The British government unwisely entered the current slowdown with a sizeable budget deficit. Recent bank bailouts are likely to push the national accounts further into the red and increased borrowing may put upward pressure on interest rates. Yet the obvious solution, increasing taxes, would harm businesses and hinder economic recovery. Cutting public spending should therefore be the preferred policy option when the Treasury takes action to balance the books.
Crossrail, a project to improve links between East and West London, should be one of the first casualities of tighter fiscal conditions. The cost has been estimated at £16 billion. But given the disastrous history of big government projects this seems likely to rise to £20 or even £30 billion – mostly paid for by taxpayers.
Despite the huge sums involved, and even if its very ambitious service targets are met, the scheme will deliver only a relatively small enhancement to the capital’s transport capacity. The time savings are limited in most instances and the project will drain resources from more cost effective incremental measures, such as speeding up existing tube lines by closing under-used stations.
The most efficient way of tackling congestion on London’s public transport network is to use the price mechanism. Peak-time fares, including season tickets, should be raised where overcrowding is a problem. This would encourage economic activity to disperse to quieter times and less congested locations, making better use of the existing network. Passengers rather than general taxpayers should also pay maintenance and improvement costs.
Having dispensed with Crossrail, the government might also consider whether the 2012 Olympic Games should be run on a wholly commercial basis.