Funding Britain’s Infrastructure – Is there a better way?

There were a lot of headlines yesterday about how the Government were announcing £50bn of investment in Britain’s infrastructure to boost growth. Look below the headlines though and all is not as it seems. The package was announced in a joint article by George Osborne and Danny Alexander on Politics Home. What emerges is that the £50bn investment is only potential, and the bulk of the money is supposed to be invested by the private sector, with the Government providing guarantees for the project. Sounds a bit like socialising losses again to me. Here is the key passage:

First, the Government will make available innovative new guarantees for major infrastructure projects that have stalled because of lack of available finance. We will put the hard-won credibility of the nation’s balance sheet to work for the benefit of the whole economy. The two-year scheme begins today, with the first guarantees expected to be awarded in the autumn. To be eligible, projects will be of national significance – as identified by the Government’s National Infrastructure Plan 2011; financially credible; good value for the taxpayer but without a guarantee would be unable to proceed. And they must be ready to begin construction within a year. This scheme has the potential to transform UK infrastructure – up to £40 billion of energy, transport, communication and utilities projects could benefit.

This represents the Government tying itself in knots trying to come up with ways of generating growth without actually having to commit to extra spending, which would make it look like they were deviating from ‘Plan A’. They have already tried this with housing, but ultimately, it is likely to fail. The assumption is that the private sector is crying out to invest, but those dastardly banks just won’t lend. In reality, it’s far from certain that a large number of additional projects will happen just because the Government will provide these new guarantees. Far more likely is that projects that were going to happen anyway just park the bulk of the risk with the Government. Not such a great deal for the tax payer. But is there another way? Two very obvious ones spring to mind. Both are no-brainers.

No-brainer 1

The Government can currently borrow short-term at negative real rates of interest, and longer term for under 2%. The ‘markets’ would not panic if the Government announced it was going to borrow for capital investment. It should do this now, and get spending straight away rather than in 2014. This would also put a lot of people back to work, which would reduce current spending, which our deficit hawks are much more worried about.

No-brainer 2

In the UK, we have our our central bank and our own currency. QE has demonstrated that the central bank can remove one third of the national debt from circulation without any impact on inflation. The Government could be more direct and borrow straight from the central bank and spend the money on infrastructure. This has the advantage of being 0% interest and cuts the markets out of the picture. At the moment this idea is not even on the radar of any politician. It is seen as nuts. But it really is a no-brainer. A Government’s job should be to use all the tools at its disposal to ensure the welfare of its people. If it chooses not to, it’s an act of gross negligence.

So when will the Government stop fiddling and start doing what’s necessary to get our economy moving again? Answers on a postcard.

Stats Abuse at the Department for Work and Pensions

The Government often seem to interpret official statistics quite ‘creatively’. The two worst offending departments for this have to be Ian Duncan Smith’s Department for Work and Pensions (DWP) and Eric Pickles’ Department for Communities and Local Government (DCLG).

The press releases and statements put out by DWP Ministers are of particular interest to me as it is an area I have worked in in a previous job. These announcements from DWP ministers (chiefly IDS and Chris Grayling) tend to follow a remarkably similar pattern:

1. Minister announces policy likely to be unpopular, and gives a forecast for what the outcome of the policy would be;

2. Minister receives stark warnings from people working in that area what the actual outcome will be.

3. The policy is implemented, and early anecdotal evidence suggests the critics of the policy were correct.

4. The Minister counters by saying the policy is having a very positive impact as they said it would.

5. There are calls for some official statistics to be published to back up the Minister’s assertions.

6. Minister doesn’t want to publish any stats, because they are worried how they will be interpreted, so asks civil servants to cobble something together which they can use to spin in their favour.

7. An ‘ad hoc analysis’ is published, accompanied by a press release including quotes from the Minister saying the analysis shows the policy is a success.

The trouble is, the published analysis actually doesn’t prove what the Minister says it proves, so all you get is a blurring of reality. There have been two recent examples of this strategy being adopted by DWP, one involving Ian Duncan Smith, and one involving the Employment Minister Chris Grayling.

Exhibit A

This week Ian Duncan Smith was quoted as saying new figures showed the success his proposed benefit cap was already having, causing some 1,700 claimants to go back to work after receiving a letter about the cap. The data IDS referred to can be found here.

Sounds good, except for the fact that the figures don’t actually show what IDS says they show. I won’t go into too much detail about why because Channel 4’s excellent FactCheck blog has already tackled it here. Basically, although 1,700 out of 58,000 claimants sent a letter about the cap have moved into work, it’s impossible to say how many of these would have gone into work anyway, so it’s just not true to say the cap is having an immediate impact. We just don’t know.

Exhibit B

Last week, DWP released some figures on the Work Programme. These had been eagerly awaited as Chris Grayling had banned Work Programme providers from releasing any performance data, reportedly because early performance has been so poor. There were two ‘ad hoc’ releases this time. One showing overall numbers of people off benefits and one showing numbers of young people off benefits since the Youth Contract came on stream. I want to focus on the second of these.

The message accompanying this data release (from here) was:

Today the Government has also published data from Work Programme providers showing that in the three months since the launch of the Youth Contract in April, around 17,000 18 to 24 year olds started in a job.

The Youth Contract is the Government’s new approach to tackling youth unemployment. There are various elements to it including work experience and apprenticeships, but the main element is a wage subsidy of £2,275 for any business taking on a young person for 6 months. The subsidy pays about half the minimum wage for each person, with the business making up the remainder.

From the statement above then, you would assume that since the Youth Contract started, it has helped 17,000 into work. Not great compared to the previous Government’s Future Jobs Fund, but not a bad start. When you look at the data release however (here), you find this is not the case at all. The ‘ad hoc analysis’ is just 2 pages long, with the first page being just the title. On the second page their is just one figure (the 17,000 one), and an explanation saying that between April and June, 17,000 18-24 year olds have moved from the Work Programme into work.

For this number to be in any way useful to us, we would need to know a couple of other data points, which unhelpfully, the DWP don’t provide:

1. How many 18-24 year olds moved from the Work Programme to work in the Jan-Mar quarter?

2. How many of the 17,000 moved into work from each of the Youth Contract strands, and how many found work without being on the Youth Contract?

You would think if the Youth Contract was such a success story, DWP would be more than happy to provide these figures.

Conclusion

The abuse of statistics by Coalition Ministers is a worrying and seemingly growing trend. They appear to be unwilling to publish proper data which would allow us to judge the success or failure of their policies. In the face of rising opposition to their reforms, Ministers seem to be desperately trying to fudge the issues by instructing civil servants to produce half-cocked pieces of analyses to purportedly back up their dodgy statements. I don’t think the civil service should be used in this way and it undermines their impartiality.

Statistics should be released to better inform the public’s understanding of the impacts of Government policy. They should not be used to attempt to argue black is white. The ONS should be jumping all over this.