Macroeconomics: UK economy, IB Economics

Phillip Inman looks at the government's record in managing large-scale infrastructure investment and argues that a desire to cuts costs not only reduces the quality of infrastructure investment but also counter-intuitively increases costs. 

Strangely, for a Guardian journalist, he's got a lot in common with the IEA's David Myddleton whose 2007 paper "They Meant Well, Government Project Disasters" looks sat six government projects over 80 years that were abject failures. Were this book to be revised, I suspect that HS2 and a variety of new IT projects would get honourable mentions.  

So, this is where the money from HS2 is going to go - £4.7bn for smaller transport projects in London and the Midlands. Will it make much in the way of difference, or it is simply a sop to the supposed Red Wall.

My suspicion is the latter. However, I'm also going to make the point that it will be most welcome. And I've a thought for you - yes, HS2 is expensive, but I find it ironic that many of those who complain about this are also responsible for some of the cost overruns. I suspect that had this infrastructure project been in the North of England, there would have been less notice taken of the nimbyism of some parts of the Home Counties. 

Lots to think about here; the implications of higher costs for the viability of HS2, the productivity and regional inequality implications, the sunk cost fallacy in all its glory.

Another example of why tackling Britain's supply-side problems continues to prove so problematic.

You could put this in either the Micro- or Macroeconomic boards - it's a lovely example of opportunity cost, for starters, but you might also think about it from a productive capacity. Is the Prime Minister seriously suggesting that abandoning a major infrastructure project in favour of a fund for repairing potholes in Britain's road is going to have similar effects upon the nation's productive capacity. 

You might also argue that it also shows the intellectual poverty of the UK's ambition: abandoning a 21st century project to deal with an 18th century problem.

I'll just leave this here - almost without comment - and ask you to reflect on whether the handling of HS2 has any wider lesson about the nature of infrastructure investment in the UK? 

Recent weeks haven't been good for businesses, with the policy environment seemingly ever-more uncertain, with the Prime Minister reneging on environmental commitments and now on the Northern leg of HS2. And if there's no certainty, then investment will fall and then there'll be a negative multiplier effect and so on and so forth.  

It's bizarre, if only because for many of these decisions the Prime Minister has been a member of Cabinets that approved or continued to approve of them...

The Observer opines that the uncertainty surrounding HS2 is indicative of wider policy uncertainties and this isn't good for the UK economy as a whole. 

Who'd want to invest in such an environment, where the government changes its mind on environmental issues, large-scale infrastructure investment and so on. 

More on HS2, with Lord Heseltine and George Osborne describing the prospect of the Northern leg to Manchester being scrapped as "economic vandalism". 

Make of that what you will - I will simply observe that in the latter's case, he's got a vested interest. Many years ago, I suggested that the notion of the Northern Powerhouse was almost entirely rhetorical. Were HS2 to be scrapped, it would rather prove my point. 

Nils Pratley looks at the ongoing issues relating to HS2, arguing that without building it beyond Birmingham, the rationale for the project ceases to exist. 

As a result, his view is that the government need to look at alternatives, such as continuing with the project but without, perhaps all of the 'bells and whistles' but look for the lowest cost version that would still be worthwhile. Quite what that is will be difficult to determine, and this sort of compromise really encapsulates the notion of the solution that satisfies nobody.

The prospects of HS2 going to Manchester seem less likely: it appears that the Prime Minister and Chancellor have ongoing concerns about its spiralling costs. The Mayor of Manchester, Andy Burnham, has highlighted the implications for regional inequality, but from a national point of view, potentially the productivity implications might be worse, if you think that the benefits of the project outweigh its costs.  

The National Audit Office and the Public Accounts Committee have both raised concerns about the cost of the HS2 terminus at Euston, throwing more doubt on the case for the project as a whole. It highlights the difficulties of running large infrastructure projects, not just in the UK, but worldwide and also the difficulties of cost-benefit analysis.  

An unintended consequence of the cancellation of some sections of HS2 might well be a decline in investment in the UK, according to the chair of the National Infrastructure Commission, Sir John Armitt.

He argues that we are likely to lose out as a result of the Inflation Reduction Act in the US and the subsequent EU response, which signal that they are open for business, whereas we...

The beleaguered HS2 railway is again in the spotlight with the current inflationary environment having pushed up costs and the CEO of the project admitting that aspects of it might be delayed as a result.

It doesn't look like a triumph of organisation, with HS2 appearing to be on the hook for most, if no all, of the cost increases rather than having negotiated the forward buying of supplies. Factor in the effect of inflation on wages, and I haven't even used the B-word yet, and you can see why costs might have increased. 

