The UK government now has just about the lowest rate of interest on its borrowing that it has ever enjoyed - in least in the modern era of government. And so what is Cameron announcing today? The biggest programme of road privatisation through an expensive PFI style scheme ever dreamt of.
The logic is to sell the rights to a road to a private company, get them to borrow from pension funds on the basis of the securitised income of the private company for running that road, which will be wholly paid by HM Government since road pricing is supposedly specifically ruled out, and then the road will be supplied to users in exchange for the tax they pay, as now.
Now let's consider the alternative. The state borrows at much lower interest rates by cutting out the middleman and with its vastly better credit rating, pays a contractor to build the road and then runs it as part of its estate in exchange for tax paid with pension funds in exchange getting the long dated gilts they still need to fund pension obligations.
Which route will be cheaper? Glaringly obviously the second. But the government is opting for the first. The insanity of the Treasury's phobia with debt that has fuelled the most expensive and inefficient off balance sheet borrowing programme anyone could conceive through PFI continues as a consequence.
We need a Chancellor with some straightforward financial sense with no interest in securing their own employment in a PFI entity after leaving office. Unfortunately we have not got one.
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Indeed. The mantra has become “Reduce Government Debt”, so a quick shuffle, a noisy headline to disguise other events and off we go with half a plan to get someone else to borrow the same money for the same purposes at a higher rate and a future Government will inherit a problem in ten years time. It has a faint whiff of Vintage Gordon Brown in one of his Paul Daniels moments.
It’s not madness, it’s not insanity, it’s malevolence. This lot see the rest of us as cattle to be milked.Increasingly I doubt they’ll bother with an election in 2015, they’ll just expand the Coalition to include the two Eds (who both appear to be with the Coalition in spirit already) and rule in perpetuity. I anticipate a false flag operation of some kind, probably at the Olympics, to be the excuse for this.
I entirely agree with your economic argument here Richard. But I also object for another reason. Personally I would be appalled if the Chinese Sovereign Wealth Fund were allowed to invest in our roads as they are afterall strategic national assets. Let us not forget that China is a totalitarian state with a very bad human rights record and there is plenty of evidence form Africa that China’s involvement can be less than benign. Of course it could well be that China already has involvement in some of our other strategic assets, but I feel that our leading coalition politicains now appear to have no sense of national pride and are prepared to sell of anything they can lay their hands on in their endeavour to ensure that the ‘state’ is not an economic actor.
Actually there is a lot of logic to it and the lessons are those that can be learnt from the water industry. The issue is not about funding so much as the way the networks (and the same applies to highways) are maintained. Once a network has been built it is going to deteriorate with use and will need constant maintenance and renewal. The problem is that if you leave the decisions to the engineers, they will try to spend as much as possible, whereas if you leave it all to the civil servants they will try to get away with spending as little as possible, deferring spending until the ultimate cost becomes much larger.
Some water companies have got their asset investment strategies right and those are the companies that generally have fewer customer complaints (fewer leakages and breaks), whereas others have not (I won’t name them for the same obvious reason that I am not giving my name here). Most water companies have improved their performance considerably since they have been freed from Treasury funding constraints (although they are still very heavily regulated by OFWAT).
This “privatisation” of the Highways makes sense for the same reason, although there are many pitfalls, and the mess the government made of LUL maintenance contracts shows the problem with having an agreement drawn up by accountants.
Your hypothesis makeqs no sense
If it did all would be good
They aren’t
In that case the difference is people, not contracts or ownership
The nightmare of reducing us to a muddy patch of earth where the people that pay for everything own nothing of it continues.Next there will be legislation to allow these companies their own policing – if they dont like you, you can`t use the road, not to mention the social effect it will have on the poor having to travel distances to work or see families… the construction of a capitalist, fascist state is happening in plain sight, under our noses. If the Bullington Bullyboys don`t get what time it is, they will reap the whirlwind. As for water efficiency – hosepipe bans in March? The trumpeted privatisation of water was supposed to provide for new infrastructure, economy and efficiency, and was aided by deliberate strategic underinvestment, a favourite weapon to create dissatisfaction and aid the carpet bagging, as with the railway, and buses. Now we still rely on victorian sewers which are bursting all over the place because of the increased pressure pumped through to make up for the leaks that arent fixed, the money goes to the banks and shareholders whos vested interest is money, and, if it wasnt for the flouride lowering our IQs and making us complacent, we would realise this. Thames water have continued to patch up Victoriana while pumping up a 20 mile useless tunnel project through central London that will pollute an area with the highest concentration of School kids (7,000) within 1700 yards, which we will pay for, and now underwrite, to the tune of 5 billion pounds, which will then be owned and run by Aussie bank McQueries who then get to charge us £120 a year on top of our water bills – for life!!! They have refused to look at cheaper more advanced and technologically elegant solutions to river pollution that could come onstream years before the tunnel would be complete with far less detrimental consequences for the social fabric, but no, plough on with the cash cow and further enslave the overburdened public. You borrowed our toys and you broke them, and us – time to give them back. Get these vampires off our backs.
