Yes, of course we are being provocative. Yet it is still true. Thurrock Council, who have gone bust by doing this, are providing more transport than HS2:
A businessman cheated a council out of tens of millions of pounds and went on a spending spree with the cash, an investigation has discovered.
Leaked documents reveal how Liam Kavanagh used Thurrock Council's money to buy luxury goods, including a yacht and a private jet.
The council has been made effectively bankrupt after investing £655m in Mr Kavanagh's solar farm business.
Well, a yacht, a ‘plane, and we’re sure we’ve seen reference to a Bugatti as well, will provide more transport than HS2. Of course, yes, we know, HS2 is not finished yet and all that which is what makes our snark true. And yet, well, it might even still be possible that those three will provide more useful transport than HS2 is ever going to deliver.
But that is not our actual point here. Thurrock invested hugely badly. No, it’s not just that they did with this guy, they were Simple Shoppers:
The idea was that the council would get regular interest payments from the profits and its cash would be safe because it was secured against the value of the solar farms.
That’s just not the way that you do it. If you’re investing the capital - they were - then you get the profits, not the interest. You buy equity that is.
Except what was actually happening here was an arbitrage. Local councils could borrow from the Treasury at below market interest rates to “invest”. So, many did:
Thurrock is one of a number of councils that have got into financial difficulties since the coalition government gave local authorities more freedom to raise funds and invest in 2011.
Woking, Slough and Croydon have all been forced to stop all non-essential spending after losing public money on risky investments.
They’ve all become croppers through having done so.
Now there is a larger point here - an extremely important larger point. It’s entirely true that government can borrow more cheaply than any private sector organisation. After all, government has a population of near 70 million that it gets to tax unto eternity to pay back the borrowings - not something a capitalist business can do. So, a fairly standard Keynesian to a bit further left analysis is that government should borrow in order to do the investing in society as a whole.
Which is great, until we actually see what is invested in. Recall, these local councils got the same privilege Warren Buffett did. To borrow at below market to invest at market. Yet even with that privilege the genii we have as politicians managed to lose money. Apparently all of it too.
And that’s what the problem with that government investment idea is. Sure, in theory, lower finance costs should lead to greater profit. But that’s not how it works out because politics - and politicians - do not know what to invest in nor how. Which is why they keep making losses by trying.
And no, pushing the decision up to national politics, where the talent pool could, logically, be larger doesn’t work either.
We have mentioned HS2, yes?