Rail 685: Osborne fails to play the Keynesian card

In his autumn statement, George Osborne attempted to play the Keynesian card, though never mentioning the great man’s name. Keynesian economics argues that at times of economic recession, investment should be made in long term infrastructure in order to create employment. Thus in the 1930s, London Transport enjoyed a heyday with extensions of lines, new rolling stock and refurbished stations and there were countless road and rail schemes.

Inevitably, and rather problematically for Boy George (he still looks like he has only recent learnt to put on his tie by himself), most of that money would come from the public sector and that is precisely what he doesn’t want as it would add to borrowing, whereas paying down the debt is the order of the day. Nevertheless, in the Autumn Statement Boy George made a number of promises on rail which made it into the next day’s headlines, especially the announcement that the Transpennine route would be electrified and that the East – West route between Bedford and Oxford (actually it is better, though phonetically more challenging, to call it a West – East route since it is in the west that work will start.

The headlines, though, were somewhat over-optimistic (and there were rather more road schemes promised). Sure, those two projects are good news but they are not going to provide any immediate work. What of the rest? Oddly the Department for Transport did not even issue a separate press release detailing the schemes but tucked into Annex A on page 57 of the statement, there was a list. The total promised was £1.4bn but even a cursory analysis of the detail suggests that little was actually new, and even less was definitely committed.

Oddly, the first item mentioned is the Northern Line extension on the Underground to Battersea which is supposedly to be funded by the private sector but in fact the developer of the Battersea Power Station has, yet again, gone bust and in any case much of the money will ultimately come from the London council taxpayers. No figure, however, was given for the scheme. For the electrification of the Transpennine route, and West – Rail project, £560m is to be spent, but this will be provided by allowing Network Rail to add the cost to its ever expanding regulated asset base (the RAB on which track access charges are calculated) which is really all a smoke and mirrors trick to avoid putting the rail debt on the government accounts. One day these chickens will come home to roost, but that’s another story.

The same goes for the £100m which the government says is to ‘support Network Rail to invest £100 million to tackle local problems on the rail network more quickly’ and ‘to invest £290m to improve the railway network, including bringing forward bridge renewals, enhancing access to stations and improving resilience of the network to extreme winter weather’. These are small schemes which may well create extra immediate employment – and were in fact detailed in a press release sent out by Network Rail the day before the Autumn Statement – and are very welcome. However, again, the cost will go on the RAB and therefore passengers will be paying for it over time (Network Rail, incidentally, receives 48 per cent of overall ticket income already and these type of schemes will undoubtedly push it over the 50 per cent mark in the near future.

The other capital item is the promise of 130 new carriages for Southern. This has long been in the offing, since it is part of the knock-on from delays to the Thameslink scheme and, again, there is no immediate work, though obviously there is the subtext that it may give a relatively small contract to Bombardier in Derby. There is, too, the promise of £45m to extend the Oyster scheme and, of course, the reduction in the fares rise from 8 per cent to 6 per cent (though with no suggestion this will be repeated next year) . The rest of the items in Annex A, such as £4m to speed up work on the Tyne & Wear metro and a couple of station reopenings in the Leeds are really too small to detail.

I do not want to decry any of this, but, the overall total hardly justifies headlines suggesting a massive amount of new investment in rail – especially as more ultimately was allocated to roads – and the figure of £1.4bn can only be reached if previously announced schemes are included. There is no new money and as I reported in the last issue when covering the Transport Committee’s report on HS2, there is an absence of any strategic thinking in the government’s rail policy.

Writing in The Independent, the day after the Autumn Statement, Chris Smallwood, a former economic adviser to Barclays, echoed this thought, and added: ‘What will be needed [to sort out the economy] is a major and sustained fiscal stimulus of the sort Keynes advocated in the 1930s’.This is not what Boy George has announced. Far from it. Despite his background in the private sector man, Smallwood advocates the government issuing bonds to finance this massive programme of investment.

