Britain’s National Infrastructure Commission wants much more money to be spent on national infrastructure. Its chairman, Sir John Armitt, has written to the chancellor in robust terms, complaining about the gap between pledges to do something and anything actually getting done.
Last December, the government announced £413bn of road, rail and energy projects. Sir John reckons that just £30bn-worth has a “realistic chance” of happening. As he might have put it, the road to hell is not even paved with good intentions, since the contracts for the paving are never actually let.
His remedy is a government commitment of 1.2 per cent of national output every year, ringfenced, to allow the industry to plan with confidence, along with the bonus of seeing a few more projects escape from the drawing board.
This is all very fine, but like December’s magnificent wish list, it is a fantasy. Big projects are there to be cut in moments of crisis, because they can be, and no chancellor will close his emergency escape route. Besides, we seem incapable of choosing big projects that offer value for money. The runaway financial train that is Hinkley Point nuclear power station is unfortunately too far down the tracks to stop now, while the socially and environmentally radioactive HS2 received yet another mauling this week.
A report from the Lords’ Economic Affairs committee can now be added to the pile of previous analyses, all concluding that HS2 is a waste of money. This one admits that we do not even have any idea of how much money, as the costs are out of control before a single rail has been laid. Meanwhile, the growth in rail traffic has stalled. Seats are generally available on routes to the north-west, undermining the last refuge argument that the extra capacity of a new line is desperately needed.
The real mystery is how this project defies all attempts to stop it. Like Hinkley Point, HS2 is consuming scarce resources that would be better spent on the long list of many smaller, sensible schemes gathering dust at the Department for Transport.
Liz Truss, today’s number two at the Treasury, seems to get this, extolling the virtues of more buses and better trains outside London at an FT conference this week: “Leeds is the largest city in Europe without its own mass transit network. Birmingham is 33 per cent less productive than a city of its size would be in France.”
The Armitt commission is too in love with construction to recommend scrapping HS2, although it does put the price of decent northern transport at £43bn, less than half the likely cost of HS2 if it ever gets completed, and providing a genuine economic boost where it is most needed.
Ms Truss is almost high enough in the government to stop the runaway train, and switch to Armitt instead. Either that, or the Conservatives risk seeing a popular, money-saving and sensible policy appearing in Labour’s manifesto.
Ditch those doomed dividends
Reality is slowly creeping up on the big beasts with doomed dividends, but it is a slow and painful process. Vodafone had been failing to earn a sustainable payout for years before finally grasping the nettle this week. Centrica has again paid out more than it can afford, while effectively signalling another cut in its attempt to avoid an existential crisis.
Philip Jansen, BT’s new chief executive, apparently believes he can pay for fibre, footie and everything else by borrowing and selling off bits of the business, but the yield on his maintained dividend of 7.5 per cent says it can’t be done. Holding the payment is a missed open goal for a new player. Should he be forced to cut next year, he will carry the blame.
The big dividend payers that allow income funds to flaunt fat yields to investors are mostly being found out. Companies further down the FTSE scale, such as Standard Life Aberdeen, Aviva, GlaxoSmithKline and J Sainsbury are reduced to hoping that something will turn up to allow the payouts to continue.
The income funds are increasingly dependent on oil, tobacco and housebuilders, where the yields are high and considered sustainable. Unfortunately, these unfashionable industries may not be where today’s woke investor should really admit to investing her money.
A full list of Neil Collins’ financial interests can be found at: www.ft.com/collinsportfolio
