Heroes: ‘We Can’t Afford It’ 

 

Once I was so sure 

Now the doubt inside my mind 

Comes and goes but leads nowhere’ 

At the risk of repetition, whenever it comes to any government spending decisions they are based on priorities. Whilst all political parties want to win election, the Tories seem the most fixated with it; perhaps this explains why they are amongst the most elected parties in the world. 
 
Of course, there are emergences that blows their self-centredness of course, such as Covid, or the cost-of-living crises, but, with the latter their support was more grudging than willing. 

Boris Johnson was, perhaps, the ‘ultimate modern Tory’; whilst he was naturally right-wing with that air of superiority about him, he understood what motivated the ‘white working class’. The part of the electorate that served him so well as ‘vote leave’ and in the 2019 election. 

I searched high and low to find a suitable definition of this term but it appears to ephemeral, something politicians and the media created. However, I did come across this quote from the  the Washington Post about immigrants from a retired factory worker in Pennsylvania: ‘They’re not paying taxes like Americans are. They’re getting stuff handed to them,’ the retiree complained. ‘Free rent, and they’re driving better vehicles than I’m driving and everything else.’ 

Different continent same sentiment. He could also be described as ‘left behind’; modern, progressive attitudes, to race, gender, sex, have moved to far, too fast for them. 

As I have written numerous times before, far-right politicians, Johnson included, are skilled at mobilising these people, effectively giving them things, or people to blame for their problems. First, it was the EU, it still can be if required, then it was immigration with the added spice of the European Court for Human Rights, now it is climate change.  
 

‘modern, progressive attitudes, to race, gender, sex, have moved to far, too fast for them’ 

 
Whilst climate action consistently ranks among the top issues concerning the electorate, there has been a concerted effort from right-wing media outlets and the far right of the Conservative party to oppose net zero as the view of the wider British public. This week, Sunak defended his U-turns, saying that he did not want to burden working people, whereas, in truth, his shortsightedness will actually hurt families, pensioners and the poorest in society. 

Whilst undertaking this U-turn, Sunak made some ‘interesting’ claims: 

He said people who disagreed with him must explain why they want families to have to pay an extra £5,000, £10,000 or £15,000. 

This statement is, at best, ambiguous. Perhaps he was referring to the cost of installing heat pumps over gas boilers. 

Octopus Energy has just unveiled a heat pump for a three-bedroom home that would cost £3,000 after the government’s boiler upgrade grant. Octopus said that with the increase announced by Sunak of the boiler upgrade grant from £5,000 to £7,500, an average home could get a heat pump for as little as £500 – not a figure mentioned by Sunak. 

Mark Maslin, a professor of climatology at University College London, said: ‘His excuse again and again … is not to put the cost burden on the public – as if it is individuals that have to pay for the net zero transition. The prime minister seems to forget that government is there to enable major infrastructure changes, and the switch to renewable energy, electric cars and heat exchangers should be supported because all of them in the long run save people money and improve people’s health.’ 

Sunak also claimed he was scrapping various proposals for encouraging behaviour change – ‘for government to interfere in how many passengers you can have in your car’; ‘that we should force you to have seven different bins in your home’; ‘to make you change your diet and harm British farmers by taxing meat‘. 
 

• Re: car sharing, Julie Furnell, of Mobilityways said, ‘It would appear that the prime minister has just killed a policy that no one knew they had,’  
• His own officials reassured stakeholders hours after Sunak’s speech, saying: ‘It was never the case that seven bins would be needed by households.’ 
• The CCC have never proposed a meat tax it recommended a reduction of meat and dairy intake by 20% by 2030. 

 
The Office for Budget Responsibility calculated in 2021 that the low-carbon investment needed to reach net zero greenhouse gas emissions by 2050 would cost about £1.3tn in total. About £1tn of this will be offset by savings in fossil fuels and efficiency. The £300bn remaining, spread over 30 years, is now even less, the OBR said in its updated report in July, because of high gas prices – in fact, relying on gas for longer will now be more expensive than going low-carbon, it found.
 

It would appear that the prime minister has just killed a policy that no one knew they had

 
Interpreting the OBR’s figures suggest the annualised cost is now less than £10bn p.a.. in In 2023/24, the expenditure of the United Kingdom government is expected to be reach £1,189 bn .(1) And we can’t find £10bn? 

It’s not can’t, it won’t; this is just politics and Sunak is playing to his audience. A sad little man, who is clinging onto his job and all costs.  

However, it would appear that his games are bouncing back on him. Billionaire John Caudwell, the founder of the now-defunct mobile phone retailer Phones4U, was the  party’s biggest donor prior to the last election, told the Sunday Times: ‘If Rishi sticks to this, would I donate to the Conservative party? Absolutely not. No chance whatsoever with the decisions they are making at the moment. 

