Reeves review: how not to spend £113 billion

Few of the Chancellor’s grands projets are likely to be realised. A lack of enterprise and money reduces her fine words to little more than a £113bn wishlist.

HM Treasury via Flickr

Our thanks today to Gasperd Farrer of Barings Bank, and the fund he created in 1927 in his quixotic attempt to wipe out the National Debt. He failed, as you might have noticed, but last year his fund contributed a heroic £500m to the government’s coffers. That’s enough to keep the UK’s state spending machine running for, oh, about five hours.

Well, every little helps, but even Mr Farrer would find it hard to comprehend how the state could get through so much money. If he were to ask where it went, he would marvel at how little there was to show for it. Perhaps he would have been cheered by the Chancellor’s determination to do something constructive in her spending statement this week, provided he did not ask too closely about how likely all these grands projets were to be realised.

The answer, sadly, is not very, and not many. Finding the designers, engineers, builders, and staff to run them would be hard enough even if the public finances were in fine shape. Lacking enterprise and money reduces Rachel Reeves’ fine words to little more than a £113bn wishlist. True, it is quite a list to add to the wishes for Heathrow’s third runway, getting HS2 to Euston, the Lower Thames Crossing tunnel, expanding regional airports, saving British steel and pretending that Drax is green.

The idea of nuclear power from a plant at Sizewell is all very nice, but the cost of the juice is far too high to be disclosed in a high-profile speech. Of course, “lessons have been learned” from the financial meltdown at Hinkley Point. The financing model there is so toxic that the customer will have to pay for Sizewell long before it produces any power. One day, mini-nukes may help, but the story of official procrastination here, from both governments, is shameful. As for carbon capture and storage, this is the thermodynamic equivalent of trying to pull yourself up by your own bootstraps.

There was also the traditional promise to build a decent railway to connect Manchester and Leeds. One day, maybe, but the cost rises relentlessly, and HS2 has shown that official estimates are little more than a basis for negotiation with contractors. They are well aware of the definition of a builder’s estimate: a sum of money approximately half the final cost. Nobody outside the Labour government believes in the targets for building houses.

The largesse she sprinkled over constituencies where Labour feels vulnerable will have comforted some backbenchers, but few of them will have had the experience of dealing with the Whitehall compliance machine. Its speciality is process, and with a little effort it can drive local supplicants mad with its insistence on more detail.

If process is the bane of Britain, then welfare is the poison. Conventional wisdom used to argue that only Labour could deal with welfare reform, since it is too hard for the Tories. It now appears to be too tough for Labour as well, as we await restored benefits for multi-child families. In between more for child poverty and the triple lock for pensioners, there is the problem of making work pay more than indolence. Needless to say, none of this appeared in Wednesday’s statement.

The ultimate arbiter of government policy is the bond market. The cost of servicing the National Debt already exceeds all spending departments bar the NHS. Yet here’s the thing. Far from plunging on the Reeves tax-and-spend manifesto, gilt prices have actually recovered this week. Perhaps Mr Market has decided that it just won’t be physically possible to spend that £113bn. Gasperd Farrer would be proud.