Road sell-off plan unveiled

From today’s Guardian front page:

David Cameron will clear the way for a multibillion-pound semi-privatisation of trunk roads and motorways as he announces plans to allow sovereign wealth funds from countries such as China to lease roads in England.

Just 48 hours before the budget, the prime minister will give a speech calling for radical action to improve Britain’s infrastructure, which is falling behind those of key competitors in Europe.

In his most eye-catching proposal, Cameron will announce that the Treasury and Department for Transport are to carry out a feasibility study looking at using private-sector funds to improve and maintain trunk roads and motorways.

The prime minister’s plan, modelled on the funding of the mains water and sewage network, would see sovereign wealth funds and pension funds given the right to lease roads over a long period. They would be set a series of targets to, for example, reduce congestion and carry out improvements. George Osborne recently travelled to China to persuade the world’s largest fiscal-surplus country to invest in Britain’s infrastructure.

Writing on Tax Research UK, Richard Murphy gives a succinct critique of this idea:

The UK government now has just about the lowest rate of interest on its borrowing that it has ever enjoyed – in least in the modern era of government. And so what is Cameron announcing today? The biggest programme of road privatisation through an expensive PFI style scheme ever dreamt of.

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.

* Paul Walter is a Liberal Democrat activist. He is one of the Liberal Democrat Voice team. He blogs at Liberal Burblings.

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9 Comments

  • Speaking for myself, I wanted a new politics and economics, not more of the old, Katie.

  • I must have been in a coma for the last couple of years. So, did a very right-wing Conservative party win the 2012 election with a large majority based on clearly articulated right-wing policies presented at election time?

    As far as the man in the street is concerned (such as myself – one of your unfortunate voters), the only reason the Consertaive party are able to get away with their nutty right-wing ideas is because the Lib Dems have enabled them to do so. This is in stark contrast to the supposed narrative that the Lib Dems are moderating the Conservatives’ behaviour in government.

  • Bill le Breton 19th Mar '12 - 8:42am

    Yes Tim13, but if you have been following Newsnights Paul Mason both on the programme and elsewhere you will know that the Waterization of roads is only the beginning of a major privatization campaign for what remains of the delivery side of the public sector. Gov as Commissioner. Paying provider either through tax or a mixture of tax derived subsidy and user charges eg buses.
    This nets the Gov that implements this programme with massive capital receipts, off-loads swathes of capital expenditure in an acrooss the board sale and lease back.

  • Yes Bill, I do follow Paul Mason – and, yes, I can see the plans as they evolve (I think!!) Bit amazing, when Govt spokespeople, ours as well as Tories, condemn Labour’s “profligacy” – often fuelled by PFI expenditure! What I find very difficult to get my head round is how our party has flipped from 1980s opposition to Thatcher economics, to a position of support for this nonsense. For Tories it is easy – “completion of the blessed Margaret’s work”.

  • Andrew Suffield 19th Mar '12 - 9:32am

    So this is what we get with the Liberal Democrats in government.

    No. Sheesh. This is not a plan, it is a proposal and a feasibility study. It is not going to happen.

    (Some EU-style toll roads may happen – we’ve got some of those already, and a few more won’t hurt – but there’s not going to be any sell-off)

  • Malcolm Todd 19th Mar '12 - 10:47am

    I wish I shared your confidence, Andrew. But if Cameron’s making it the centrepiece of a speech at budget time I think it’s rather naive to believe that the government’s still at the stage of “well, we’re just thinking about this as one of a range of possible ideas but we might conclude that it’s a load of expensive b*ll*cks”. Set piece speeches by prime ministers are not where such speculative kites are usually flown.

  • @Tim13
    “What I find very difficult to get my head round is how our party has flipped from 1980s opposition to Thatcher economics, to a position of support for this nonsense.”

    The same way the Labour Party made that flip: subservience to the media, fear of the Tories, and obedience to the Treasury orthodoxy.

