Mr Osborne's small plan for big infrastructure
It's hard to find an economist or pundit who does not want to see more public infrastructure investment in Britain to support the economy. Today the chancellor and the chief secretary are telling us they finally have a plan to make it happen.
They are so keen to get new infrastructure projects up and running, they say they're using the government's "hard won fiscal credibility" to make it happen. What they will not say is that they are spending any new money.
There's a new guarantees scheme to help unlock up to £40bn worth of priority infrastructure projects, the first of which could be awarded in the autumn.
There's also a new one-year, temporary programme to allow departments to lend money to smaller public-private infrastructure projects that might otherwise get delayed.
Finally, there's a £5bn export refinancing facility to help insure UK companies against the cost of certain big ticket foreign orders falling through. (Though that piece won't be up and running until the end of the year.)
The big questions are: what is it all going to cost? And how much difference is it going to make?
The official answer to the first question is it won't really cost anything - or at least, nothing that will formally count as new spending or new debt. Perhaps that should come as no surprise. After all, any thing that did cost the government upfront would immediately be labelled a "Plan B".
The temporary lending scheme is coming out of departments' own budgets. That, incidentally, has some doubting whether the investments will happen, since many of the relevant departments are already short of cash.
The guarantees will all be "off balance sheet", like the investments carried out under the Private Finance Initiative (PFI). In other words, the cost will only show up in government spending, when and if the government actually has to hand over any cash.
Mention of the PFI may well make some of you nervous. That was another wheeze dreamed up, years ago, to "unlock" a lot of new infrastructure projects, without the government having to take on the upfront costs.
In opposition, Mr Osborne criticised the way that PFI had been used simply to keep big projects off the government's balance sheet. The scheme had ended up costing taxpayers far too much, while private contractors had been offered a one-way bet.
But anyone who thinks the government is about to make the same mistake with these infrastructure guarantees can probably relax.
Read the details of today's guarantee scheme, and you see it has been written by an organisation determined not to take on one jot of unnecessary risk - and equally determined that private sector contractors not get a penny more than they need, even if the pennies in question are not going to show up in the public accounts.
Put it another way, it is a scheme that has been written by and for the UK Treasury.
It is unlikely to go down as another costly infrastructure fiasco. But it's possible it won't result in an enormous amount of new infrastructure either.
Here's a flavour of what I'm talking about. To qualify for consideration in this scheme, the Treasury says an infrastructure project has to be:
- "Nationally significant, as identified in the Government's National Infrastructure Plan 2011
- "Ready to start construction within 12 months (i.e. with all necessary planning etc consents)
- "Financially credible, with equity finance committed and project sponsors willing to accept appropriate restructuring of the project to limit any risk to the taxpayer
- "Good value to the taxpayer, assessed by HM Treasury to have acceptable credit quality, not present unacceptable fiscal or economic risks and to make a positive impact on economic growth."
All of that might sound reasonable. Prudent, even. But there is one further test, which some will find a bit over the top.
As well as jumping through all these hoops, to qualify for the partial guarantee (which will be tailor-made for each project) the backers must also be able to demonstrate that they definitely would not be able to go ahead without this carefully delineated government support.
In other words, it has to be a perfect project in every possible respect, but somehow not quite perfect enough to get up and running entirely on its own.
These are difficult times. There may well be projects that fall into this category. The Treasury itself says that up to £40bn worth could possibly qualify. But that is a maximum, spread over many years. And they have to pass all these tests first.
In today's tough environment, some will say if a project is that important, it's worth getting it up and running quickly, even if that does mean you end up giving more help than is strictly necessary. Put it another way, it might be worth incurring what economists would call some "deadweight loss" to make them happen. But that is not an argument that carries much weight at HM Treasury.
In its own national infrastructure plan last November, the government identified a pipeline of critical infrastructure projects worth £250bn.
Dieter Helm, a respected expert who has advised the government on this, says the true figure is closer to £500bn.
It would be nice to think there is a "free lunch" available here - a cost-free way for the government to lend its good standing in the financial markets to worthy private projects, to make it easier for them to raise the money they need.
That is why most economists thought this kind of scheme was worth exploring. There is now a massive gap between the government's current cost of borrowing and the cost for anyone else.
But, looking at the very careful way the guarantees have been designed, you have to wonder how much investment it will really unlock.