Allister Heath
Good riddance, HS2, you shall not be missed. The cancellation of that monstrous project’s Northern leg marks the final end of an era of immoral profligacy by a political class that had come to treat taxpayers with contempt. It was never worth spending what might eventually have ended up being £180?billion on one train line to London, taking decades to complete, in an ultimately doomed attempt by politicians with an inferiority complex to show the French that we too can produce a train à grande vitesse.
The opportunity cost was obscene: we haven’t built any nuclear power stations, or water reservoirs, or fixed our leaky pipes, or properly developed our creaking power grid, or constructed new motorways to relieve our hopelessly congested roads, in the name of hurling all available resources at what must be the most mismanaged grand projet in British history. How can anybody responsible for this money pit sleep soundly at night? Yet there is another reason why Rishi Sunak is to be commended for taking on the self-righteous vested interests committed to defending the indefensible, and for calling David Cameron, George Osborne, Theresa May and Andy Street’s bluff. The Prime Minister has grasped, sooner than other world leaders, that governments are about to face a terrible fiscal reckoning. It is becoming much more expensive for states to borrow, threatening to trigger another financial crisis, and in time to force many countries to slash their spending.
The bond market vigilantes that used to keep chancellors on the straight and narrow in the 1970s, 1980s and 1990s are back with a vengeance, thanks to Covid and lockdowns; the mad money printing of the past few years; the persistence of much higher inflation and Joe Biden’s absurdly expensive green new deal. Yields on 30-year UK gilts have just hit a 20-year high of 5.1 per cent. In America, 10-year bond yields are at 16-year highs, and 30-year mortgage rates have topped 7.5 per cent for the first time since 2000. German government bond yields are at a 12-year high. In all these countries, a greater share of public spending will need to be allocated to paying debt interest, leaving a lot less money for other things.
The problem is that many world leaders are still behaving irresponsibly: the US budget deficit is increasing to 5.7 per cent of GDP, Emmanuel Macron has announced yet more borrowing, and Germany’s shrinking economy is putting extreme pressure on its public finances. Too many politicians are lying to their electorates. Unlike during the banking crisis or Covid, central banks can no longer print money to finance spending: countries are going to have to start living within their means, earning their keep by producing more, and raising what they spend in tax, rather than piling on unaffordable debt. Daft projects such as HS2 will cost even more once the extra interest costs are factored in, and thus make even less sense.
Sunak is ahead of the curve: he realises he must urgently cut back on unproductive expenditure, especially given the costs of supporting Ukraine and dealing with the small boats crisis. With rocketing borrowing costs, Jeremy Hunt will find it difficult to convince the Office for Budget Responsibility that he can meet his fiscal rules ahead of the Autumn Statement, despite his devastating increases to corporation and income tax. He will also need to find billions of pounds within these rules to finance whatever pre-election tax cuts the Prime Minister decides to offer up in the Spring of 2024. This is why all of Sunak’s most recent announcements have two things in common: they are popular with the Tory base, and they will either save the taxpayer a fortune or cost very little. Welcome to Austerity Mark II, Manchester school variant.
Ending HS2 in Birmingham will officially free up £36 billion for far more cost-effective rail and road projects all over the North and Midlands, but the true savings will be much greater. The eventual price would probably have been much steeper than even the gloomiest of contemporary forecasts, and it will be possible to pick and choose the timing of the alternative, smaller-scale projects to manage annual cash flows. Sunak believes he will save billions more by stripping the shockingly incompetent HS2 state-owned company of all responsibility for the last few miles of the project to Euston, handing the work to a new, hopefully more efficient development corporation. Or take the ending of the war on cars: Sunak will save millions by not having to subsidise inane, underused “active travel” schemes. As to the reforms to net zero, delaying the ban on petrol cars and gas boilers will marginally help the Exchequer, as well as being welcomed by millions of hard-pressed families.
Pushing ahead with additional North Sea oil will be good for tax receipts. Cracking down on the benefits culture will save a fortune, as will the excellent Civil Service hiring freeze. The attack on woke policies won’t cost anything, and neither will moves to shake up growth-inhibiting regulators like the FCA or to ditch anti-housing nutrient neutrality rules. Even the only recent Tory announcement I cannot support – banning those born after 2009 from ever buying cigarettes, even when they turn 18, a nannying, authoritarian move that will encourage many to turn to criminal gangs or other illegal drugs – won’t cost a penny in the short term, though a substantial amount in lost tax over time.
The only reform that will actually cost hard cash is the introduction of the Advanced British Standard, replacing A-levels and T-levels and requiring additional teaching time to ensure the curriculum is broadened (with “minor” subjects) without standards being lowered in specialist subjects (or “majors”). But this revolution will take years to complete. This has been a good week for Sunak and the Tory party, contrary to the Left’s hysterical bleatings. The end of the era of free and cheap money will act as a great cleanser for our politics. It will flush out cakeist politicians who deny trade-offs, force the Tories to root out waste and bolster the public sector’s abysmal productivity, and make life more difficult for a Labour Party deeply uncomfortable with austerity politics. Sunak must hold his nerve: the more savings he can find in our scandalously bloated government, the greater the tax cuts he will be able to offer up next year.
The Telegraph
