Thursday, 23 June 2011

Back-door borrowing

Gerry Holtham’s article in today’s Western Mail returns to the subject of a contribution he made to the last issue of the IWA’s Agenda.  In essence, he has set out a way in which the Welsh Government can use the existing borrowing powers of local government to significantly expand its capital programme, and suggests a borrowing capability of around £2.6 billion over five years.
It’s not only more ambitious than proposals put forward so far by political parties in Wales, but unlike those proposals, it needs no legislative changes or decisions by the UK Government to implement.  So why isn’t the idea being seized on?
There are some practical difficulties of course.  Getting co-operation between local authorities to pool their borrowing, let alone persuading them to share that borrowing with a government which seems to spend a lot of time castigating them, will take a great deal of determination and political will.  And, even if that will exists (and I’m not convinced), a cynic might suggest that it’s a great deal easier to complain about the UK Government not doing something than to actually go out and get to grips with the alternative.
I don’t agree with all the suggestions put forward for a funding programme – I have a particular concern about the resurrection of the M4 relief road – but deciding which schemes should be funded is a question of determining priorities.  And that’s a far better pastime for a government than whingeing about what London isn’t doing.  The suggested approach offers an enormous opportunity which any imaginative government would be grasping.
As Holtham points out, an expenditure of £2.6 billion over five years would be like adding around 1% to the total GDP of Wales.  With a workforce of around 1.5 million, that could equate to perhaps 15,000 extra jobs, quite apart from the infrastructure benefits which would accrue.
I wouldn’t suggest that the Welsh Government should desist in its efforts to obtain direct borrowing powers, but there seems to be no reason, other than politics, for not trying to move this idea forward in parallel.

8 comments:

Boncath said...

John
A little bit of research may be necessary but it is alleged that Pembrokeshire County Council gave at not inconsiderable sum of money possibly a £ 1million to finance Oakwood Leisure park and then proceeded after its sale to give another substantial sum possibly a further £1 million to the same developer to create Bluestone but this second tranch has apparently been 'converted' into share capital
held as an asset?? of the County Council
Had the ratepayers had any say in this I suggest the payments would not have been made

Siônnyn said...

The proposals that Holtham puts forward for projects are not necessarily to my taste either - but the method of funding is. A creative way out of an impasse.

Over to you, Carwyn.

John Dixon said...

Boncath,

I'm not sure that it would take a great deal of research, actually. Old Grumpy has done the spade work already - see second item here, headed Bankrolling Bluestone.

Anonymous said...

How do you get only 15,000 jobs from £2.6bn? Plaid's Build4Wales promised 50,000 from £0.5bn. Shouldn't your figure be larger?

John Dixon said...

Anon,

My figure is based on the following assumptions - there are around 1.5 million people in work in Wales at present, and if you increase GDP by 1%, you'll add around 1% to the total number of jobs. It's a very crude calculation, but a very simple one.

I don't know where the 50,000 came from under Build4Wales - it looks very, very optimistic to me.

Assuming (a) spending £100 million per year for five years, (b) that the entire £100 million is spent on employing people, not on materials or other costs, and (c) that the average cost of employing a person is £20,000 per annum (including on-costs such as pensions, NI etc.), I'd say that you'd create around 5,000 jobs, not 50,000. (And you can't multiply that by 5 for the five years unless you explain how the 5,000 employed in the first year are going to be paid in the second etc.)

If the infrastructure attracts additional investment than that investment will create extra jobs, but since most of the investment proposed was in things like replacement hospitals and schools, I'm not sure that you'd get a multiplier as high as 10.

Duncan Higgitt said...

This week has found me in a particularly heretical mood, and Holtham's piece is partly to blame. Here is an idea that could be started on - tomorrow, and yet there is next to no interest, John, save from people like yourself.

What makes it so bloody infuriating is that this week has been dominated by two total non-stories involving powers that the UK Government has never, not for one moment, intimated might be devolved. Not on the table, never have been, and probably won't be for some time.

Laws and law-making powers are tools, a means to an end. Responsible power means avoiding their use if there are better options, like this Holtham's idea. I strongly suspect that a near-total absence of interest in what he says has to do with the fact that it is not about the promise of the future. It is about the spade work of now.

I can't helping wondering how the electorate views this week's fun and games. Having just placed its trust in the Assembly, via a Yes vote, it still waits to see how those law-making powers will benefit the country. Instead, we get a circus. And I swear I heard promises about how this would be an Assembly term of delivery. Of course it's early days, but those days have been filled with political pointlessness. How soon before the electorate gets tired of all this putting off until tomorrow?

Anonymous said...

But surely, when the government gives grants and loans to businesses, that isn't to pay the whole cost of the people it employs; they also get income from doing whatever they do. So £500m can create a lot more jobs than you suggest.

John Dixon said...

Duncan,

Nothing wrong with an occasional heretical thought in my view.

"I strongly suspect that a near-total absence of interest in what he says has to do with the fact that it is not about the promise of the future. It is about the spade work of now"

And, we should never forget the power of the "not invented here" syndrome. One of the outcomes of that syndrome is that an idea has to be allowed to die for a while before being rediscovered by the 'right' people and presented as something entirely new.

Anon,

You're right, of course. Putting money into businesses can indeed help to create jobs well beyond the number paid for by that investment. But that is not what was being proposed. Using money to pay directly for infrastructure projects employs only those people directly or indirectly involved in building those projects, and only for the duration of the projects.

Infrastructure such as roads may make it easier to attract businesses to an area, but the number of jobs resulting from that is much more speculative.