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politicalbetting.com » Blog Archive » The Coalition has left it too late to benefit from infrastructure
This week Chief Secretary to the Treasury Danny Alexander trumpeted a raft of infrastructure investments totalling £100bn. There are some reasons to question with the overall figure. As the Independent says ‘some of the projects, in the best tradition of political spin, had already been announced. Others, it turned out, may never be built at all.
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Infrastructure spend should have been kicked off in Y2 of the coalition to offset the problem in the Eurozone.
Really? A large dose of rewriting history there.
Darling's plan was to cut capital spending by more than the coalition did. Admittedly Labour (shamefully) didn't do a spending review, so we never discovered what they were going to cut. Of course they didn't know that either; there was no detailed plan at all - they deliberately and cynically flunked that. There was just irresponsibility.
Which party has been running that department ?
A key transport investment is the upgrade of the A14.
Which party does the much derided Cambridge MP who continues to oppose this essential upgrade for "climate change" reasons represent ?
Answers on a yellow post it.
So criticising along the lines of 'money to invest but not to spend' is illiterate.
I think investment should never have been slashed. Spending should.
Why can ministers find £18bn for our annual contribution to Europe while £11.5bn is cut from local public services?
Ewan Murray @mrewanmurray 9m
Busy day for Alex Salmond. Tells the R&A to shove their Open invite then wanders along The Gorgie Road to buy a couple of season tickets.
FACT.
The gold-dust for a government during a recession period are 'shovel ready' infrastructure projects that can be implemented asap to help support the economy during the downturn. Better still if they clearly help fix a problem that will occur in a few years time and/or to support growth and development as the economy recovers.
In light of the discussion about school places on the last thread it is worth reminding people that one of the very first actions of this government was to scrap a whole bunch of shovel ready projects (and scrapping then actually was a waste of money because they were so far advanced) in the Building Schools for the Future scheme.
Suggesting starting to invest sometime years ahead is no help at all - investment was needed over the past 5 years.
why Labour suddenly want infrastructure when they could have rebuilt the country with the cash they wasted when in government is the bit of the story we're all waiting to hear.
Darling, let us never forget, was running out of money at the end of the third week of every month, and having to borrow on average an eye-watering 33% of all tax revenues, every month, just to cover current bills - not investment. That was an absolutely staggering overspend, on a scale never before seen in peacetime in modern Britain. Of course Osborne had to take immediate action, and of course if you leave dealing with the problem too late, as Labour did, the inevitable result is that the cuts are harsher than they would otherwise need to be. Capital spending is the easiest, quickest and least painful saving you can make if you're in a hurry, as he had to be with that toxic legacy.
Of course, with the benefit of hindsight, it is clear that Osborne's original 2010 spending review was too generous on welfare (mainly because inflation turned out higher than expected because of world commodity prices remaining surprisingly firm). Cutting welfare more, so as to leave more room for capital projects, would have been wise. Somehow, though, I don't recall Labour criticising him on that basis in 2010. Quite the opposite - they were laying into him for cutting even the most brain-dead spending.
Still I do enjoy the irony of Labour going on about infrastructure and investment. This is a party which presided over nearly 13 years of unprecedented prosperity, led by the booming City, with massive tax revenues and a huge increase in public spending. And what did we get for it? Certainly not world-class infrastructure, that is for sure. Housebuilding, roads, rail - all missed out despite that massive spending spree. We did get some fancy new schools buildings (but not better education), and, to be fair, a good number of new hospitals. But they haven't been paid for - they were off-balance sheet.
It's standard practice to cut capex in the early part of a turnaround (as these cuts are easy). Once the recovery is established (even if early) you gently turn on investment to catch up on the last few years.
Even setting aside the headline figures - structural deficit, etc - which were terrible, the economy bequeathed to the Coalition was so unbalanced in all sorts of different ways.
The more we learn, the more it becomes clear that the last government was the worst in living memory.
The Coalition should be ashamed. They behaved as if they had in fact inherited the largest deficit in the western world.
Because one results in a national transport asset and the other results in a bunch of pen-pushers having an extra holiday that year?
