10 January 2019
Get Rid Of Your Politics
A new approach for 2019.
By John Watson
A new year, a new start, time to reflect, an opportunity to draw a line under the bad habits and to replace them with better ones. What is it to be then? Getting up a little earlier? Less fags and booze? An hour’s run every weekend? If you want suggestions like those, go look in the celebrity magazines. Follow the tips from the stars and you could be like one of them, slim, svelte, attractive (at least to look at). Well maybe, but we at the Shaw Sheet deal with the mind not the body. What unclean thing can we throw out that will make our thinking cleaner, purer and better? The obvious answer is “our politics”.
No, I’m not suggesting that we cease to think about political issues and restrict our intellectual activities to watching Big Brother and the Premier League. The key is the word “our”, “our politics” are the political principles to which we naturally default without giving much thought to the issues to which we are applying them. They are an aspect of political tribalism: a preference towards state ownership for those who adhere to the left; an instinct to prefer a free market solution for those on the right. Get rid of these tendencies and our thinking becomes much more objective, our approach more logical. Let’s look at a battleground where “our politics” are customarily deployed.
Let’s take the private finance initiative. This is a system under which a public project, say a new hospital, is constructed by and owned by private contractors who let it to the state at a rent which allows the contractors and their backers to recoup borrowing cost and to make a profit. In return the contractors maintain the facility and take risk of cost overruns etc. The state-guaranteed revenue stream normally means that the contractors bear little risk on the income side of the balance sheet and those who followed the debate about the new Hinkley Point power station will recall that there the revenue risk for the owners was eliminated by a Government guarantee that electricity would be purchased at a pre-determined price.
PFI was introduced in the 1990s but really took off under the Blair and Brown governments as an alternative to simply borrowing the money to pay for new facilities. That would have been more straightforward but the new technique was seen to have funding advantages. Actually there are a whole lot of pluses and minuses which vary from project to project. In no particular order and with plenty of omissions:
- PFI usually moved the risks associated with the maintenance of the facility from the public sector to those responsible for constructing the project. That of course encouraged management to keep a careful eye on costs – a good thing on the surface but carrying a risk of skimping unless the contracts provided a high level of quality control;
- projects could be carried out by specialist promoters acting as principals. Something similar could of course be achieved by simply hiring specialist contractors but at the price of moving overall responsibility to those managing them. In the case of a project such as Hinkley Point where would that expertise be found within the public sector?
- PFI only works where the contractors have the prospect of a good profit. Is that unnecessary leakage from the public sector or is it a price worth paying for the laying off of risk and the purchase of expertise? After all if you simply hired contractors there would be a question of bonuses if the project came in on budget;
- the interest rates paid by the contractor in the bond market (and indirectly funded by the public) may exceed those payable by Government.
PFI has now gone out of fashion but the reason is not so much one of principle as of practicality. Negotiating a good deal is difficult and the Government is at an inevitable disadvantage to specialist contractors, something which gets worse if the deal is negotiated by regional boards or authorities. The general feeling that the public sector was simply not getting a good deal from these projects was probably right, although to be fair it would not always get a very good deal if it managed the projects itself.
The odd thing about the debate on the merits of PFI is that in circumstances where all parties agreed that public facilities were required, the way in which they were funded became politicised, with politicians cleaving to their party prejudices. Logically, decisions on financial structure should be as technical as the choice of cement, there being no sensible reason why a particular party or interest group should favour a particular model. The right approach is to look at the project and see what structure best delivers it.
It all gets worse when you look at railways, with the unions suggesting that returning them to public ownership will improve them. Will it really? Yes, you might think. Fares are going up by an inflation busting 3.1%. The timetabling fiasco left hundreds of people effectively stranded. That all sound like a mess, doesn’t it? And yet if you look at the recent report by Conor Walsh of the Centre for Policy Studies you find that not everything is as it seems at first glance. The high fares reflect a Government decision not to subsidise in the way they do on the continent. That may be right or it may be wrong but it has nothing to do with who owns or operates the trains. The great timetabling disaster owes something to the fact that we get more service from our infrastructure than the continentals with a rise of 29% in trains over the twenty years 98/18. If the track gets heavier use no wonder things go wrong occasionally but the problem is a sign of success as well as failure.
Next year the Williams Rail Review will report and the Chairman (politically independent and a former Chief Executive of BA) will consider all the options, including nationalisation, asking “What does the passenger want out of the railway system, how do we deliver it, and then how do we actually structure [the railway] to do that?”
Those are the right questions and his mandate covers environmental and economic issues as well as customer satisfaction. No doubt he will write a good report, but how will it be received? Will Tories automatically discount any element of nationalisation? Will the left demand public ownership as a matter of principle? Or will both sides simply look at the problem and see the possible structural approaches as instruments to be deployed in achieving a common objective? That depends on whether they can make 2019 the year in which they step away from “their politics” and focus solely on the public good.