly. They may put that down to my apathy but no, I just have a keen eye and standards.

    • Peter Parsons
      Posted July 29, 2017 at 6:49 pm | Permalink

      The ruling parties say it is apathy, but they know it is the consequence of a First Past The Post system where most votes are worthless and serve no purpose in contributing to the outcome. (If anyone doubts this I suggest you read Tim Ross’ book on the 2015 Conservative campaign where it is documented that the first thing the campaign did was to write off 550 of the 650 constituencies as not worth bothering with because they’ll either “vote for us no matter what” or “never vote for us no matter what”.)

      This could be addressed introducing Proportional Representation as then all of the parties would have to try and listen to all of us. However, being able to ignore most of the country suits the ruling parties perfectly well, so they won’t change it.

  20. Legolas
    Posted July 29, 2017 at 11:09 am | Permalink

    “There is in the UK debate a general assumption that all capital investment is good.”
    There is a debate in the world of politicos as in BBC Question Time wacko studio audiences. There is little to no debate amongst normal people.

  21. lojolondon
    Posted July 29, 2017 at 11:22 am | Permalink

    Best comment I ever heard about HS2 is that at £70 Billion (plus the rest), it would be cheaper to flatten Birmingham and rebuild it 15 minutes closer to London.

    • Turboterrier.
      Posted July 29, 2017 at 7:56 pm | Permalink

      @ lojolondon

      love it

  22. libertarian
    Posted July 29, 2017 at 11:37 am | Permalink

    The problem with much government infrastructure investment is that its based on pork barrel projects and is behind the curve. Government invests in building horse stables and coaching houses whilst the private sector is busy inventing cars and buses. HS2 is a classic case as is Hinckley.

    To get a solid ROI and an increase in productivity requires really radical thinking, long term strategies and innovation All things that government never does.

    We should be planning a range of mini nuclear reactor plants across the country, far more digital infrastructure and 5g mobile should all be being built right now as a start point. We have also got to be far more innovative in moving jobs and people away from the ultra expensive overcrowded south east and into the rest of the country, all that requires is digital infrastructure and tax incentives.

  23. Posted July 29, 2017 at 11:49 am | Permalink

    The other point about publicly owned assets that they are rarely well maintained; you only have to look at our pot-holed roads and deteriorating school buildings. The problem is that unless something is actually broken, routine preventative maintenance is so easily ‘deferred’. “Surely we can wait a year before re-painting that school” or “That pot-hole isn’t very big, it can be postponed”. They totally forget the old adage “A stitch in time saves nine”.
    The following year, following these deferments, there is no more money for the extra maintenance required to catch-up, so it falls progressively further behind until substantial sums are required to fix things which would never have been necessary if they’d been dealt with at once. Poor condition buildings, even if they don’t directly encourage vandalism, do produce a ‘don’t care’ attitude amongst the users causing further deterioration.
    For the biggest example of maintenance gone wrong and the huge costs that can be incurred by postponing work, you only have to look at the House of Parliament. If the MPs can’t be bothered about their own place of work, what chance do schools have?

  24. PaulDirac
    Posted July 29, 2017 at 12:02 pm | Permalink

    HS2 is a white elephant.
    A back of an envelope calculation shows that one way ticket London – Birmingham would cost (before subsidy) about 700 pounds (assumptions: annual 7.2 million journeys , total cost 100 billion, 5% annual cost of operation and interest).

    All electrical car – truck – bus by 2040.
    Assumptions: 20 Million cars, each driving an annual 10K , average mile /gallon 20. this gives a total energy of 3×10^18 Joule.
    Hinkley Point capacity 3,200 MW, which translates to 1x 10^17 Joule a year.
    Divide one by the other, result (back of an envelope) we will need to build 30 nuclear power stations to replace fossil fuel in cars by nuclear power.
    How realistic is that?

    • Caterpillar
      Posted July 29, 2017 at 2:11 pm | Permalink

      PaulDirac,

      Front of an envelope:-

      Hyundai Ioniq 124 miles with 28kWh battery pack => 20 million 10k cars @ 1.6×10^17J = 1.6 Hinckley C s

      Getting realistic if we would get on and guild some power stations.

    • Peter Martin
      Posted July 29, 2017 at 2:22 pm | Permalink

      You need to factor in that peak demand occurs during the daytime and early evening. There’ll be plenty of spare capacity after about 11pm to recharge electric vehicles.

      • Mark
        Posted July 30, 2017 at 9:55 am | Permalink

        You’ll need to factor in that vehicles will need to be recharged during the day if they are to reach their destinations on longer trips, so extra capacity will be required. Moreover, it will need to be reliable capacity – not wind or solar.

  25. Denis Cooper
    Posted July 29, 2017 at 12:08 pm | Permalink

    Off-topic:

    http://www.bbc.co.uk/news/business-40743826

    “The UK must remain an EU member during a transition period from March 2019, according to the head of aerospace body ADS.”

