Prudence must die?
Top of the in-tray for the next Chancellor - who'll probably be - is a momentous decision of absolutely no interest to most of the electorate.
It is whether to amend Gordon Brown's cherished sustainable investment rule. Yawn.
That's the rule which limits the national debt to no more than 40 per cent of gross domestic product - and was put in place by Brown in 1997 as part of his plan to prove that Labour could be trusted as steward of the public finances (all previous experience of Labour governments to the contrary).
If you're still awake, here's why this matters.
Unless the ceiling is raised or the rule is made more flexible, there will be severe constraints on the ability of the public sector to invest in new infrastructure - because, after years of splurging by Brown, the national debt is uncomfortably close to that limit.
One pressing case of a massive transport project that currently can't be approved because of the sustainable investment rule is - the hoary old proposal to link east and west London with a new train line.
The business community wants Crossrail. The London mayor wants Crossrail. Tony Blair wants Crossrail. Even Gordon Brown has indicated support for it and the is working overtime on its financial viability.
But it could require about £16bn of borrowing, of which more than half would end up on the Government's balance sheet, even after employing the most creative accounting techniques (a couple of billion could for example be dumped on , which remains outside the public sector for accounting purposes).
The Treasury has calculated that giving Crossrail the green light would bust the sustainable investment rule, no matter how the books are fiddled.
Now if there really is a need for Crossrail, it would seem nuts for it not to happen simply because public sector debt could end up a bit above 40 per cent of GDP.
But on the other hand, Brown's vaunted "prudence" in management of the public finances is already seen by financial markets as half-dead and on a life-support machine. Breaching or amending the sustainable investment rule could be seen as the switching-off of the oxygen pump and removal of the feeding tubes.
So it's a tricky one: fiscal virtue versus investment to sustain London's international competitiveness? Death for prudence or a new trainset for the fat controller?
Whatever's decided will say a great deal about the priorities in Brown's Britain.
PS I'm away for a few days, so probably won't be posting again till early June.
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It sounds more like "political spin or a worthwhile project" to me. If the only reason for not doing this is to boost Brown's image, then go ahead.
I am uncomfortable about borrowing being so high, and I can't help but feel it should be closer to a quarter of GDP than half (though I'm not an economist - I don't actually know how the sums work out). However, if a project's going to return more in the long run than we'll pay to borrow money (inc interest etc and with unfavourable projections), then we should really be going ahead, especially if it helps the transport network.
Perhaps the Chancellor who has presided over this "splurge" should have thought about this before?
Only a fraction of his debts show up on the government accounts anyway so I suspect that the national debt went over 40% a long time ago.
We need Crossrail much more than we need the "investments" in all sorts of other areas which have benefited from the Brown's largesse.
It's not nuts at all.
The sustainable investment rule is something we signed up for, and therefore Crossrail needs to compete with other spending.
It is fundamentally unacceptable to get consensus on a spending limit, fully spend it (Domes and Olympics, alongside payrises for doctors), and then ask for more for what may be or may not be a good project.
The taxpayer and voter will not forgive it.
If Crossrail is a good idea, it should be funded, by the Government, within the constraints of the PSBR and/or 40% National Debt, by rejecting some other piece of investment. Not by hiding much of the cost off balance sheet through PPP or whatever acronym it goes by these days.
Preferably by losing some useless piece of politically motivated junk.
My suggestion - get an honest, realistic estimate of the cost of holding Olympic Games. The total cost. Then, if people don't want to pay that, drop it. If the government can or will produce a figure and then go ahead, the Labour Party, not the Government ie the taxpayer, should carry any spend over and above the agreed amount.
When the significance of HIPS in terms of a big hike in selling costs hits the property market the long-awaited "correction" in house prices will be the result.This will start with the massive unloading of no longer appreciating buy-to-let properties.Rising interest rates along with the cost of a HIP is going to make holding onto a never-yet-let flat a bad idea.Hence the money going into mortgage lending will be looking for a new home - where better than in a PFI?
