DfT budget cut by £545m

[DarloRich]

It is odd, isn't it, how it seems fine for NR to operate in the property sphere as long as that is limited to railway arches, old railway buildings, small station commercial schemes, small letting units etc but as soon as there is real money to be made they are not the right people to deal with such riches. Only the private sector may do so.

 

[Olaf]

No information on how a £545m 'saving' can be made by DfT other than it says "incl. King’s Cross property" which is apparently the sale of property around Kings Cross for an estimated £345m, so that leaves £200m of unspecified savings.

https://www.gov.uk/government/news/chancellor-announces-4-billion-of-measures-to-bring-down-debt

This is the first phase of the cuts to come; it is the easy pickings, and includes a claw-back of departmental under-spend. The current estimates that there are still another GBP 30+ Billion in cuts to be announced, but most will be targeted at OPEX rather than capital spending.
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As always, a short term fire sale of British assets so the City boys can clean up with a long term income stream. Britain is so depressingly predictable.

On the contrary; it is best to get these assets off of the books now while they still hold a premium value. Things are going to get nasty, and a sale sooner rather than later is a wise move.

 

[Tubby Isaacs]

This is the first phase of the cuts to come; it is the easy pickings, and includes a claw-back of departmental under-spend. The current estimates that there are still another GBP 30+ Billion in cuts to be announced, but most will be targeted at OPEX rather than capital spending.

Those £30bn of cuts won't happen, just as the 2010 plan was scrapped in 2012 last time.

 

[Olaf]

It's rather ridiculous that we're seeing this cut to departmental budgets overall especially when this very week the OECD has come out and said that austerity hampers economic growth; the fetishisation the Tories have with cuts is deeply harmful.

The OECD is as a much a political organisation as any other; look to the OECD's motives for making the statement.

 

[Manchester77]

The OECD is as a much a political organisation as any other; look to the OECD's motives for making the statement.

Maybe but you can't get away from the simple fact that whether it's the IFS, IMF or OECD more and more economists are agreeing that austerity is not good for economic growth.

 

[Olaf]

Those £30bn of cuts won't happen, just as the 2010 plan was scrapped in 2012 last time.

The plans are adjusted to reflect the ongoing developments of the economy - and if you recall UK growth indicators turned the corner in late 2011. The cuts might not go through at that level, but best not to rely on it. The level of the cuts is significantly dependent on events and developments outside of the control of the UK Government and it will have to adjust expenditure to respond to developments. In short; don't expect an easy ride.
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Maybe but you can't get away from the simple fact that whether it's the IFS, IMF or OECD more and more economists are agreeing that austerity is not good for economic growth.

Well actually, no they are not.

 

[yorksrob]

The current estimates that there are still another GBP 30+ Billion in cuts to be announced, but most will be targeted at OPEX rather than capital spending.

Wouldn't surprise me.

This is exactly why route renewals and rolling stock replacement needs to be treated as a one-off capital expense, rather than converting them into long term operational expenses through track access and rolling stock leasing charges.

 

[Manchester77]

Well actually, no they are not.

Well they are however I don't think it's wise to discuss whether or not austerity of Keyenesian economics are the way forward here!

 

[Olaf]

Wouldn't surprise me.

This is exactly why route renewals and rolling stock replacement needs to be treated as a one-off capital expense, rather than converting them into long term operational expenses through track access and rolling stock leasing charges.

Route renewals and rolling stock replacement are already treated as capital investments. The OPEX includes the maintenance and minor renewals of those assets. The charges are the revenue that is channelled to pay for the capital investment.

At the moment none of the major capital investment programs are targeted, but that does not mean that existing and upcoming programs will not be adjusted so that expenditure will match available funds in any given period. At some point though, the issue of current means of capital investment will be addressed.
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Well they are however I don't think it's wise to discuss whether or not austerity of Keyenesian economics are the way forward here!

If you want to think that, that's fine with me.

 

[mr_jrt]

Just wanting to chip in here (there are a lot of graphs, but this is the most pertinent one you should see if you can't be bothered to read the article, and apologies for the size - it's hotlinked so not much I can do)...

