Potential changes to "Fiscal rules" to allow greater infrastructure spending

[bib]

Debt rule to change to fund major projects

Government claims the move contrasts with former PM Liz Truss's controversial mini-Budget.

www.bbc.co.uk

The Treasury has given its clearest indication yet it will change its self-imposed debt rule in order to borrow billions to fund new infrastructure projects. Independent checks on spending for major building work will be introduced to allow the government to borrow for investment "more efficiently", the Treasury Chief Secretary, Darren Jones, has said.

The changes will include a new National Infrastructure and Service Transformation Authority that will oversee a 10-year strategy for a pipeline of major projects, aligned with a series of Spending Reviews, and long-term budgets for investment in, for example, buildings, roads and rail. The National Audit Office and a new Office for Value for Money will also offer ongoing appraisals of “mega projects” such as major train lines. The government said the moves would “depoliticise” infrastructure decisions and offer “independent checks and balances” against government, similar to the Office for Budget Responsibility. Jones's comments come alongside the government's introduction of a "taskforce" for infrastructure spending - a group of private sector bosses including from HSBC, Lloyds and M&G - who will advise government on where to invest for infrastructure.

The government has said its top priority is boosting growth in the UK's economy, and the Chancellor, Rachel Reeves, said increasing investment in infrastructure was a "vital part" of achieving this.

Sounds like they might exclude capital spending from the 'debt must be falling in 5 years' rule, presumably under the assumption that if there's a big enough Benefit-Cost ratio then you will get the benefits back over the longer term through increased economic activity etc. Maybe this is feeding into the reinstatement of "not-HS2a", allowing them to find more money without increasing 'day-to-day' / "OPEX" spending.
Some sort of long term pipeline and depoliticising funding sounds sensible although I thought that was sort of what the National Infrastructure Commission was meant to do. It'd be interesting to see what difference having a Office for Value for Money would have when the next megaproject goes overbudget and late.
Lack of investment does seem to be a particular problem in the UK from some stuff I've read recently.

 

[IanXC]

Sounds like they might exclude capital spending from the 'debt must be falling in 5 years' rule, presumably under the assumption that if there's a big enough Benefit-Cost ratio then you will get the benefits back over the longer term through increased economic activity etc. Maybe this is feeding into the reinstatement of "not-HS2a", allowing them to find more money without increasing 'day-to-day' / "OPEX" spending.

Aa I understand it there are two ways this change could be made. The other is to compare the "national debt" with the "national assets", thus if you invest in some piece of infrastructure, you get to account for the increase in value of the stuff the government owns, rather than just the cost of building it.

 

[MotCO]

Re lack of investment per GDP. The UK is very much a service-based economy, and not a heavy industrialised economy. Therefore, is so much capital investment required? Yes, you will need offices, computers and other equipment, but that is not in the same league as a new blast furnace for example. So maybe it is not a surprise we don't invest as much as other countries (although I think we should).

There in an issue with large scale investment. I'm thinking of the power industry where we do seem to be slow to approve nuclear power stations, primarily because the results do not accrue within the 5 years of a Government. As a result, decisions and funding are kicked down the road, leading to the situation where we are struggling to produce base load energy.

 

[jon0844]

Re lack of investment per GDP. The UK is very much a service-based economy, and not a heavy industrialised economy. Therefore, is so much capital investment required? Yes, you will need offices, computers and other equipment, but that is not in the same league as a new blast furnace for example. So maybe it is not a surprise we don't invest as much as other countries (although I think we should).

There in an issue with large scale investment. I'm thinking of the power industry where we do seem to be slow to approve nuclear power stations, primarily because the results do not accrue within the 5 years of a Government. As a result, decisions and funding are kicked down the road, leading to the situation where we are struggling to produce base load energy.

I'm not against nuclear, but in the coming years with V2G the people with parked up EVs will be providing that power for when demand is high. As cars are parked for about 90% of the day, we will have power 'generation' on driveways and car parks all over the UK and around the world.