The government and railways are a joke. Those who work in there know that they are earning above average wages and will not criticise the current operations. Most workers in their jobs know operations are inefficient and exploit this by saying people and systems are working to the best of their ability and so things are working fine, and then roll out a list of excuses that would not be accepted in any private sector cut and thrust business that is under threat from competitors who are always looking to steal their customers. But they dare not speak as they are jockying for promotions into easier management and director jobs than those that are equivalent in the private sector. Why? In the private sector, get things wrong for six months or more and you get sacked. In the public sector, get things wrong and you can say this is what every other agency does and its standard. You see, you don't lose customer or market share, so nothing tangible can be felt. Therefore, they think :"let's not try to change a terrible operational system because I'm on good wages. There is no incentive to be more efficient, just personal punishment on wages if I make noise and get sacked." Public sector workers also know that the skills and experience needed to do their higher than average paid jobs are a lot less, and less pressured in terms of results than the private sector, so they keep quiet and maintain the status quo so that they can get promoted. And don't forget, if you balls things up, public sector workers can pull out statistics (many which are unrelated to the project or task) to back up their claims that things went successful. But you cannot do this in a private sector business. If sales turnover is not up, net profit does not go up, then you do not have an excuse or leg to stand on.
the figure that amazes me the most is £16 billion - what are they building this rail link from - gold?!
Here in Dubai that figure works out to approximately 112 Billion UAE dirham.
For that they are building the world's biggest airport(6 runways and terminals), the tallest tower in the world (at least 700 metres), a metro system, and 28,000 hotel rooms, theme parks, etc. I accept labour is cheaper here, but really is it that much cheaper?
I would suggest the tendering process needs to be seriously reviewed to see where all this extra cash is going.
Its a worthwhile project and should have been completed years ago. But rather than breach the rule, why not consider actually cutting back in other areas of expenditure.
I have noticed there has been a tendency over the last few years for Â鶹ԼÅÄ reporters to be horrified at the suggestion of reducing Govt spending.
What is the point in spending £16bn on the cross-rail link when London wuill all be flooded in 50 years time?
Why not spend the money on building a brand new rail line from the channel Tunnel going south of London, curving west and north towards bristol / cardiff, then north to Birmingham, then on between Liverpool and Manchester, then passing east of Carlisle, then south east of Glasgow, then on to Edinburgh? Run high speed trains, so London - Edinburgh would be less than 2 hours, and this would free up capacity on the existing rail network, as well as enabling the dispersal of London around the country and reducing CO2 emissions from planes.
Cross rail has been talked about for years and the cost has always been to high. I can't believe that it could possibly cost £16 billion to build a rail line. I would have thought you could rebuild central London for £16 billion. Everything the Government touches ends up costing 5 times what a private company would pay for the same thing. This Government in particular are the most incompetent bunch of pen pushers ever elected. God help us.
I dont see why fiscal prudence and crossrail have to be mutually exclusive. Could the government not assess where it spends money? Furthermore in the long run the benefits of crossrail should translate into tax revenues. It is frankly absurd that this project is still at the planning phase.
Crossrail should be judged on it's ROR not on it's atual expense. If £16B generates an extra £2billion a year for the London economy then it is worth borrowing the money regardless of the arbitrary PSD limits. In general I guess it's hard to calculate the impact of infrastructure developments on GDP but just think what a mess London would be if our fore fathers had never had the vision to finance the existing rail network/tube network. I'm sick of hearing how well the UK economy is doing only to see a second rate road, rail, you name it network.
So Gordon's maxed out his credit card? I wonder what he'd say to Joe Citizen who had hit his credit limit and wanted to borrow more... It seems to be a fine line between flexibility and hypocrisy. As an earlier correspondent pointed out, budgeting is all about choices - car or holiday for the lucky ones, food or heating for the pensioners. A vague bell rings from O level economics, something about guns or butter...
40% debt?
Great only 700,000,000,000 then!
I dont know if anyone has noticed but the UK is a sea of cars... If we dont invest this decade in moving our metro centres about with high speed point to point networks we are going to end up without anything once cars become unsustainable both in costs and infrastructure support.