‘Would I switch to Labour? The answer to that is very simple: I will support any party that I believe will do the right thing for Britain going forward.’ 

But he said he was left ‘beyond shocked‘ at Sunak’s announcement, which included delaying the ban on the sale of new petrol and diesel cars – pushing it back from 2030 to 2035. 

Caudwell, 70, said: ‘The environmental apocalypse is coming and it’s coming very, very rapidly. I am very worried about the future … [although] it won’t affect me because I’ll be long dead and buried.’ 

He said he was ‘horrified‘ by Sunak’s ‘depressing’ changes, adding that that they move the Conservatives ‘back a long way‘. 
 

‘The environmental apocalypse is coming and it’s coming very, very rapidly. I am very worried about the future …

 
‘Whatever chance they had of winning the next election, this moves them backwards … it shows inconsistency,’ he said. ‘It shows [a] lack of determination. It’s depressing.’ 

Next up on can’t/won’t afford is HS2, proposed to support The Northern Powerhouse,  George ‘austerity’ Osbourne’s vision for a super-connected, globally-competitive northern economy with a flourishing private sector, a highly-skilled population, and world-renowned civic and business leadership.  

This was further embellished in 2019, when Johnson promised ‘levelling up’. 

HS2 was  proposed as a new high speed rail line being built from London to the North-West, with trains linking the biggest cities in Scotland, Manchester, Birmingham and London. 

In 2012, the project’s projected cost was £33bn; the government’s economic appraisal said the whole Y-shaped design, to Manchester in the west and to Leeds on the eastern leg, would be needed to make the cost-benefit ratios work. 

Despite this appraisal, in 2021, most of HS2’s eastern arm to Leeds was cut. Followed, last year, by the 13-mile Golborne spur, allowing connections to the west coast mainline just south of Wigan. Now, as chancellor Jeremy Hunt talks about HS2’s costs ‘getting totally out of control‘, ministers are contemplating scrapping the western Manchester limb.  

It has been said that HS2 might finish as a fast shuttle between Birmingham and London, however, if the London Euston terminus (where construction is already paused) is also cut the line would permanently end six miles away at Old Oak Common. 

‘Acton to Aston’; an idea that would never have been even considered. 

From the original estimate of £33bn, the FT calculated that the official estimate of £53bn-£72bn would become £67bn-£91bn in today’s prices, adjusted for the officially measured rise in construction costs over the period. 

In truth, the scheme was always a vanity project. Yes, we could, and probably can still afford it, the question is does it deliver value for money? 

The government’s last published cost-benefit ratio for the whole of HS2 (minus Golborne) is more than a year old and was a miserable 1.1, meaning £1 of expenditure equals £1.10 of benefits. 
 

‘Acton to Aston’; an idea that would never have been even considered. 

 
Perhaps, the real question was, ‘why did we ever bother’? 

Yes, the cost-benefit ration looked a whole lot better in 2012, but much of what HS2 delivered was symbolic. It was meant to show that government was spending money on other areas rather than concentrating on London and the SE; it was the symbol of levelling up. As a result there is great disappointment regarding proposed cuts. 

Asked what would happen to the parallel Northern Powerhouse Rail project if HS2 ended at Birmingham, Burnham said: ‘Scrapping HS2 rips the heart out of Northern Powerhouse Rail. Basically it would leave the north of England with Victorian infrastructure probably for the rest of this century. 

‘If we’re trapped with that old infrastructure and the southern half of the country gets new lines, that is a recipe for the north-south divide to become a north-south chasm, the very opposite of the levelling up that we were promised in this parliament.’ 

Sir John Armitt, the chair of the National Infrastructure Commission, said of the plan to axe the Manchester leg of the HS2 high-speed rail line: ‘I think it would be a tragedy … What we have to do here is get a grip of the costs … there are massive benefits to the economy by continuing. 

‘This project from the beginning has been about capacity, it’s about levelling up, improving connectivity between London, the largest city in the UK and the two most substantial cities in the UK. 

‘If we don’t continue, what are we saying to the rest of the world? What are we saying to all those investors that we want to bring into the UK? Here’s a country which sets itself ambitions and then runs away when it starts to see some challenges. We have to meet the challenges.’ 

Two former Tory prime ministers have also warned Rishi Sunak against the idea. Boris Johnson told the Times it was ‘total Treasury-driven nonsense‘ and made no sense ‘to deliver a mutilated HS2‘. 