But at the same time, having travelled across Italy on high speed trains last summer, it seems lamentable that we have no such thing - although that doesn't necessarily make it good economics. 

A quick update on HS2 and its scandalous mismanagement. It gives me no pleasure to echo the article but the Public Accounts Committee has it right when it wonders if the government doesn't "know what it's trying to achieve".

History will not judge the management of this project kindly: ineptitude upon ineptitude, and far too much pandering to the NIMBYs of the Home Counties has inflated the costs and eaten up any net gain to be had from the project. 

The Mayors of the West Midlands Regional Authority and Greater Manchester, Street and Burnham, respectively have buried the 'second City' hatchet and collaborated on a plan to replace the scrapped Northern section, arguing that to do nothing would be a waste.

They argue that there are three alternatives that could be privately funded, at lower cost, that would have significant supply-side implications. I'm not offering a view on the extent to which that's true; however, it highlights the challenges and shortcomings of the existing model for building infrastructure in the UK.

The cost of HS2 is in the spotlight again with HS2 Ltd suggesting that the stretch to Birmingham will cost between £49bn and £56.6bn in 2019 prices whereas the government is hoping for it to come in at the lower end of £45bn and £54bn.

Critics of the scheme will argue that once again it invalidates the economic case for the high-speed railink, whereas supporters will say that the cost overrun is the result of factors beyond the company's control. 

A Guardian editorial on the wider ramifications of the cancellation of HS2 - with the Prime Minister criticised for short-termism, a lack of commitment to levelling up and regional inequality - I suspect that electoral defeat beckons.

More of the same from Nils Pratley, with this quotation doing it for me: "One fixed-income fund manager puts it this way: 'Why would I put more money into the long-dated debt of a country with an ageing population whose highest aspiration is to fill potholes?'"

The big story of the day has to be the decision to scrap the building of HS2 North of Birmingham, and the implications of this for the UK's supply-side, for the levelling up agenda and for regional inequality. 

Will spending on other forms of transports solution really cut the mustard? The funny thing is given the time frame before the next election, it will be difficult for the government to make any progress in planning and delivering the alternatives, and, let's face it why would the electorate believe them, given the government's record of reneging on its promises. 

Richard Partington highlighting why certainty is essential to foster confidence in a successful economy and why, in the recent past, the government seem to have squandered it, Brexit aside. 

Changing tack on climate change targets, and potentially on HS2, might please the right-wing media but don't give businesses or consumers any reason to believe any future policy decisions are for the long-term, and this is exceptionally damaging. 

Oh dear! It seems that there's much angst about whether or not HS2 should continue to Manchester or not. And the Conservative Party conference is going to be held...in Manchester. 

I'm in the camp of those who think that to scrap this leg of the project looks odd: without linking HS2 to Euston or Manchester, you have to wonder whether the project is viable or not. Equally, the implications of this for the UK's supply-side, its productivity and the international reputation of the UK. It would, I'm afraid, rather confirm the view that we're not very good at investing in large-scale infrastructure projects.  

More on the fate of HS2, and the northern leg of the scheme that's supposed to go to Manchester. Amidst reports that the government are about to 'park' this Northern leg, there's uproar from the Mayor of Manchester, Andy Burnham but concern among others about the spiralling cost of the project. 

There's a fascinating IEA book called "They Meant Well" written by David Myddleton which explores public spending disasters. Any updated edition is likely to include HS2. However, let's reflect - why is the UK so bad at completing infrastructure problems?  Equally, isn't the Conservative party meant to be the party of fiscal probity. 

And don't get me started on the Northern Powerhouse - a rhetorical device to try and shore up Conservative support in the North but which has delivered precisely what? 

The Infrastructure and Projects Authority have suggested that HS2 in its current guise is unachievable, either in physical terms or in the sense that its current budget is not going to be sufficient. 

It's worry news; the original London-Birmingham link was due to open in 2026, but it's now timetabled to open between 2029 and 2033, and by the sound of things, it's impact on the productive capacity of the economy isn't going to be as great. 

The gift that keeps giving: it looks as though the revision of plans for the HS2 London terminus at Euston have significantly increased in cost - and are going to be delayed until 2041-43 by the look of things.

The case for HS" grows ever shakier by the moment, with the original cost benefit analysis now little more than a historical document rather than bearing any relation to reality, and drawing criticism from the National Audit Office as a result.

And another one bites the dust, with the news that parts of the HS2 line north of Birmingham are going to be delayed because of rising costs in the midst of the cost of living crisis. Not that this government have ever been known to U-turn on major policy decisions.

However, it means that the scale of the investment will not be as great as it was, and thus the benefits not as great either, nor the boost to the UK's supply-side.