Nicholas Milton: cretin

According to the government\’s National Ecosystem Assessment, looking after all the UK\’s green spaces is worth the sum of £30bn a year to the economy.

Hmm, interesting number.

The whole process becomes even more meaningless when you try to compare the £30bn figure with other economic statistics. Take the UK government\’s national debt, which at the end of last year was more than £1,105bn or more than 36 times the value credited to our green spaces.

Ah, I see the problem here. It\’s that you, Nicholas Milton, are a cretin.

The national debt is a stock. It\’s the total of all the money we\’ve ever, as a nation, borrowed and not paid back.

The £30 billion of the green spaces is the annual income: it\’s a flow. If we wish to compare this to the national debt we must convert this income to a stock: good, we know how to do this, this is a net present value calculation. Err, OK, some people know how to do this, I don\’t.

We need to be a bit leery about discount rates. Market rates on something so long term probably aren\’t quite right. Mebbe 2 or 3 % would be about right.

This would give us the capital value of that income flow, which is something that we can then compare with the national debt.

At a guess (if anyone wants to run the numbers?) I\’d say that at such a suitably low interest rate, the value of the green spaces is higher than the national debt.

15 thoughts on “Nicholas Milton: cretin”

  1. The arithmetic is pretty simple for an income in perpetuity, which I think is appropriate here. If you discount at 2%, an income in perpetuity of £30bn requires an asset value of £1500bn.

    If you use 3%, it only comes to £1000bn. I usualy use 2.5% as an estimate of UK long term ROI; this gives an asset value of 1200bn.

    However, the simplicity of all this is irrelevant alongside the complexity of assessing the annual value of the country’s greenery. Surely this must involve some pretty heroic assumptions? You know just where you are with the national debt. Cash is king.

  2. The discount rate should be higher. It’s been consistently possible to make 5%/year for the last 50 years.

  3. The Pedant-General

    And to expand on Glenn’s exemplary post above, the basic arithmetic is very very simple.

    the NPV of a flow in perpetuity is simply:

    NPV = Value for Period / Discount Rate for period.

    In Glenn’s cases:
    – @2.5%, £30M /0.025 = £1,200M
    – @3%, £30M / 0.03 = £1,000M

  4. Did he say that “looking after” them is worth 3×10^10 pounds annually, not that they are worth so much themselves? I’m not sure what that means–was he proposing that such would be the justifiable expenditure on maintenance?

  5. Didn’t Lord Stern use 1.4% as his “social” discount rate. Accordingly, we’re looking at something in the region of £2,100 billion. Perhaps Stern should join Milton at Camp Cretin.

  6. TIM – Just an idea but how how about doing a blog post on Bitcoins?

    I’d do one myself but nobody reads my blog.

    Tim adds: Meh. Obvious disaster in waiting.

  7. Glenn (#1) said “You know just where you are with the national debt.”

    Wish we did. PFI, public sector pensions, state pensions, bank bailouts, etc. etc.

    After 13 years of Brown, we can argue for days about what the true national debt is.

  8. What pedant2007 said.

    I am going to hold to the opinion that it’s pulled-from-ass arithmetic until it’s proved otherwise, which I don’t think it can be. Presumably it’s the usual assign-random-values-to-unvalued-things technique. You know, “me not flicking bogies at you is worth £100 a year, multiply that by sixty million people” kind of thing.

    That and/or the usual Georgist-style double accounting of “externalities” kind of thing.

  9. £30bn a year? That’s about £500 each.

    Let’s look at what people actually pay for “green spaces”.

    A National Trust membership costs around £50 a year (less per person if you join as a couple or a family), for which you get as much green spaces as most people would feel the need for, plus some stately homes thrown in for free.

    That’s a tenth of the government’s estimate.

  10. I suspect most of the arithmetic in the report is bogus.
    How did they get the £300 per person figure for benefit? Savings in the NHS, fewer drunks on Friday night, or what? Anyone got any idea of measurable change here?
    £300 p.p. X the population does not give £30Bn, unless there’s been even more immigration than we’ve been told.
    From the £18Bn of benefit we’d have to deduct cost of maintainance, bureaucrats and the consultants who came up with these figures, because from the report the benefit is gross not net.
    Tricky, these valuations.

  11. blokeinfrance, from a squint at the article they’ve thrown in everything they could find, including the benefit to agriculture of bumble bees.

  12. But yes, this seems to be the gross benefit, from which we should deduct the costs.

    The direct costs are fairly low, but not insignificant: £1bn of local authority spending on parks, plus around £0.5 bn of running costs for things like National Parks, the Forestry Commission and British Waterways.

    There will also be costs within the schools budget for playing fields maintenance (must be a few left), and payments for preserving ‘green spaces’ hidden within the £3bn of agricultural subsidies.

    But the real killer will be the indirect economic costs, that the ‘green spaces’ aren’t being used for anything else.

    One estimate is that the cost of planning regulation is 3.9% of income. Applying that to GDP gives a national cost of £57bn (the Barker Review estimated a £27bn annual economic cost of planning constraints just for domestic housing, so £57bn once you include commercial seems reasonable).

    A large part of that will be caused by Green Belt and other ‘open spaces’ protection. Add that to the direct costs, and the cost of government protection for ‘green spaces’ is quite possibly more than the benefit.

  13. One estimate is that the cost of planning regulation is 3.9% of income.

    Does that include the economic cost of property value inflation?

  14. Ian – don’t know, I just hoover up figures from tertiary references.

    What you want is apparently:
    Cheshire, P. and Sheppard, S. (2002), “The Welfare Economics of Land Use Planning”,
    Journal of Urban Economics, 52, 242-269.

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