The government's plan was always going to be to have a few tough years and for things to then turn so that they could enter the election campaign on a rising tide of optimism for the future, and campaign on the basis of keeping that optimistic future safe from Labour.
Certainly the last couple of years have been tougher than expected, and so this plan is not altogether intact. The government has to go into the election campaign with the promise of more tough times ahead. However, the plans for infrastructure spending are a vital part of the plan in terms of building a narrative about an optimistic future.
Whether the numbers make sense is pretty much irrelevant [my favourite chart on why they don't], what matters is the narrative: "We made, and will continue to make, hard decisions to fix the deficit Labour created, and that means we can invest in building a better tomorrow for the country."
Labour don't have a coherent alternative narrative. They will probably end up with most seats anyway. They've backed off from disagreeing with the Coalition, and not many people are that surprised, but given that everyone was expecting the manoeuvre, I am surprised that they haven't had a fall-back position worked out.
Darling's last budget was a work of fiction drawn up on the back of an envelope.
Isn't that a good thing?
Now that we have some updated figures from when that article was written, we can see that Labour had planned to spend 160bn on capital investment between 2010 and 2013 (down from 190bn in the preceding 3 years) while the coalition have actually spent 157bn.
Apart from tim.
Number of live births - mother from Poland (rank mothers born outside UK)
2005: 3,403 #9 (first year in top 10)
2006: 6,620 #4
2007: 11,952 #3
2008: 16,101 #2
2009: 18,159 #2
2010: 19,762 #1
2011: 20,495 #1
Over the same period, the numbers of births from mothers born in the next most frequent country - Pakistan - has been broadly stable ±18,000.
To be clear - I think the last government did the right thing by Poland (we owe them from WWII) - but failed spectacularly to plan or build for the influx.
Indeed, look at how the OBR phrased it shortly after the election
"For the years after the end of the current Spending Review period in 2011-12 the previous
Government did not publish DEL plans or AME projections. Instead, it published projections of
total PSCE and total PSNI that were produced on the basis of a top-down assumption rather
than through bottom-up forecasts."
http://budgetresponsibility.independent.gov.uk/wordpress/docs/pre_budget_forecast_140610.pdf
Housebuilding is already growing strongly and will be growing very strongly by the end of the year.
And by the way what are you talking about when you say that Osborne cut housebuilding in half? Are you talking about public housing or overall?
It takes four people to post a letter, and staff travel to the office in taxpayer-funded limousines.
This is the extraordinary insight into life as a Eurocrat, depicted in a Brussels-funded colouring book for children about the life of 'Mr and Mrs MEP'.
David Cameron brandished the extraordinary publication at a meeting with EU leaders, as he called for an end to such a 'scandalous waste of money'.
Read more: http://www.dailymail.co.uk/news/article-2350610/Cameron-stuns-leaders-reluctant-cut-EU-budget-brandishing-Brussels-funded-COLOURING-BOOK-Mr-Mrs-MEP.html#ixzz2XWFveFd5
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We need to reinstate vital investments now which support jobs and recovery:
- the Future Jobs Fund
- the September school leavers guarantee
- the youth jobs guarantee
- the Building School for the Future capital programme
Three extra chunks of current spending, and only one which could remotely be described as capital expenditure - and a very odd one too, the most wasteful capital program of the lot. No infrastructure investment at all.
http://www.edballs.co.uk/blog/?p=907
His refusal to discuss Labour policy diminishes him as a poster frankly.
'"A lie, debunked a million times". which is in itself a lie, posted by the resident PB expert on lying'
Jacqui Smith got slapped down by Andrew Neil last night for coming out with the same crap.
'Alastair Darling’s March 2010 budget shows that Labour had forecast a cut in spending on infrastructure, from 4.1 per cent of GDP in 2010-11 to 3.3 per cent the following year.
In the event, just under 4 per cent of GDP was invested in infrastructure in 2010-11 under the coalition government, dropping to 3.1 per cent the following year. A difference of 0.2 per cent, which on that scale, means relatively little.
So in the bigger picture, no-one can really claim the crown of being the greatest cheerleader for investment in infrastructure.