  • Andrew Suffield 19th Mar '12 - 4:56pm

    But if Cameron’s making it the centrepiece of a speech at budget time I think it’s rather naive to believe that the government’s still at the stage of “well, we’re just thinking about this as one of a range of possible ideas but we might conclude that it’s a load of expensive b*ll*cks”.

    Read the article very carefully – look at which statements are attributed to which people. Firstly, the Guardian has massively inflated what he actually said, and the bulk of the article is talking about other proposals from people who are not Cameron. Secondly, it’s a couple of paragraphs two thirds of the way through a very long speech about infrastructure investment, not a centrepiece.

    The full text of the speech is now available where you can see this in context.

    Let’s just quote the bit where he talks about what’s going to happen:

    We need to look urgently at the options for getting large-scale private investment into the national roads network – from sovereign wealth funds, pension funds, and other investors.

    That’s why I have asked the Department for Transport and the Treasury to carry out a feasibility study of new ownership and financing models for the national roads system and to report progress to me in the Autumn.

    Let me be clear: this is not about mass tolling – and as I’ve said, we’re not tolling existing roads…

    …it’s about getting more out of the money that motorists already pay.

    (I would also like to draw attention to the fact that the Guardian stopped their quote before those last two lines, some really dodgy quoting there)

    That isn’t really saying a lot. All this business about a “sell off” is an invention of media commentators based on some far more speculative proposals that various Tories have made in the past.

  • Alex Sabine 20th Mar '12 - 3:07pm

    Whatever the merits of this proposal – and I am undecided on the merits of a ‘sell-off’, as opposed to the government borrowing at low rates to finance infrastructure investment and outsourcing operation/maintenance – it’s a bit rich of those commenting here to portray it as part of the evil Tory desire to plunder national assets. In fact the idea was floated by none other than the Lib Dem left’s favourite minister, Vince Cable, in 2009.

    A plan to privatise motorways and trunk roads was put forward by NM Rothschild that year. Vince Cable enthusiastically welcomed the proposal, while the Tories were sceptical. Here’s how the Sunday Times reported it:

    “The Rothschild plan has already won the support of Vince Cable, the Liberal Democrats’ deputy leader and Treasury spokesman. ‘This is an attractive, positive idea which could release considerable resources to the public finances and may have real environmental merits,’ Cable said. ‘The scale of it is vast — it makes rail privatisation look like small beer.’

    Theresa Villiers, the shadow transport secretary, said the Conservatives had ‘no plans’ to back Rothschild’s proposals: ‘Rothschilds, like many other banks and consultancies, have approached me and my team on a range of ideas for our transport network, including their ideas for our road infrastructure, but we are not working on any proposals for privatisation of the strategic road network and have no plans to do so.’

    “Motorway privatisation was considered by John Major’s Conservative administration, which sold British Rail, but was rejected.”

    In a 2009 pamphlet for the think-tank Reform, Cable argued: “There are potentially enormous opportunities from realising the value of often dormant public sector assets and there are private investors, such as infrastructure funds and real estate developers, with large sums to invest.”

    He added that while “there are still several conventional privatisations to be attempted”, such as the Royal Mail and Royal Mint, “there are in addition government agencies like the Highways Agency which is valued by the government asset register at £80 billion (mostly in land value).

    “While a conventional privatisation would not be feasible – there is no income stream at present – there is value which could be realised with imaginatively structured deals. A sensible way forward would be to link asset sale with the introduction of road user pricing, but that poses major technical and other practical challenges including the separation of different kinds of roads. This is one for the long term.”

    Link: http://www.reform.co.uk/client_files/www.reform.co.uk/files/Tackling%20the%20fiscal%20crisis%20FINAL.pdf

    Let’s have a rational debate about the way forward in these areas rather than a silly pretence than all reforms that include the words ‘private sector’, ‘asset sales’, ‘market’, ‘competition’ etc are Bad Things coming from Evil Tories to be resisted on a point of principle by self-sty;ed ‘radical’ (but in fact deeply conservative) Lib Dems…

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