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.
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.
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.