Another recent analysis of rail investment, by the law firm Berwin Leighton Paisner UK Rail: the next chapter – Future-proofing the UK’s railways echoes the need for investment, but suggests various ways the private sector could become involved: Pensions and infrastructure investment funds are seeking stable long-term investments and not expecting equity level rates of return. Rail can provide the steady revenue they desire.’ The idea that there is lots of private money waiting to find a home in the rail industry is very interesting, and yet never exploited by the government which needs to create the right incentives. The report admits that there are obstacles to be overcome before private investors can be induced (seduced?) into the rail industry but it is fascinating that 15 years after privatisation, so few mechanisms for private investment have been found. I suspect, in truth, that for the borrowed money to remain cheap enough for the rail industry, it would have to be guaranteed in some subtle way by the government but there are certainly avenues to be explored. .

It is clear that there is a widespread consensus that the rail industry is a candidate for an economy-boosting investment plan. It’s just a shame that despite Boy George’s warm words, the Autumn Statement shows none of the urgency needed to produce such a scheme.  It was a great missed opportunity to give rail the boost which its recent performance in boosting numbers hugely deserves.

Xmas book suggestions

It has been a bumper year or so for good railway books – sadly, no new Wolmar effort this year, though watch out for the Great Railway Revolution, the epic story of American Railroads, in the spring – and I want to suggest a couple which I have come across which you could buy as Xmas presents.

First, oddly, two great books on maps which wonderfully complement each other. The first is Mark Ovenden’s beautiful Great Railway Maps of the World (Particular Books, £20) which, as the title suggests, reprints railway maps from Liberia to Lithuania, America to Australia. The other is the equally illuminating Mapping the Railways (Times Books, £30) which covers Britain only but has a fantastic range of maps.

For a good quick read, Michael Williams who did a quaint book on branch lines two years ago, has repeated the trick with On the slow train again mixing (Preface, £14 99) his travel on the lines with anecdote and history.  One academic offering, so not really as Xmas present, but essential reading for all transport planners:  Transport for Suburbia by Paul Mees (Earthscan, £40) which shows conclusively that it is quite possible for even the most spread out towns and cities to have decent public transport, as happens in Switzerland.

Finally, probably the best railway social history book I have ever read: Thomas Korneweibel Railroads in the African American Experience (Johns Hopkins University, £21) which covers the appalling and little-known story of the treatment of black Americans by the railway companies complete with stunning pictures.

Mystic’s par performance

It’s that time of year again, when Mystic Wolmar gets out his crystal ball and stares in it hoping for inspiration. Actually, last year proved not too bad. Here were his six (plus one personal one) for 2011:

1. Network Rail will not survive in its current form, but proposals will be put forward to break its monopoly, though these will not materialise until 2012 at the earliest.

2. There will be growing dissent over the HS2 and some ministers will resign over the issue

3. The Libdems will suffer huge losses at the May local elections, as well as losing the poll on electoral reform and will withdraw from the formal coalition, instead supporting the government on a case by case basis possibly under a new leader.

4. Philip Hammond will have gone on to other – in his view better – things.

5. I hate to suggest this, and hope I am wrong, but some sloppiness seems to be creeping into the industry on the basis of complacency, and I suspect that the long run of years in which no passengers have been killed in rail-caused accidents will come to an end.

6. The old Eurostar platforms at Waterloo will still not find a railway use.

Oh, and one just for me, QPR will be promoted as champions.

Well 4 and 6 were totally spot on, as was, pleasingly, the QPR prediction. The Network Rail one was a bit of a fudge – it has been broken up with more power given to the regions but is still one entity,  as was the one about HS2 – no ministers have resigned, but certainly dissent has grown. No 3 was certainly a brave punt, and again is half true, and fortunately No 5 proved totally wrong. So let’s call it 3/6 and watch out for next year’s predictions. Suggestions welcome, either by email from my website or via twitter @christianwolmar.

