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.
Posts