Attitudes have changed since 2010 - back then, the focus of debate was purely on cuts and many argued that the reduction in the deficit should be achieved wholly through cutting expenditure with no tax rises at all.
We now see local authorities using low prudential borrowing rates to invest in property with the aim of funding servives through rental yields. Inconceivable a few years ago but the new economic culture has brought about an upsurge in new thinking about how to make and utilise public funds.
There was an almost kneejerk reaction to anything smacking of Keynesianism or "New Deal" style economics but the realisation that properly-targetted capital expenditure to promote growth and kept people into jobs is a good way to reduce both deficit and overall debt has finally sunk in.
genius indeed....
@taffys
'Any thoughts on why Wales appears to have made such a horlicks of devolution while Scotland hasn't?
Four reasons leap to mind: aspiration, competence, capability and corporate governance.
Aspiration is almost an unknown word. In education average is viewed as OK - no real need to do better, and that culture goes across much of the public sector. I have heard of children being discouraged to apply for the top universities - almost an inferiority complex. Indeed, the Welsh feel that all is right if they beat England at rugby and mentally are still fighting the battles of the Middle Ages. There is a tremendous amount of inward looking and feeling regarding what the world can do for Wales, rather than what Wales can do for the world - they have to realise that they are part of the global society and as such are competing for jobs and lifestyle.
This lack of aspiration (and skill sets) leads to a lack of competence. European grants have been wasted on useless bureaucracy instead of infrastructure projects - like Spain and Ireland.
Capability is deficient at many levels and really many of the Assembly members are not as capable as many parish councilors. The same applies to the Welsh Civil service.
Corporate governance is very weak and scrutiny almost minimal. Massive sums of money (£millions) have been found to be fraudulently used by grant receiving pseudo-public sector organisations or charities.
Need I say more?
http://www.politicshome.com/uk/article/80984/mps_journos_twitter_tracking.html
'Osborne slashed funding for social housebuilding in half, and increased housing benefit spending as a result.'
Osborne can never match New Labour's mass immigration policy combined with the lowest level of social house building since the second world war.
Increased housing benefit on the back of that,who could have guessed.
To demonstrate that EU immigration is the issue, it would probably be better to look at EU nationals without British citizenship vs British nationals (I suspect many of the mothers born in Pakistan would be in the latter class) than a particular country of birth.
http://www.parliament.uk/education/online-resources/games/get-the-houses-in-order-notes/
PS Parliament has a game called "The Tower of Power", which I'm pretty sure is a reference to the Frank Zappa song "Bobby Brown".
Mind you, there was still the 'wee toon' mindset - where the greatest you could or should aspire to was to be Bank Manager of the RBS in the toon - 'He may be the Governor of the Bank of England - but he had to go to London, you know...' - like that was somehow cheating.
The Scots prospered mightily from the Union & the Empire - running it in numbers out of all proportion to their population - but as that has gone, so too, I suspect, has a big chunk of the economic case for the Union.
Does anyone have any more details than these yet?
https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-mortgage-guarantees
grimly amusing is pretty much the most entertainment anyone can get out of the daily mail, i suspect
I logged to to the site of my old school in Swansea the other day and was astonished at how they played down their academic record. Almost didn't mention it at all. Oxbridge is often in double figures and Russell group dozens every year. In the small print.
Clearly tall poppies get their heads cut off.
So it will enable you to release your own money from your house and allow you to invest it elsewhere, even into new housing. Tim will explain why this is a bad thing for the economy because it is beyond me.
Engage in the debate - what would rEd do from 2015 - stop banging on about Super Ally Darling and his unprovable fantasy budget of 2010.
Either way, the point where you react is surely when the babies are born (you've got 4-5 years to deal with the issue) rather than when people immigrate, who may or may not have babies, and may or may not stay for 5 years. Immigration is obviously a cause of population growth, including school place requirement growth, but I'm not sure why you'd isolate it is a factor. The first level data are available, in other words, so why would you analyse need based on the second level data?
