Monthly Archives: July 2023

Why did the Conservatives become radical greens?

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It’s deeply disturbing that a supposedly conservative government has been destroying property rights, undermining the middle classes and strangling the economy – all in the name of the environment. How on earth did this happen?

Looking at the incentives facing the party’s leaders might provide some clues.

The obvious explanation is they’re doing it to attract votes. To win the next election they need to go beyond their core support. So, they have to reach out to the centre, perhaps to voters who might consider backing the Lib Dems.

Such calculations also factor in the marginal seats needed to retain a majority and the particular voter groups they therefore need to attract. To give a specific example, a “green” policy of opposing Heathrow expansion might be cynically designed to gain marginal seats in south-west London.

However, if this strategy has been at play, then it is likely to have backfired spectacularly. The government’s green agenda is a major factor in a cost-of-living crisis that has caused its support to plummet.

Moreover, the Conservative majority relies on working-class voters in the North and Midlands – a group that has suffered particularly badly as energy bills have rocketed and real incomes declined.

Many voters don’t connect the cost-of-living crisis to green policies. Indeed, media propagandists deliberately hide the link by blaming other things.

The inconvenient truth is that the UK’s heavy dependence on imported gas is a direct result of the renewable energy agenda and in particular the forced closure of cheap and reliable coal-fired power stations. But whether voters understand this or not, they still tend to blame the government for the consequences and the marked decline in their living standards. 

So, the “going green to attract votes” hypothesis doesn’t stack up. If this was a factor, then it has been a huge miscalculation. In any case, more moderate measures combined with some environmentalist rhetoric could have ticked the “green box” without doing such immense damage to the economy.

A second possible explanation is that the government has to conform with the “metropolitan elite” in order to retain power. This group, so the theory goes, has different values and priorities to the rest of the country. It also has immense influence because it dominates the media, civil service and other pillars of the establishment.

London-centred, its members use public transport far more than people outside the capital. An often-vocal minority cycle to work. Many of them live in gentrified, densely populated inner-city areas, a very different environment to that experienced by the suburban and rural rich.

15-minute cities might seem normal and desirable to them. But in reality, the purchasing power of this group and the local services it supports are very far from the norm, and could not be replicated in more than a relatively small number of locations.

It seems likely that support for radical environmentalism is significantly stronger in the metropolitan elite than the general population. The Conservatives perhaps fear that reversing the radical green agenda would alienate this group, leading to negative media coverage, obstructive behaviour by the civil service and other problems.

Some Conservative politicians may also want to be part of this “elite” in order to enjoy the status, connections and financial rewards that come with it. If they reject the green agenda, they risk being ostracised.

It’s alarming to think that a small, privileged minority, concentrated in London, effectively has the whip hand over policies that affect the whole population, but this conclusion is certainly plausible when the incentives facing policymakers are considered.

A third hypothesis can almost certainly be rejected. Cynics often believe that politicians effectively get paid to implement various agendas.

A number of corporate interests are making vast profits from green measures. And it’s true they have a strong economic incentive to “capture” policy by investing in lobbying.

But this doesn’t seem to be taking the form of politicians benefiting financially. There are relatively few examples of former ministers getting well-paid jobs at renewable energy companies or other firms that benefit from green policies – and these may well be cases where the individuals concerned have genuine expertise in the industry. The phenomenon certainly isn’t widespread enough to explain government policy.

Moreover, there are also powerful vested interests that will lose out from the radical green agenda. They are attempting to sway politicians too – but, again, there is little evidence that this takes the form of substantial financial inducements. As previous scandals have shown, the reputational risks from exposure would be very high on both sides, which acts as a strong deterrent to any untoward activity.

Finally, there is the possibility that a significant number of ministers and MPs genuinely believe in radical environmentalism. It’s not about their careers, social status, or even the money, but ideological.

It’s striking that a significant proportion of Conservative MPs are not very conservative at all. They already support high taxes, heavy regulation, technocracy, political globalism, central planning, and rapid social change. This arguably makes them natural allies of the radical green agenda.

Their approach couldn’t be more different from genuinely conservative policies to protect the environment. These could focus on bolstering conservation and stewardship by restoring traditional property rights undermined by the state. For example, respecting private property by ending the practice of compulsory purchase would prevent a great deal of environmental damage.  

The key question is therefore how this not very conservative group came to dominate the Conservative Party and subsequently steer environmental policy in a non-conservative direction.

Whatever the real reason, the result is that the UK is effectively a one-party state when it comes to the radical green agenda. All the main parties support it and voters have little realistic choice.   

Richard Wellings

Why it’s still worth cancelling HS2

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Ministers have already wasted an astounding £30 billion on High Speed 2 – but it’s still worth scrapping this ill-conceived vanity project.

The government has fallen victim to the sunk-cost fallacy. It continues to throw good money after bad. The saying “When you’re in a hole, stop digging” is particularly apt.

Cancelling HS2 now would enable the remaining expenditure to be reallocated to higher-value uses, generating far greater returns than continuing to squander vast sums on this loss-making scheme.

