With next month’s European elections looming, and a general election just over a year away, the government is now vigorously trying to shift the political narrative away from the downsides of “austerity” and instead towards the benefits that derive from the prudent control of day-to-day spending.
Last week, a clutch of ministers – including George Osborne and David Cameron – were photographed inspecting building projects across the country, hard hats and high-visibility jackets in abundance. The message was that the coalition is delivering on infrastructure, as the Treasury conveniently published an updated list of major projects set to be completed or started in 2014/15.
“Because of the tough decisions we’ve taken,” the Chancellor said at an East Midlands transport project, the Prime Minister standing next to him, “we can prioritize public investment where it’s most needed, while creating the right conditions for private infrastructure investment”.
The Treasury document features over 200 projects, including improvements to the M25 and M6 motorways, the Nottingham tram extension, terminal upgrades at Heathrow, Birmingham and Stansted and the 580 megawatt Gwynt y Môr wind-farm off the North Wales coast – all of which are scheduled to conclude this year.
Projects due to start before April 2015 include the Mersey Gateway Bridge, major flood-defences in Sheffield and Exeter, the six-lane Runcorn-Widnes suspension bridge plus a dozen other major road schemes. Infrastructure spending will be £36bn this year, according to Downing Street, up from £15bn in 2013.
Some £5bn of state money will be joined by £21bn from the private sector and £10bn more from joint public/private investment, creating an estimated 150,000 construction jobs. “As part of our long-term economic plan, we are investing in infrastructure around the country to create a more balanced, resilient economy,” the Chancellor said.
It is easy to pick holes in such announcements. For a start, the central message, that the government has fixed the fiscal crisis so can start spending big again, is bogus. Since 2010, the national debt has ballooned from £800bn to over £1,200bn – a 50pc rise. While the annual excess of state spending over receipts has fallen, our government is still borrowing £100bn-plus annually, as it has for 5 successive years.
There has been suffering, yes, with some departments being squeezed. But it cannot be said often enough that, whatever the rhetorical games played by our political classes, the overall fiscal trajectory under the Coalition has absolutely not been one of “austerity”. With the national debt set to spiral above £1,500bn by 2018, no genuine consolidation is in sight either. The UK remains in a fiscal crisis, the bond-market and interest-rate implications of which are only being disguised by an extraordinary money-printing scheme that has resulted in the Bank of England taking ownership of no less than a third of our outstanding stock of sovereign debt. This is an unsustainable situation. As such, it will not be sustained.
All the schemes referred to last week have already been itemized in the government’s national infrastructure plan. Despite the triumphant headlines, the Coalition’s progress on projects such as roads, airports and gas-fired power stations has actually been very slow.
The infrastructure spending numbers also don’t include house-building. Only 110,000 new homes were built last year, a 5pc fall on 2012. This was among the lowest peace-time totals in a century and disgracefully short of the 250,000 new homes we need annually just to meet the growth in household numbers hard-wired into our demography.
The private infrastructure investment figures, too, could have been plucked from the air. Behind the scenes, such capital is now under threat. Last December, the UK’s insurance industry pledged to channel £25bn into infrastructure projects annually. Shocked by the removal of the obligation that retirees buy an annuity – the centre-piece of Osborne’s March budget – the large life assurers are now going cold on infrastructure. At the very least, private investment is likely to be delayed.
The UK clearly needs to up its infrastructure spending, despite our still extremely weak public finances and the pitfalls of private capital. Around 2.5pc of our annual GDP typically does towards building and maintaining infrastructure, compared to 3.5pc across other major European economies. In terms of both our quality of life and productivity numbers, it shows. Yet more care is needed – prioritizing house-building, while ensuring taxpayers aren’t ripped-off when public and private capital is combined and captive civil servants negotiate ruinous sweet-heart deals.
Yet the very real need to raise our infrastructure spending closer to continental levels by no means we should go ahead with the Coalition’s flagship HS2 head-speed rail scheme. “Their trains are better than ours”, I know. But that doesn’t mean HS2 makes sense.
Since the 1994 privatization of British Rail, UK train passenger numbers have almost doubled, with freight rail traffic also up sharply. As our road system struggles to cope, an expanding rail network is vital to our economic future. But HS2 – which proposes to shave just 20 minutes from the London to Birmingham journey-time, at an officially estimated cost of £42bn, up from £33bn just a year earlier – is the wrong solution to the wrong problem.
“Bullet trains” get ministers and well-connected engineering and law firms excited. But the UK is a small island with a few relatively large cities. What desperately needs addressing isn’t inter-city speed, but massive overcrowding on local commuter lines – not only into London, but Birmingham, Leeds, and Manchester too, where passengers numbers have grown faster than those into and out of the capital. Governments want showcase projects and minsters want “legacies”. But what really matters now is sustained investment into the unglamorous local services that get the vast majority of train commuters across the UK to work.
The construction of HS2 is due to begin in 2017, with the London-Birmingham link completed by 2026 and connections to Manchester and Leeds coming in 2032. Costs will obviously spiral far beyond official projections – not least due to inevitable route changes and extra tunneling to mollify those living on the line. The Channel Tunnel link overran by 40pc, the West Coast Main Line by almost 80pc.
The question of HS2 cost-benefit analysis will come under intense scrutiny tomorrow and on Tuesday, as enabling legislation returns to the House of Commons. While the three main parties still back it, 34 Tory rebels rejected the project when the Commons last voted in November. More are expected to surface this week, not least those with affected constituencies, given that the government is proposing the state will buy blighted homes only within a very narrow 60-metre band either side of the new tracks, compared to the 150-metre zone used in France.
Rather than spending £80bn-plus on London-Birmingham leg of HS2, we should be investing in the two existing lines that already run between the UK’s biggest two cities. And beyond the Midlands, what we need isn’t a marginally quicker service from London to Manchester, Leeds and Sheffield, the cost of which will limit it use largely to business travellers. What would really deliver a bang for our infrastructure-investment buck is world-class and far more frequent inter-city links between our great northern cities, as part of a much bigger emphasis on cross-country train services, rather than routes that are always about the fastest way to get to London.
The UK’s public finances remain in a critical state. Now is the time for cost-effective solutions to genuine problems, not vanity grand projects.