Ritchie on private investment in infrastructure

The logic is to sell the rights to a road to a private company, get them to borrow from pension funds on the basis of the securitised income of the private company for running that road, which will be wholly paid by HM Government since road pricing is supposedly specifically ruled out, and then the road will be supplied to users in exchange for the tax they pay, as now.

Now let’s consider the alternative. The state borrows at much lower interest rates by cutting out the middleman and with its vastly better credit rating, pays a contractor to build the road and then runs it as part of its estate in exchange for tax paid with pension funds in exchange getting the long dated gilts they still need to fund pension obligations.

Which route will be cheaper? Glaringly obviously the second. But the government is opting for the first. The insanity of the Treasury’s phobia with debt that has fuelled the most expensive and inefficient off balance sheet borrowing programme anyone could conceive through PFI continues as a consequence.

That\’s just fascinating.

Isn\’t Ritchie the guy who says that we should all be investing our pensions in bonds so that the money can be used to build the infrastructure the country so badly needs?

Yet when someone suggests that our pensions should be invested in bonds to fund the infrastucture of the country he\’s against it?

Eh?

11 comments on “Ritchie on private investment in infrastructure

  1. Basically I agree. However the argument that the state can borrow at a low rate of interest is dodgy. The state can borrow at a low rate of interest because it cannot go bankrupt (unless you’re talking about Greece, etc). Reason is that the state can confiscate money off the private sector at will via tax, which gives the state an unfair advantage over private sector entities.

    But certainly anything “off balance sheet”, whether done by the state or banks should be regarded with extreme suspicion.

  2. I guess he objects to the fact that under this model, various private interests and shonky fund managers will cream a tidy stream of rent off the top, leaving the pensioners with scraps.

    On that, I rather agree with him. Where I would differ would be in the level of faith I would have in the Glorious State being able to do any better.

  3. TTG,

    “I guess he objects to the fact that under this model, various private interests and shonky fund managers will cream a tidy stream of rent off the top, leaving the pensioners with scraps.”

    Well yes, but that’s what he is recommending anyway: that we all invest our pensions in govt bonds to finance infrastructure.

    Unless he is also suggesting that these pension investments are direct with the government and not via some independent investment outfit, they are identical.

    And if he is suggesting that these pension investments should be direct with the government and not via some independent investment outfit, then he is a WGCE.

  4. Ah, Martin: WGCE = Weapons-Grade Cock End, an epithet particularly well suited to tax-avoiding accountants from Wandsworth, coined I believe by Obnoxio the Clown some years ago.

    Cheers

  5. The state borrows at much lower interest rates by cutting out the middleman and with its vastly better credit rating, pays a contractor to build the road…

    Ker-ching!!!!

  6. @Tim Newman: precisely. The State’s ability to get a good deal on infrastructure costs is notoriously bad. Any savings in financing would be more than wiped out by the overpayment on the construction costs.

    ‘Yer bypass is going to cost an extra 40% guv, its the underpinnings you see, and the cost of gravel, and the union wants more wages. Lets call it a round 50% on top of the quote, or we’ll have to stop work.’

    ‘What, you want us to start work on someone else’s project after they walked off halfway through? Well we’ll have to redo most of what they did, because it wasn’t up to spec, and its been sat for 2 years in the weather anyway while you sorted out the paperwork so its all frost damaged anyway. Lets call it double the original quote shall we?’

  7. Jim:

    Why limit the two proposants just to the true stuff? Surely, they can make up some shit to boost the take, ain’t?

  8. Clearly what is terrifying Ritchie is the idea that a private company might actually make a bit of a profit off the arrangement. Remember this: In Ritchie’s world, profit is only useful to the extent that it can be taxed away.

  9. Ritchie is FOS as usual but to be fair, “investment” in terms of national infrastructure would generally, in my book, involve the building of new stuff (if and when needed) rather than just selling off current stuff to make the government’s balance sheet look better.

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