Already ongoing cost pressures, higher borrowing costs and rapidly fading consumer demand, companies have given businesses few reasons to push ahead with ambitious investment plans. Adding the cuts to net zero commitments and pulling the plug on HS2 to Manchester adds yet more instability into the mix. 

Juergen Maier, the former chief executive of Siemens UK, is worried. ‘We’ve experienced the chopping and changing of policies in this country for decades. But this is no longer chop and change. This is chaos‘. 

‘Everybody [in industry] is now sitting and wobbling and wondering. And I tell you what, they won’t be investing in the UK. It’s a disaster for productivity. It’s a disaster for jobs, well-paid jobs. And it’s a disaster for business confidence and investment – and we need exactly the opposite.’ 
 

It’s a disaster for jobs, well-paid jobs. And it’s a disaster for business confidence and investment – and we need exactly the opposite.’ 

 
If forecasts are correct and we avoid a deep or prolonged recession, we need to see a rapid turnaround in business investment, to support any recovery. Without that underpin, growth is likely to remain anaemic as it was after the GFC, which would mean two decades of limited progress. 

Investment this year has been supported by Sunak’s super-deduction tax break, which expired at the end of March. The government replaced the scheme with ‘full expensing’ for qualifying capital investments, aiming to soften the impact of a rise in corporation tax from 19% to 25% from April. However, there are doubts that this will remain as it would break the Conservatives’ arbitrary fiscal rules. 

For decades, British business has tended to underinvest relative to firms in other leading nations. From 1971 to 2008, capital accumulation contributed one percentage point to output growth a year on average, according to a Goldman Sachs report. From 2009 to 2021, the contribution averaged just 0.2 percentage points. 

According to the Goldman report, for every 1% rise in Bank rate, business investment typically falls by 3% over the following 10 quarters. Rates have risen by five times that level, priming Britain for a marked slowdown in spending. 

The position contrasts sharply with the US, where Joe Biden is backing companies by ploughing billions of dollars into infrastructure and green technologies through the Inflation Reduction Act, offsetting some of the pressure on business investment after rate rises from the US Federal Reserve. The EU and China are taking similar steps, spending billions of dollars of public money in a subsidy war to pull ahead in the green industries of the future. 

Companies rely on political and economic stability to make their investment plans. With high interest rates for the foreseeable future, a looming recession and Sunak pulling the rug from major government commitments, the business investment required to kickstart the British economy is in serious jeopardy. 

‘We’re on a road to nowhere 

Come on inside 

Takin’ that ride to nowhere 

We’ll take that ride’ 

Notes: 
 

1. https://www.statista.com/statistics/298524/government-spending-in-the-uk/#:~:text=In%202023%2F24%2C%20the%20expenditure,pensions%20and%20other%20welfare%20benefits. 

 
Mr Sunak – ‘a sad little man, who is clinging onto his job at all costs’ – has been making big decisions on the environment, and is believed to be limbering up to give HS2 a good booting; has Philip got an opinion? What do you think?

 

Whilst dilemmas are nothing new for our would-be PM, this week he is facing one he hasn’t even recognised yet. The dilemma between “thinking big” and “thinking you are big”.

America, China, and the EU can do both, we can’t. Pre-Brexit we could, now that we have taken back control all we are left with is “thinking we are big.”

Climate change is slightly different to this, it is about politics, and Sunak picking a subject that he thinks can be an election winner for him. Time will tell on that.

HS2 is very much the legacy of “thinking big” and “thinking we are big”; the latter has caught us out. It would appear we simply don’t have the financial will to complete the project. I dispute that we don’t have the wherewithal, the will to prioritise spending what is required is no longer there.

What this should do is provide the final proof to “red wall” voters that levelling-up was a con they fell for. The Tories have no intention of fulfilling that promise, and they should again vote Labour (or, LibDem?). No doubt those “red wallers” that don’t like gays, immigrants or swampy will remain blue.

For a party that sells itself on its ability to manage the economy, all this only serves to highlight the sheer incompetence of Tory management of Britain’s finances. The Treasury has consistently chosen to slash investment to balance budgets, with the result that schools and hospitals are at risk of collapse. Figures published by the New Statesman this week showed that just 0.7% of Britain’s railways are classed as high speed, lower than Poland (1.2%) and a lot less than France (10%) or Spain (22.2%). Yet once again, the department is putting off investment of the sort that could boost growth just because it involves spending money upfront.

What Rishi doesn’t get is that when you are a small man thinking you are big is dangerous.

Lyrically, it’s back to the 80s. We start with an old favourite of mine, Japan with the hauntingly minimal “Ghosts”.  To finish we cross the Atlantic to NYC for Talking Heads and “Road to Nowhere”, a tribute to HS2.

@coldwarsteve
 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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