Backed up with this is the dire need to decentralise access to everything where we need to have a physical presence.
We live in such a small country, why are we building nothing for a modern age. We dont live in the 19th century.
I agree with James (Dubai), does this £16Bn figure include all the usual hidden consultants fee's & spin doctors that the Government seem to employ these days...... Maybe if they got rid of some of those "hanger's on" then the bill would reduce......
If crossrail is necessary, and from outside London it looks like it truly is, then just build the damn thing now, makle sure the contractors are tied in to the fixed cost (don't have another scottish parliment/wembley)the sooner it gets done, the cheaper it will be, because every year of delay will increase the cost.
How in the "Heck" (polite word cause its the Â鶹ԼÅÄ) did this country get into a state where we allowed the government to get anywhere near to the 40% of GDP, surely this is just waiting for a little blip in the world economy and the UK will be flushed down the pan.
Roll on an election when someone can start getting this country back to the point where we can use the work "Great" at the start of our countries Name again with pride...
The overall cost of the project can be reduced if the following points are considered:
The project should be more clearly defined with dedicated team to work.
The costs are usually associated with risks which never seem to be defined very clearly during the initail phase of the project.
The risks associated with the scope of works need to be clearly defined.
The program(Schedule of works)
which is true representation of the duration not because some big shot thinks this will shorten the duration so we look good or a pretty picture.
Timing of the project,when a large portion of the resources are used in building for the 2012 Olympic.We need to balance the number of Major Projects that needs to be undertaken at any period under consideration (distribution of the resources).I am aware that the government has these departments but is the communication channel open?
If all this points were given due consideration, I firmly belive that the project would not cost as it is claimed.
Hugh Elliott point of view is worth the consideration, it would definitely reduce some of the overloads we have in London and it would make this country's economic more stable and spread it to the other parts of the country but is this acceptable by the people who control this?
We tend to debate lot on green issues which tends to push cost so much more than if these thoughts are directed towards embaracing the change and consider what other systems that could be put in place rather than kill a project.
Most of the encounters I have had with Consultants & Contractors, the information is held without effectively communicated to the rest of the party (client) because it the ticket I have to increase my profits.
Can this ever be taken out of the equation in order to make the project a success or what is the price we need to pay for this?
Client can never make up their mind as to exactly what is required in the project. There are variations as longs as it is within 5-10% but some of these variations cannot be included because the consultants have already done the work.
Typical example will be if the design for 3 storeys high building is complete and drawn and issued for constuction and the foundations are built, can we add 1 or 3 more storeys? possible but the cost associated with this and who pays for this?
Don't forget that whenever public money is involved, greedy contractors ramp up their charges, lightbulbs suddenly cost £500 each etc. Costs should be monitored more closely and contracts taken away from companies whose greed gets the better of them.
You could swap the £19bn ID card project for the £16bn Crossrail one and still have change. Crossrail is a lot more useful than ID cards.
London doesn't need cross rail - it needs fewer people. Millions of people a day spend billions of pounds a year on a massively overcrowded transport network, who simply do not need to be in Central London. They also waste millions of man/leisure hours a year using those transport systems. The reason they are there in the first place is that London has by far the most liquid labour market in the country. The money would be better spent addressing that regional employment liquidity, which would in turn address many social issues as well.
I certainly agree that borrowing has gone over 40% because of the PFI projects. Applying UK GAAP would require these projects to be capitalised on the UK balance sheet along with the debt. I also agree that there has to be a limit. If the Govt has spent the money on other projects that may have been less worthy then hard luck. Following the expectations theory of economic management, if you create a target that looks sensible ( and I cannot see why 40% is not - in fact I think it is too high), then you should stick to it. The behavoural consequences for controlling spending are akin to inflation expectations - let them start to run upwards and you quickly lose control. The way out? Charge a toll fee for the M25 and use it to create cross rail. Put a limit on the toll fee such that when cross rail has been completed the toll fee stops.
London already has by far the best public transport system in the country. Here in Bristol I can't even rely on the bus to go down town on a Saturday evening!