Watch out for University Challenge, The Graduates over the pre and post Xmas periods. I was the team captain for the Warwick team and great fun it was.  Fortunately, I avoided humiliation by answering the one railway question (well Underground actually) as I was quickest on the buzzer.  Mystic is, unfortunately, not allowed to reveal the result.

  • struans

    130 carriages – you mean Thameslink, not Crossrail.

    Also – you seem to be a bit of a conspiracy theorist, if I may say so.  Not only reading the tea leaves, but smoking them too, so it seems.

  • Anonymous

    For an example of something that was being funded in the conventional manner (whatever that is…) I was going to jump in and suggest the Glasgow-Edinburgh electrification scheme which is currently on the stocks, but it too is going on the Network Rail ‘credit card’ to the tune of £1bn. 

    Makes you wonder that all this speculation on the future value of assets is in a state of grave jeopardy given the impending financial implosion which is hanging over Europe at the moment.  My feeling is that if any of said projects actually do go ahead, we the taxpayer are eventually going to get landed with the bill one way or another if the proverbial hits the fan.

  • RichardH

    Since inflation is being encouraged and even faciliated by printing money as official policy for reducing government debt, borrowing now and paying back years later when its value has been diminished makes perfect sense. Just ensure the interest rate is below the inflation rate.

  • Keith

    If we must have HS2 couldn’t it start from Waterloo and use those platforms? No more illogical than heading to Kent from St Pancras.

  • Fandroid

    The world of infrastructure investment is bewildering to say the least. The Victorians provided us with a huge amount of privately funded railway infrastructure, and we ended up getting it mostly for free because (a) many railways went bust or (b) the shares became almost worthless because there were no dividends being handed out. Once railways were no longer the fashionable get-rich quick ‘new idea’, the government had to step in and borrow money on our behalf with a guaranteed return for the investors. The cost of that piled up too after a while, with inflation being one of the the only routes available to escape from the debt burden.

    It’s amazingly tedious that old schemes are being badged as new, but we shouldn’t be too depressed. Both Transpennine electrification and East-West rail will do a lot of good in their own areas, and neither were more than a ‘proposal’ before. It’s a shame that Midland Main Line keeps dropping behind, but Transpennine (to York) will probably produce more network benefits. The railways are getting a lot of cash, all we need is a ‘rea’l McNulty to get those costs down!

  • Windsorian
  • montmorency

    No point in providing fiscal stimulus unless it is also backed by monetary action, i.e. increase the money supply. QE did that, but the money went in the wrong place. It’s sloshing around in BoE reserves and in bank desposits, but they aren’t lending, especially not to small and medium size enterprises.

    Professor Richard Werner has an interesting suggestion. Instead of the government funding its deficit by selling gilt edged securities, let it borrow (at very low interest) from the commercial banks, who have the power to create credit (in effect creating money), when they make what they call a “loan”. This would increase the money supply in such a way as it would go into the real economy via public spending, which could of course be on the rail infrastructure.

    There need never be any shortage of public money. Of course you don’t want to increase the money supply in the middle of a boom, but we are a million miles from being in a boom. One understands why the Bullingdon crowd want to pretend there is a shortage of money, but Labour and the Lib Dems should have seen through this, instead of going along with the “austerity” mentality….cruel, because so unnecessary.

    A letter from Professor Werner to the FT on 5th March:


    (alternative link)


    While we have this peculiar monetary system, it is high time for leaders to realise that they need to kick-start the bank credit money supply, and can do so immediately by stopping the issuance of government bonds and instead funding the public sector borrowing requirement by having the Treasury enter into loan contracts with the money creators – the banks. That would constitute true quantitative easing of the kind I called for in Japan in the 1990s, and it would create a full-blown recovery within six months.”

    (For more on how we can reform our peculiar monetary system, see the Positive Money website).

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