So not content with destroying the NHS through backdoor privatisation, the lunatics in charge of the asylum want to repeat the disaster of railway privatisation by selling off the running of the roads to private sector financial interests. I think we can more or less take it as read that, just like the companies queueing up to take over the NHS, these companies will be serial tax avoiders who make enthusiastic use of tax havens.
Yet another example of ‘the Cowardly State’, abrogating its responsibility to provide the infrastructure that enables the private sector and society as a whole to function in favour of some PFI nonsense that will cost far more in the long run. I despair.
Nothing back door about it.
Pure front door, all the way.
On a speech you would have to have heard live as the BBC and Telegraph, the only two sites to give it coverage, edited out the important bit, Cameron said that his Big Society was informed by the thinking of six men, two from each of the last three centuries: Adam Smith, Edmund Burke, de Tocqueville, J S Mill, Oakshott, and Hayek. But I’d argue these incompatible six are canards, and we’re just seeing a reheated Friedman’s ‘Free to Choose’ use of economistic language to fight political battles by other means. If they really want it, turnpikes are the logical endpoint.
[…] so it is difficult to see how these proposals would work. And as commentators are already pointing out, it is even more difficult to see how they would save the government […]
Is it just a treasury phobia with debt, or is it that foreign investment is protected by the WTO rules?
Is this about ensuring that the privatisation is irreversible and impossible to re-nationalise by future governments?
To get our country back we’re going to have to ignore the rulings of the WTO. That actually may not be too difficult to do. The dollar looks more precarious every day, and I suspect when it goes it’ll take the WTO and other organisations down with it.
Isn’t the decision much more politically based rather than on financial costs? Private companies have to pay far higher interest charges than government because they are far higher risk. Since such contracts tend to run over decades interest charges dominate the total project costs as in most PFIs.
The Treasury will be looking always to minimise debt from now on to the dim and distant future because the total debt and future pension and PFI liabilities run into many trillions. It will take many decades to run down this debt.
I suppose any additional costs from involving the private sector from their higher interest rates are not important because government does not have to pay these as they will fall directly on the public!
I wonder, does this programme shift the cost risk of the road to the private company? In recent years, the public road building programme have been several billions over budget, so if this shifts that risk to the private sector company, maybe it won’t be so expensive after all.
Mysteriously under PFI this risk transfer that supposedly justifies the process never seems to happen
Yet another case of “decision based evidence making” as a previous commenter called it. It is interesting how all the leaks on this matter studiously avoid any comparision with the privatisation of the railways which all of its victims (sorry passengers) know has been nothing short of a disaster. The result of this policy will be to hand over our roads and a massive blank cheque to the major contracting companies. If the Government is serious about reducing costs and the defict – it needs to get soft with the contractors rather than behaving in such a stupid ideological manner.
Lets have a look at Govt trends here.. If they mange to privatise the NHS, police forces, nuclear power, road building and schooling in addition to all the other things that they’ve already privatised, what will the Govts responsibilities be? Anything that goes wrong and fails will be scapegoated onto the corporations that are in charge of former Govt projects…
Also this gives these corporations yet another money making avenue, the finance charges on the PFI. It’s exactly like buying a car, and getting the finance for it from the same salesman, double the money! Well done posho dave and buddies, yet another not in the least bit transparent hoodwinking manoeuver.
I thought these numpties had the best education that there is…
“what will the Govts responsibilities be?”
War and making the law – which is of course is what Milton Friedman and his ilk said should be the sole functions of the State. They truly are Thatcher’s childen.
This policy shows a fundamental lack of understanding of how the economy works. All good public infrastructure investment feeds directly into land values. If you collect all land rent for public benefit (which means annual reassessment – perfectly feasible with modern technology) then this uplift in value would be automatically recouped for the public purse rather than transferring to local land owners. What you then have is a virtuous circle of improved infrastructure => rising land values => rising revenues => improved infrastructure.
Topsy turvy liberal economics characterises the state as monopolistic but where is the competition for a private road company once they have gained their lease?
I would like to know, now that we have the Localism Bill and the Regional Spatial Strategies have been abolished, who will decide what roads get built where?
When one road diverts traffic away from one area towards another, the location value of the former drops and the latter rises.
This question is important because there is potential for a hugely negative impact on local and regional economies.
Remember ‘Chinatown’, anybody?
The EU has been heading towards unified road-tolls for a decade now.
Note the directive below.
The announcement of more private involvement in road construction/improvement/repair is just another way of leading people towards paying more, for less.
In the real world, councils have had little to do with the actual road WORK for a long time.
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:200:0050:0057:EN:PDF
http://ec.europa.eu/transport/publications/doc/2011-eets-european-electronic-toll-service_en.pdf