Next year the Chancellor will be guaranteeing a maximum of 14.25% of a mortgage loan against repossession in the first seven years of the loan's term. The amount guaranteed falls as the principal is paid down by the mortgagee and 'self-liquidates' after seven years.
This guarantee scheme will replace the equity sharing scheme to which you refer.
It is "off balance sheet" (i.e it does not add to public sector borrowing) as guarantees are properly classified in the UK's National Accounts as the provision of insurance. At present contingent liabilities which result from insurance provided are not stated in the books. This is due to change as the supranational accounting standards bodies introduce new policies.
With regard to shared equity participation (your "handing £120,000 to everyone"), the government purchases an asset (share of equity in a property) worth £120,000 which is matched by a liability (borrowing of £120,000). The net borrowing is therefore zero although I suspect there may be some provision against loss.
In both the equity participation and guarantee schemes the government charges banks and/or borrowers fees which cover the cost of administering the scheme including a cover of reasonable risk.
So it is not "all off the books". It simply doesn't increase net public sector borrowing for sound accounting reasons.
The only valid complaint you might have against the accounting treatment of the schemes is that contingent liabilities on the guarantees are not entered into the books. As stated above, this is beyond the government's current control and will change in due course.
http://www.faz.net/aktuell/gesellschaft/sprache-der-duden-nimmt-den-shitstorm-auf-12264060.html
So we won't have power cuts because big industrial users will have their power switched off first.
I'm going to guess that big industrial users who are told that within a year or two they may no longer have a guaranteed energy supply will offshore.
So actually the political class don't even need to raise energy prices to the point where the economy collapses they can do it much sooner by telling people in advance that not only is it the plan to give them more expensive energy than anywhere else, on top of that power will be turned on and off randomly as well.
Result.
Taking us even further into Bolleaux tenure
If Vince is incapable of banking reform then perhaps the Chancellor can do it for him.
http://blogs.telegraph.co.uk/news/danielhannan/100223838/greens-dont-like-fracking-because-they-dont-like-prosperity/
http://www.bbc.co.uk/news/education-23081631
As I have just posted Osborne is now inviting tenders for advice in relation to the sale of bank shares. Hopefully this advice will be to break these leviathons back into smaller, not too big to fail pieces and give the opportunity for several new players to enter the market with new capital.
me too but that's what FAZ is quoting. German has gone a bit haywire recently with new grammar and spelling. The dear old ß is getting caned so we now get words with triple sss which just look weird. Needless to say there's a bit of a backlash.
I'd rather see him introduce a few more mutuals into the mix as well. If nothing else they kept the big guys relatively clean.
Banking sector reform started with Darling recapitalising the banks so that there were 'sufficient' shareholder funds to absorb loss in the event of another financial crisis. Brown and Darling pumped £85 billion of taxpayer's funds into bank shares. Even this amount did not cover the risks being undertaken by the banks, so various regulatory authorities are insisting that more capital is raised. The banks have responded by sale of assets (divesting from non-core businesses), retaining profits to bolster shareholder reserves, reducing new borrowing to avoid further increasing capital requirements etc.
All this has taken time and it simply would not have been possible for Osborne to have accelerated the process without pumping further massive amounts of taxpayer funds into bank equity.
The Funding for Lending Schemes and housing support measures (and other QE type measures from the BoE) are temporary measures designed to enable the banks to continue new lending at the same time as they are rebuilding their balance sheets.
The Lloyds Group is near exit from emergency government intervention but the RBoS Group will still require interventionary support for some time. George Osborne has accepted, with hindsight, that it would probably have been better to have split up RBoS Group at the time of the initial bailout and is now looking urgently at whether such a split (into a 'good bank' and 'bad bank') would accelerate its resolution. Decisions due in autumn.
There comes a point when you cannot blame your predecessors any longer. I'd say three years was long enough to prepare primary school places.
A politician using his kids to make a political point.
Wait for Tim to wail and gnash his teeth...
http://www.dailymail.co.uk/news/article-2349927/Miliband-reveals-fears-sons-aged-access-porn-smartphones.html
Oh, hang on.