    “Mr Everitt, chief executive of ADS, told BBC Newsnight: “When we cease to be an EU member we need to have in place a whole new set of international agreements with, for instance, countries like the US, with Canada and emerging major markets like China, India, Japan.

    So for us the transition period is important and it’s important that during that period we remain an EU member.”

    This is the kind of rubbish you will get when you fail to recognise and explain to the public that it is commonplace for treaties to include transitional provisions, so that even after the treaty as a whole has come into force on a certain date the effect of a particular part may be delayed for some specified time to allow for practical implementation.

    And the period of delay deemed necessary for one part need not the same as the period of delay deemed necessary of another part; the transitional provisions for the first could run for X months, while those for the second could run for Y months, etc.

    But really I’ve had more than enough of all this; maybe I should go off on a long world cruise, in the expectation that by the time I get back Theresa May will have been replaced by Philip Hammond and he will have persuaded the EU to allow him to rescind the UK’s Article 50 notice, provided only that he moves the UK towards joining the euro by 2022 which may well be what he would like to do anyway …

    • Denis Cooper
      Posted July 29, 2017 at 12:25 pm | Permalink

      https://www.conservativehome.com/platform/2017/07/henry-newman-there-will-be-a-brexit-transition-period-but-it-is-unlikely-to-be-via-the-eea-or-efta.html

      “The Government should not synchronise all of its transitional plans and there are already suggestions of some instances where there will be differences. There’s a strong case for establishing an independent customs policy, faster than we depart from the Single Market. And if much is staying the same, for example with free movement largely unaffected, the Government will be keen to demonstrate change in areas such as fisheries.”

      Anybody who has even slight familiarity with the EU treaties, and indeed other international treaties, will immediately understand this; transitional provisions written into treaties are drafted as the contracting parties to the treaty agree they should be drafted, there is no superior law dictating their form, and so there is no reason at all why they should all be synchronised.

    • alan jutson
      Posted July 29, 2017 at 4:50 pm | Permalink

      Dennis

      You are not the only one who is getting absolutely fed up with the cascade of Brexit problem statements made by all and sundry, including Government Ministers.

      Whilst I did not expect those who want to remain to roll over, I did expect some sort of rebuttal from the Leave camp or at least sensible comments from Government.

      JR and one or two others seem to be left to fight the cause on their own, whilst most Ministers in our Government seem to be doing all they can to delay, frustrate and water down any real chance of progress.

      I wonder what David Davis thinks of all of this, is his brief still the same, n ?

      We walk away unless we get an Agreement with no payment, an Agreement that excludes the European Court of Justice, our original Fishing grounds back and under our complete control, No free movement of people after Spring of 2019, Access to the so called Single market etc etc.

      Not a word in support of Mrs Mays Lancaster House speech by anyone in Government.!

  26. RDM
    Posted July 29, 2017 at 12:49 pm | Permalink

    If government doesn’t waste our money, who will?

    The city of London, the Banks, or the so called Investors?

    We have long argued about Trickled Down Economics, and access to capital, and the British Banking System!

    Outside London and the south East, it does not, and have not, for many years now! And, it will catch the Conservative Party up!

    The reason we have sort (as a posed to other country’s) a higher pound value is to make this country attractive to external Investors, Aka Asset holders! Meaning they don’t necessarily create new Investments or create new income streams!

    They are trading Assets, which is fine, a good job creator.

    But, not for the rest of the Economy.

    As a posed to seeking a lower pound that would suit the internal manufacturer, especially if they can invest while the pound value is low, embedding a competitive cost structure.

    So, as it is, if you don’t hold assets, you are very unlikely to get a loan? Or can prove two years income, which for a lot of people, don’t make sense, that’s why they want to invest, to generate an Income, not the way around.

    The reason I argue for a British Bank is because Investing needs to be far more established within everyone, as an opportunity!

    As far as the five big banks are concerned, their job is quantifying acceptable Risk! If you don’t have a deposit or proof of future income, they cannot be expected to Invest.

    Investing can be a social function that can provide the opportunity to better oneself, no matter what part of the country you are.

    And, it’s only a semi private Bank that would be able to accept the Risk, of say, a Single Mam, a qualified hair dresser with a good name, buying a shop, with a flat above.

    A Bank taking that Risk would save a lot of money to the taxpayer. 100% loan instead of benefits, what is the problem, compared to the amount of benefits we pay out?

    The Bank would need to offset the loan, with other, Riskier, investments, but that would be its job?

    A country based on Opportunity, not Benefits!

    Just an idea.

    Regards,

    Roger Moore.

  27. ian
    Posted July 29, 2017 at 1:18 pm | Permalink

    Yes HS two is going ahead with HS3, 4, and 5, a cross the pennies and into scotland, not sure about HS6 down to SW, cross rail 2 is a go for london. Space ports across to be built, just in case some one want to go to aus for the weekend. No point in building more motorways like the M1, the plebs can make do with what they have. 10 new nuclear power station to generate power for trains and electric cars and big increase in population that gov have in mind as set out by the bankers, not sure where all water will be coming from, but that down to all the overseas companies who own the water with everything else. I would of thought they will be going for gov hand outs to pay for most of it, and put the rest on your bills and council tax. I think i will have to spend more time overseas in future.

