Local press exclusives on specialist topics are seldom the most reliable or accurate commentaries you’ll ever find on anything ever. Nonetheless, I’m concerned by the East London Advertiser’s current alleged scoop on Crossrail.
The ELA claims that:
Crossrail chiefs fear the deteriorating economic climate, spiralling Olympic costs and the election of Tory Boris Johnson as Mayor of London will persuade Mr Brown to delay construction.
The source said: “It’s only my opinion and not the corporate line, but my strong feeling is that in the current circumstances, the Government will more than likely delay the project by a few years.”
If the ELA is right, then the government are making a very daft short-termist decision swayed purely by bean-counters and spurious “OMG, debts are evil” worries.
Simply put, Crossrail is a 10-year project with benefits over 30 years. Dropping it because of short-term budget constraints would not only be utterly ridiculous, it would be the worst possible choice the government could make. Economic bad times are a positive reason to build Crossrail, not a reason to shelve it.
The ideal time to build a massive infrastructure project paid for largely with public money is during a construction recession, when the workers, managers and contractors responsible are unable to find sufficient private sector work. This would not only make Crossrail cheaper for the taxpayer, but will also prop up the wider economy, stemming unemployment and reducing the impact of falling private sector demand on GDP growth.
What about actually finding the money? Well, governments are able to get credit on good terms right now, since they’re among the lucky few for whom the markets believe they’ll be able to pay it back. And UK national debt is in reasonably good shape as a proportion of GDP – 37% now against 43% in 1997, so there’s no obstacle to ramping up government borrowing to buoy demand and cushion the tough times.
Yes to sceptics, the 37% figure is too low, since it does not include finance leases under PFI that would be accounted for as debt under IFRS. These amount to an extra £30bn on top of existing debt of £530bn, taking real public sector debt as measured under IFRS to 39% of GDP. Some people account for PFI by counting all future PFI liabilities including payment for services which haven’t yet been delivered but if you do this then you do not understand how accounting works [*].
Sorry for that digression. The point is that the government has plenty of room to borrow money to stimulate the economy over the next couple of years, and building Crossrail would be one very good way of doing this. Financing it entirely through public sector borrowing would raise the national debt by 1% of GDP, which is entirely affordable. Axeing it would be somewhere between a short-termist capitulation to Treasury interests, and a deliberate attempt to screw things up for the incoming Tories…
[*] If I sign a billion pound contract with the government to provide them with and maintain their widgets for the next 40 years, and I book sales of £1bn for year one, then I go to jail. This is precisely what people who count PFI liabilities at £100bn are doing, except for the “going to jail” bit.