Pretending to have a policy

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Workers in the old Soviet Union used to say that “we pretend to work, and they pretend to pay us”. It was a cutting summary of the state of the economy at the time. But ‘pretending’, when it comes to matters economic, wasn’t (and never has been) limited to the totalitarian state of the Soviet Union. It has also been practiced here, by Labour and Conservative governments alike – and it looks as though the new Chancellor is determined to restore pretence to a position of centrality in her handling of the economy. I refer, of course, to the idea of what was variously labelled the Private Finance Initiative, or Public Private Partnerships; a system in which the government pretends not to be borrowing any money to build schools, roads, hospitals or whatever, and the private partner pretends not to be charging any interest on the money it pretends not to have loaned to the government, recovering its costs instead by issuing extortionate bills for changing lightbulbs.

It was the Major government which came up with the scheme, although Blair and Brown adopted it with gusto after replacing Major. And it was Cameron/Osborne who ended the practice, when it became clear just how bad a deal it really was over the long term. It did, though, achieve its main stated aim, which was to hide the extent of government borrowing by pretending it wasn’t happening. Instead of loans, debts and interest payments, the government’s accounts showed only ongoing maintenance and rental costs.

The FT reported yesterday that the Chancellor is considering reviving some version of the scheme to build a new Thames crossing in London at a cost of around £9 billion. No doubt the details will be tweaked in the light of past experience, but the underlying truths will remain, whatever those details might suggest, and the development cost will miraculously not appear as a loan in the government’s accounts whilst, over the long term, those pretending not to be lending the money will make a killing.

It's dishonest, of course, but probably the inevitable conclusion of a government which thinks that being seen to adhere to an arbitrary and inflexible fiscal rule is more important than the underlying financial reality. The issue isn’t just about that dishonesty though, nor the resulting inflated costs compared with a more straightforward approach to borrowing the money; it’s about the way priorities are determined. Schemes prioritised for progress using such an approach will be those which produce the best return for those not lending the money to the government; it is they who will, effectively, decide the priorities. Maybe the two things sometimes align – perhaps Reeves really believes that, if the government were to find a spare £9 billion down the back of the sofa, a new Thames crossing would be its top priority. There is, though, no obvious evidence that any thought has been given to the best way of spending such a large windfall. The thinking seems, instead, to have started from asking which schemes will be most likely to attract the finance sector to pretend not to lend the government money. It’s not only the construction which is potentially being outsourced, it’s the determination of policy as well.