People buy a home battery that's between 5 and 15kWh, but will have a car with 40, 50, 60 or 70kWh. This is something we need to invest in, and from next year this will start to be marketing and sold more - with multiple energy providers and hopefully full Government backing.

 

[Magdalia]

Re lack of investment per GDP. The UK is very much a service-based economy, and not a heavy industrialised economy. Therefore, is so much capital investment required?

Yes. Look at the state of UK infrastructure, for example hospitals built of crumbling concrete and schools built with asbestos.

A service based economy is becoming increasingly reliant on hugely increased availability of electricity and water to power and cool giant server farms. It also needs transport and other communication infrastructure that facilitates the connectivity on which the service economy thrives.

Here in the Fens there is lots of private investment in new laboratories for high tech innovation. But the public infrastructure to support a thriving private sector is falling way behind. The UK government needs infrastructure investment in the Fens so that growth is not constricted, and to spread that growth more widely around the country.

 

[MotCO]

Yes. Look at the state of UK infrastructure, for example hospitals built of crumbling concrete and schools built with asbestos.

A service based economy is becoming increasingly reliant on hugely increased availability of electricity and water to power and cool giant server farms. It also needs transport and other communication infrastructure that facilitates the connectivity on which the service economy thrives.

Here in the Fens there is lots of private investment in new laboratories for high tech innovation. But the public infrastructure to support a thriving private sector is falling way behind. The UK government needs infrastructure investment in the Fens so that growth is not constricted, and to spread that growth more widely around the country.

I don't disagree. We do need infrastructure investment, and do need to spread it round the country. However, I would not expect the investment required for data centres to be as much as that required, for example, in heavy steel production, shipyards, car and engine manufacture, where you require heavy machinery and significant R&D.

 

[Magdalia]

I would not expect the investment required for data centres to be as much as that required, for example, in heavy steel production, shipyards, car and engine manufacture, where you require heavy machinery and significant R&D.

See this BBC report here:

Electricity grids creak as AI demands soar

Data centre electricity demand is forecast to double in four years, putting energy grids under pressure.

www.bbc.co.uk

Electricity grids creak as AI demands soar​

There’s a big problem with generative AI, says Sasha Luccioni at Hugging Face, a machine-learning company. Generative AI is an energy hog.

The world’s data centres are using ever more electricity, external. In 2022, they gobbled up 460 terawatt hours of electricity, and the International Energy Agency (IEA) expects, external this to double in just four years. Data centres could be using a total of 1,000 terawatts hours annually by 2026. “This demand is roughly equivalent to the electricity consumption of Japan,” says the IEA. Japan has a population of 125 million people.

And see this about what is happening in Ireland:

Data centres use almost a fifth of electricity in Republic of Ireland in 2022

The amount of electricity being used by data centres in Ireland has risen by 400% since 2015.

www.bbc.com

Data centres accounted for almost a fifth of all electricity used in the Republic of Ireland in 2022, official data suggests.

That was as much as was used by all households in the country’s urban areas.

 

[IanXC]

Re lack of investment per GDP. The UK is very much a service-based economy, and not a heavy industrialised economy. Therefore, is so much capital investment required? Yes, you will need offices, computers and other equipment, but that is not in the same league as a new blast furnace for example. So maybe it is not a surprise we don't invest as much as other countries (although I think we should).

There in an issue with large scale investment. I'm thinking of the power industry where we do seem to be slow to approve nuclear power stations, primarily because the results do not accrue within the 5 years of a Government. As a result, decisions and funding are kicked down the road, leading to the situation where we are struggling to produce base load energy.

These rule changes apply to public sector investment, roads, rail, schools, hospitals etc.

Producing steel, cars, ships etc is (generally) not within scope of this.

 

[MotCO]

These rule changes apply to public sector investment, roads, rail, schools, hospitals etc.

Producing steel, cars, ships etc is (generally) not within scope of this.

I was referring to the graph in #1 looking at total investment (both public and private sector) as a %age of GDP.