"We will explore all the options for maintaining the UK's aviation hub status, with the exception of a third runway at Heathrow."
So said George Osborne in his Autumn Statement today. And with that single sentence, he encapsulated the problem with government infrastructure projects – whatever the rhetoric, they are motivated by politics, not economics.
Clearly, it is feasible that new and improved infrastructure will boost economic growth by making us more productive. But that depends on the right projects being undertaken. And when you've got a government that says it wants to maintain the UK's aviation hub status, and then in the same breath refuse point-blank to let the private sector expand our existing hub airport, how much faith can you really put it their judgement?
Undoubtedly, most of the money the Chancellor is funnelling towards infrastructure spending will end up being wasted on projects that make no economic sense whatsoever. HS2, anyone? This is not a recipe for recovery.
The other problem with the government's infrastructure plan is that it rests on getting private pension funds to invest in infrastructure projects. But there are good reasons why pension funds haven't invested in infrastructure before, so it's hard to see why they'd leap at the opportunity now. Moreover, who is George Osborne to tell private pension funds that they should be investing more in infrastructure? Can he really say with confidence that this is going to give them a better return than the other possible investments? Quite frankly, the day the government starts directing private investment decisions is the day I'm switching to a SIPP and doing it myself.
All in all, I struggle to find anything nice to say about today's Autumn statement. For me, no amount of headline-grabbing initiatives can obscure the broad sweep of the statement. We're borrowing more money. The government is subsidising lending and attempting to direct private investment. And they're clearly trying to reestablish an activist industrial policy and plan the country's economic development. As I said on CNBC this lunchtime, it's like being back in the 1970s. Just without decent music.
