What a wondrously blithe assumption
A very fun sleight of hand suggested for the upcoming budget:
John Healey, the Chancellor of the Exchequer, is expected to announce £20.4bn of support to state-backed lenders in the Budget.
Two public financial institutions (PuFins) – the National Wealth Fund and British Business Bank – are expected to receive £15.4bn and £5bn respectively in extra capital over five years as Mr Healey exploits the fiscal rules to boost investment.
“Exploit”. As Willy Hutton clarifies:
Sustaining growth and the innovation economy is to be done via earmarking, according to the FT, an additional £20bn over five years to the National Wealth Fund and British Business Bank (BBB) – the assets that both will create can be offset against public borrowing, so the government’s “net financial liabilities” will remain unchanged.
The assumption being that the investments will be worth, after the cash flows in, the amount that has been borrowed to fund the investments. That is, that the UK government will be a competent investor.
Yeah, right. There’s a philosophic point here. Government is, by definition, investing in those things the private sector will not do unaided. Therefore these things have lower asset values, when done, than the private sector will look for. The whole and entire point is that government is investing in things which do not produce asset values commensurate with private investing.
Then there’s the more practical observation of the sort of things government does invest in. “Investing” in council houses where the rents charged do not even cover the interest bill, let alone maintenance and amortisation. More easily, anyone pondering the efficiency of government investing can look at that £100 billion bill to knock 15 minutes off the train journey from a suburb of London to a suburb of Birmingham. Choo choos are a two century old technology now, possible to mutter that even politics should have got the hang of this by now. Which is not how it seems to turn out of course.
We also cannot call on any social, communal or political values from these investments to balance those books. If we are to try to offset the value of the assets created against the money borrowed than that asset valuation can only be, has to be, the market value of those investments - the cash on the nail value.
It’s not going to work, is it? After all, if government did invest so wisely then after several centuries of government investing then government would be rich as Croesus and we’d not be having this discussion anyway - there would be no national debt requiring such blithe assumptions.
No, it’s a fiddle.
Tim Worstall