Osborne, if memory serves, said that the reduction of every £ in deficit would be predicated on 83p coming from spending cuts and 17p from tax rises.
On the issue of fracking, I noted the comment a couple of days that Conservatives who opposed wind turbines on aesthetic grounds seemed quite comfortable to see the vistas of England disfigured by shale gas drilling platforms.
I'm fairly ignorant on this issue - I appreciate how useful shale gas might be but can we produce oil from it? If not, it's a help but we'll still be dependent on oil supplies from elsewhere.
"The criticism often leveled at QE is that it has caused yields to be lower than they would otherwise have been, yet it is surprisingly hard to find real evidence of this. To the contrary, the yield on ten year French bonds is actually lower than it is on their UK equivalent, even though France has had no QE and its economy is manifestly in even worse shape than ours. This latter perception tells the whole story; French bond yields are lower because investors think its economic prospects so poor.
But the point is that if rising yields point to stronger nominal GDP growth, then the negative consequences of these yields for the public finances will be more than cancelled out by the higher revenues a growing economy will deliver.
http://blogs.telegraph.co.uk/finance/jeremywarner/100025034/the-bond-market-bubble-is-deflating-but-in-a-good-way/?utm_source=dlvr.it&utm_medium=twitter
It's good government. Whether or not they will get any political benefit from it is immaterial.
But you are more focused on what is good for your tribal interest than what is good for the nation as a whole
The 150bn capital expenditure of the government between 2010 and 2013 must have all been part of my imagination then?
the banking crisis started in 2008, by 2015 we still won't have a viable competitive market. Just how long do you think it should take ? And all the time the sector remains dysfunctional while commercial and retail credit don't work, we have HMG wheezes to imitate what the market should be doing.
What with your ever excellent boy chancellor and the sage of banking in the Coalition whatever could be holding things up ?
Rome wasn't built in a day.
Although Gibbon would have been impressed by the speed with which Rome declined under the 13 years of Labour misrule.
Children can do this for a lot of men which is why there is such a temptation on the part of our fairly odd lords and masters to use them in this way.
That said, his sons are remarkably precocious if they are into porn at their ages. Maybe not the best example unless Dad...no I won't go there.
I guess you must be an Android user...
Accessing porn would be slightly more challenging for children who can't yet write, and therefore use Google. Do you think he's worrying about his search history...?
What happened when the new government came in - well they scrapped it.
To suggest that somehow the previous government weren't planning for the increase in numbers entering reception classes now is just plain wrong. But even if they weren't the government has had 3 years to sort this out and suddenly appears to have realised it needs quarter of a million new places in 8 weeks time.
Yields have been artificially depressed over the last few years by the flight to safety and by QE demand.
Where Osborne deserves credit is we were perceived as the best of a bad lot for investors. Up there with Germany (the US has additional benefits from being the global base currency). Certainly better than France and other comparable countries.
That yields are now moving up across the board isn't Osborne's fault. One hopes it is a belief that the economy is improving; one fears that it is jsut a product of QE coming to an end. So long as we remain relatively better than comparable countries we are doing ok.
http://www.bbc.co.uk/news/uk-politics-23096383
As one gets older and one's time available shortens patience is more of a precious commodity. My vicar offers me jam tomorrow too, but he's got a better chance of delivering.
As for Gibbon wasn't that Constantiople ? It went on for 1,000 years, which is about the same timeframe as GO's bank shake up ;-).
Warner's point, and it is a good one, is that we don't seem to have got any obvious advantage from QE compared to France who has not had that policy. I think he fails to recognise that our deficit was much worse than theirs and still is albeit the underlying debt situation was similar. I suspect but for QE we would have been nearer Spain or Italy's levels of payment at considerable cost to the Treasury (ie us).
edit: Nor have Labour either obviously and for the same reason.
In the 40-50's when I was young and living in S Essex, and my father's teacher friends came to the house, I formed the impression that one could have constructed quite a competent rugby team from those with South Welsh origins!
If the only option for the bright and ambitious is to emigrate, what happens to the society they leave behind?
Would be interesting to hear from Richard Tyndall on this as all I know about it is from the bare production statistics.