Moreover, several billion have gone on purchasing property along the route. Much of this could be recouped – ideally with the victims of the land-grab getting first refusal on their former homes and business, wherever possible.

Scrapping HS2 would also have the benefit of scuppering local vanity projects linked to the scheme – whether loss-making tram links or “regeneration” projects to create state-funded Potemkin villages next to the stations.

On the downside, there would clearly be significant costs from cancelling contracts, laying off staff and so on. But these would be relatively small compared with the ballooning HS2 budget.     

About £27 billion of the total spent so far has gone on Phase One, the section between London and Birmingham (recent government figures have been adjusted to 2023 prices).

The official target cost for Phase One is approximately £49 billion in 2023 prices. Since more than half of this has reportedly already been spent, it’s likely the final bill will be far, far higher.

An independent estimate from a credible source predicted Phase One would end up costing around £67 billion (adjusted to 2023 prices). This looks more plausible than the government’s figures – though the scope of the project has been and remains subject to change, making it problematic to compare like with like.

Much will depend on what happens at Euston. The last 4.5 miles of the line, tunnelled under Inner London, together with the expansion and remodelling of the station, could easily end up costing taxpayers around £10 billion – plus the potential for massive additional costs to improve local transport links to the terminus.    

It’s possible ministers and officials will cook up some way of putting a big chunk of Euston’s costs off-balance-sheet in order to artificially reduce the bloating HS2 budget. But it’s also possible they will abandon this part of the project entirely and terminate trains at Old Oak Common permanently.

Uncertainty about the cost, completion date and scope of Phase One makes it difficult to estimate the costs and benefits. Worse still, there is already a substantial literature questioning the assumptions used to create the various iterations of HS2’s “business case”. For example, the shift to virtual meetings and working from home create a very big question mark over the number of high-value-of-time, high-fare-paying business travellers who will use the new line.

Official figures for HS2 Phase One suggest that the costs are roughly equal to the benefits. The benefits may be slightly higher than the costs if somewhat nebulous “wider economic benefits” are factored in (these are typically relatively small for long-distance routes). However, if realistic assumptions are used for the calculations, the costs are likely to far exceed the benefits (one important aspect of this is discussed below).

It will be interesting to see how escalating costs and other problems affect the government’s next “business case” for HS2 Phase One. Will the figures be manipulated to keep the benefits just above the costs – or will they finally throw in the towel?

Moreover, every pound taken via taxation (or borrowed by the government to be repaid through future taxes) costs the economy significantly more than a pound in total. Taxation and government borrowing impose additional economic damage beyond the direct cost – for example by making certain economic activities no longer worthwhile and incentivising the misallocation of resources. The same is true of printing money to fund schemes – effectively a hidden form of taxation.

In other words, taking these additional costs into account, the benefits of HS2 would have to be substantially higher than the direct costs for the project to be worthwhile (the ratio depends on the nature of the state funding).

In any case, there are plenty of transport schemes that are much better value for money than HS2. The benefits often outweigh the costs by a factor of three, four, five or even more.

Let’s assume, for the sake of argument, that Phase One costs an additional £40 billion from the present to completion (in 2023 prices). If the scheme were cancelled now and that £40 billion invested in much higher value transport projects, it’s plausible it could generate (for illustrative purposes and simplicity’s sake) say £100 billion in benefits. This would far exceed the purported benefits from Phase One (see here for some official estimates and further details of their methodology; note that the “cost” in such calculations is not the same as the project’s budget).

And unlike HS2, such an alternative could provide a strongly positive return even when the wider costs of taxation and/or government borrowing are factored in.

There’s a problem with this solution, however. Politicians and officials often disregard economic analysis when deciding which transport schemes get the go ahead. While HS2 is a particularly egregious example, given its mammoth scale, the rot has also spread to smaller rail projects, road schemes, cycle lanes and so on.

It’s not unusual for projects to get the go-ahead even though the costs outweigh the benefits – and this is based on the official analysis – often “cooked” to make the project look better than it really is in order to please political backers and other vested interests.

So, it’s possible the illustrative £40 billion saved by cancelling HS2 Phase One could end up being wasted on other uneconomic schemes – though it seems unlikely they would be worse than HS2.

Ministers could avoid this outcome by introducing a strict minimum benefit-to-cost ratio for transport projects. If proposals failed to reach this threshold – set quite high to take account of exaggerated benefits, unrealistic cost estimates and other manipulations – they would automatically be refused.

Unfortunately, politicians are typically content forcing taxpayers to fund uneconomic schemes in order to “buy votes” in target regions or curry favour with powerful special interests.

This depressing context makes another option more attractive. As in many Western nations, the UK’s public finances are in deep trouble, with borrowing at dangerously high levels – vulnerable to disaster in the event of a severe external shock. This makes cancelling HS2 to reduce government borrowing a particularly attractive option. It could form the centrepiece of a programme of radical spending cuts, which might also include scrapping other vanity projects.

Restoring confidence in the public finances would have huge economic benefits: encouraging investment, boosting productivity and raising the prospect of future tax cuts. Isn’t this a good reason for ministers to stop digging?   

Richard Wellings

Image: gov.uk