  28. Peter Martin
    Posted July 29, 2017 at 2:17 pm | Permalink

    “Capital spending is treated differently from day to day or revenue spending because it is meant to create an asset of value which will be available for use for many years to come”

    The difference between the two is somewhat arbitrary. Most parents would consider that money spent on their children’s education was an investment. This would include their teachers’ salaries. There’s no point having a school without the teachers. There’s no point having a hospital without medical staff.

    But as I understand it teachers, doctors and nurses salaries are counted as revenue spending. I suspect many people may not understand the rationale behind that.

  29. Adam
    Posted July 29, 2017 at 6:00 pm | Permalink

    If people give false estimates is that not fraud? Why are we pressing ahead with HS2 if we are leaving the EU. Would we still have built the Eurostar in the same situation.

    • PC
      Posted July 30, 2017 at 2:26 pm | Permalink

      Now you’ve done it Adam! Mentioning Eurostar.The Remoaners and their media will suggest that since Brexit ( they mean the Referendum vote )there are probably microscopic cracks in the Chunnel caused by Uncertainty and the falling Pound.

  30. Mr Sensible
    Posted July 29, 2017 at 8:23 pm | Permalink

    It has to be on our media,and it is..on TV news.The Greeners have come up with a world shaking idea. Instead of buying a plastic bottle full of water in a supermarket at home and carrying it a hundred miles to the seaside, consuming the water and conveniently dumping it in the sea, they have started a facility whereby when you have swilled the water down your throat you take it back home one hundred miles to the supermarket and have it topped up with water again.!!!! Wow!. There’s me thinking turning on my tap at home and at the seaside was the solution. Silly me!!! I’m just not into this Brave New Green World.No wonder so many people vote for the Greens.

  31. Lindsay McDougall
    Posted July 30, 2017 at 2:17 am | Permalink

    You ask a very good question. The Chancellor has caught a touch of the Jeremy Corbyn’s, ‘borrowing to invest’. It only works if the investments are likely to make a profit – or an economic return provided that values of time are accurately know. The problem is that we have backed all the wrong horses:

    – HS2 will be a White Elephant from the day it is born until the day it dies. HS1 still hasn’t broken even. If you don’t believe that, the relevant figures were presented to the Transport Economists Group by an Arup economist (Arup were heavily involved in the design and implementation of HS1).

    – Heathrow expansion will cost taxpayers an arm and a leg, will struggle to meet environmental requirements and may not be deliverable. Gatwick expansion could be done with no taxpayer funding apart from the cost of improved land transport links (the Government could insist on this). Heathrow was advocated on the grounds that it is a hub airport. How much money does an airport make out of transit passengers? If the answer is ‘not a lot’, then why the obsession with hub airports?

    – The Government talks about a Northern Powerhouse but does little to improve access to and from northern ports like Liverpool, Immingham and Sunderland. At the moment, many imports to the north come through Southampton, Tilbury and Felixstowe, resulting in more lorry miles on our motorways and trunk roads than are necessary.

    – The decision to make high speed broad band 100% available involves heavy expenditure servicing remote, sparsely populated areas with bad reception.

    Why do all our political parties insist on making the wrong choices? Why not get rid of bodies like BAA and BPA and let individual ports and airports compete for capital in the market place? And let us not be presented with that hoary old chestnut that the private sector lacks sufficient capital. The State has no capital at except in so far as it robs its citizens.

  32. stred
    Posted July 30, 2017 at 3:39 pm | Permalink

    If they wanted to save face and admit that costs for HS2 are out of control, they could revrt to a normal speed passenger and freight line along the disused central line. This has already been planned and costed, according to this article. The need is now supposed to be for capacity- not speed. It would also use less energy and construction materials.

    But they won’t stop because, as with Hinkley, the big construction companies see waste as profit and pull strings, fooling ignorant and stupid politicians.

    http://www.telegraph.co.uk/journalists/andrew-gilligan/10406562/HS2-now-Labour-look-at-an-alternative-scheme.html

  33. stred
    Posted July 30, 2017 at 3:53 pm | Permalink

    Now that Mr Gove has revealed that the Conservative Party is, in fact, the Green Party, he could follow up and announce this CO2, NO2, NO, and PM saving project will save the world, extend our lives by a month and pay for looking after the demented. Then he could make up to the big construction by promising to build it more quickly, as most of the track is already there. But then the lawyers would lose out on planning enquiries.

  34. Jack
    Posted July 31, 2017 at 7:17 am | Permalink

    If you don’t like public sector investment then cut taxes and let the private sector do it! You’re strangling the private sector of income by refusing to massively increase govt spending, or cut taxes, or force commercial banks to lend like crazy (as China does).

    Government deficit = private sector surplus

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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