Green ‘New Deal’ will sink the UK further into the red

Will a green ‘New Deal’ help get Britain out of recession? The Liberal Democrats, for example, have proposed the reopening of disused railway lines as a means of boosting the economy.

Yet such policies, like the recent cut in VAT, will increase the level of public debt, making future tax rises more probable and putting upward pressure on interest rates, therefore deterring private sector investment in the UK. Indeed, any jobs ‘created’ are likely to be more than offset by those ‘destroyed’ through the wider economic effects arising from funding the developments.

Worse still, many green projects, such as reopened railway lines, will require continued long-term taxpayer subsidies, both to pay capital costs and absorb operating losses. The green ‘New Deal’ therefore threatens to increase the long-term role of the state in the economy with negative implications for economic growth.

At the same time, as with previous generations of big-government projects, it risks creating a new generation of white elephants which will gradually be abandoned as spending cuts become necessary to balance the books.

Green projects should be justified on their merits (if, indeed, they have any).

One of the conclusions I came to in my book They Meant Well: government project disasters is that politicians seem to have little incentive to cancel high profile projects once they have started. The political price they risk for carrying on with loss-making disasters (at taxpayers’ expense) is relatively small, since few people would change their general election vote as a result. Hence, compared with business directors, democratic politicians are strongly tempted to behave irresponsibly.

The key criteria for government intervention at present seems to be whether politicians retain control of the money rather than consumers, or, as in the case of VAT, the intervention is eventually reversible. It seems to matter little that these interventions might actually work!

One of the conclusions I came to in my book They Meant Well: government project disasters is that politicians seem to have little incentive to cancel high profile projects once they have started. The political price they risk for carrying on with loss-making disasters (at taxpayers’ expense) is relatively small, since few people would change their general election vote as a result. Hence, compared with business directors, democratic politicians are strongly tempted to behave irresponsibly.

The key criteria for government intervention at present seems to be whether politicians retain control of the money rather than consumers, or, as in the case of VAT, the intervention is eventually reversible. It seems to matter little that these interventions might actually work!

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