If the Crossrail money is available, spend it on linking the country together, not increasing the divide even further.
Tim Barr suggests putting a toll on the M25 to last only until Crossrail is paid for.
That was what was supposed to happen with the Dartford Crossing (effectively part of the M25 as it happens) and, guess what, the capital cost of the crossing has been recovered and the tolls remain.
We're not getting caught by that one again !
Why perpetuate a rail system anyway?
Railways are a relic from the bygone age and cost billions to keep running efficiantly. It is time to ditch completely the rail network and use the trackways for roads
It will be much easier and cheaper to have a cross town road system than a cross town rail system, furthermore it will mean many more motorway roads right into the heart of london. with a more flexible system of bus routes - which incidently are more reliable and can carry more people at less cost.
If people pine for a rail system thereafter it would be simple and more convienient to build a mono lightweight rail system above the middle of each motorway
Martin Hopkins
Oxford
Crossrail is currently costed at £15-£16bn during the period of construction so take off the inflation and you're looking at around £13bn in today's money. I also think we'll see the cost drop by a few billion when an updated estimate is announced prior to the government's comprehensive spending review later this year.
The change in chancellor is the perfect opportunity to announce a complex new set of Treasury principles, including ditching the 40% rule. Labour's record on transport has been very poor and I think Gordon will need to accept this compromise if he is to preside over any meaningful transport improvements.
The Chinese are about to build a bridge across the Hangzhou Bay in the East China Sea.
When it opens next year, it will be the longest trans-oceanic bridge in the world, seven times longer than the Oresund Bridge between Denmark and Sweden. In European terms, it could link Britain and France across the straights of Dover.
It will be opened sometime in 2008 and cost £800 million.
Crossrail is going to cost 20 times more than the Hangzhou Bay Bridge and take 7 years longer, if it gets built at all.
At what point did our country become incapable of any large scale engineering project? Are we so paralysed by the checks and balances 200 years of 'democracy' have given us that our lives have become, essentially, impossible and so miserably costly that something that wouldn't take the Chinese more than 5 minutes to rubber stamp and 10 minutes to get the first man into a hole with a spade, is taking us 25 years and £16 billion.
We may as well accept the fact that our nation is both pathetic and redundant and we should give up now.
I'm off to go and learn Mandarin.
I think that all of the working people of this country need to increase our hours at work, and thus substantially increase the GDP of this country. This will enable the government to spend more, without exceeding the 40% self-imposed limit. The alternative, namely embarrassment being caused to our "prime minister-in-waiting" is, surely, too distressing for his loyal subjects to contemplate!! ;o)
Business supports Gordon Brown’s fiscal rules. Fiscal prudence is clearly an essential condition of economic stability and growth. But it is damaging to growth and competitiveness if necessary investment in transport infrastructure like Crossrail is frustrated – not just because of the current state of the public finances, but for the foreseeable future. This presents a structural problem that must be addressed.
London’s population is set to grow by 900,000 by 2025. There will be 360,000 extra jobs in central London by 2025, a majority in financial and business services. The effect will be a huge increase in transport demand on an already overloaded system. Unless people can access jobs and businesses are able to grow, London’s future competitiveness will be put at risk. Crossrail will provide 40% of the extra capacity required by 2016.
For projects like this ‘affordability’ should not be a problem: the investment will pay for itself. Crossrail has been estimated to add between £36 bn and £67 bn to GDP over 60 years, adding £10 bn to £20 bn to tax revenues. Some increase in public debt should be acceptable if the projects it finances provide real economic benefit and consequent increase in tax revenue.
The government should build Crossrail and get rid of the 40% rule. The government is borrowing historically low amounts of money when compared to GDP.
This is leading to incredible liquidity in the financial markets which is in turn leading to the incredible ease with which we can borrow money. The ease of borrowing money leads to people being able to borrow bucket-loads of money to buy houses, so house prices go up to a mad level.
If the government were borrowing more money and hence taking some money out of the markets, house prices would be under better control.