...and...

http://rt.com/uk/254225-austerity-delusion-paul-krugman/

In a letter published by the Guardian on Wednesday titled ‘The Austerity delusion,’ the Nobel Prize-winning economist challenged Prime Minister David Cameron’s claim to have saved the British economy.

Krugman, who teaches Economics at Princeton University, said Britain only returned to growth midway through the government’s term in power after it caved on its agenda of repairing the nation’s finances in a five year stint.

 

[67018]

It is odd, isn't it, how it seem fine for NR to operate in the property sphere as long as that is limited to railway arches, old railway buildings, small station commercial schemes, small letting units etc but as soon as there is real money to be made they are not the right people to deal with such riches. Only the private sector may do so.

Real money is made by taking real risks though. I'd rather NR was run by railway experts who concentrated on running a railway, not on taking punts on property investment.

If we want such investment to be made by the public sector to support public services, we should do it properly with a specialist organisation - like a sovereign wealth fund.

 

[TheKnightWho]

Well they are however I don't think it's wise to discuss whether or not austerity of Keyenesian economics are the way forward here!

Britain is the only country where austerity is still taken seriously, and it's because the right have made it part of the narrative of "fairness" and "in it together". Hence drastic cuts when elected, that are sneakily put aside soon after.

 

[455driver]

Real money is made by taking real risks though. I'd rather NR was run by railway experts who concentrated on running a railway, not on taking punts on property investment.

Where is the risk in opening offices in London?
There is next to no risk but the prospect of a very healthy return indeed, which is exactly why the Torys want their mates in the City to get their hands on the land and do the developing instead of Network rail.

 

[plcd1]

Welcome to the world of politics

Or more precisely the world of post coalition politics. I think some of the cuts are purely the result of not having to appease the Liberal Democrats and their favoured "causes" in government. That's why it seems to be a reversal of what went before.

 

[67018]

Where is the risk in opening offices in London?
There is next to no risk but the prospect of a very healthy return indeed, which is exactly why the Torys want their mates in the City to get their hands on the land and do the developing instead of Network rail.

Well, to give one example, the original builders of Canary Wharf went bust.

There's no such thing as a healthy return with no risk, except either in hindsight or in the minds of those who are liable to lose their shirts.

Anyway, amid all the usual rhetoric, it sounds like there's no real impact on the railway at this stage from this announcement, so things could be much worse.

 

[Metrailway]

Britain is the only country where austerity is still taken seriously, and it's because the right have made it part of the narrative of "fairness" and "in it together". Hence drastic cuts when elected, that are sneakily put aside soon after.

The only country? I guess you haven't been reading the European news.

Angela Merkel introduced in 2011 the largest cuts ever seen in Germany since WWII and of course the Germans are a well known advocate of austerity througout the Eurozone.

Recently, the Germans amended their constitution which makes a Federal Government structural deficit of 0.35% of GDP illegal from 2016, and will also forbid State Governments running a structural deficit from 2020. For comparison the UK has a structural deficit of around 3% of GDP IIRC.

Prior to Frau Merkel, centre-left Gerhard Schroeder introduced austere welfare measures, to boost German competitiveness (Hartz IV reforms) in the mid 2000s. The UK is embarking some years later on similar reforms with the (delayed) introduction of Universal Credit.

Away from Germany, the Finnish Government have been the greatest advocates of austerity in the Eurozone for the past few years. After the recent general election the new government is intending to be even more austere.

So Britain is certainly not the 'only country where austerity is still taken seriously.'

 

[WatcherZero]

German austerity was only a 0.5% GDP cut in spending, 80bn Euros. They were spending 124bn a month in 2010, they are now spending 130bn and they last year passed stimulus measures that will increase their spending as a percentage of GDP above when the crisis started.

Finland have increased their structural deficit by 2% of GDP, the reason they are having such austere cuts now at this late stage is their economy has shrunk 10% and suffered three years of recession.

Well, to give one example, the original builders of Canary Wharf went bust.

There's no such thing as a healthy return with no risk, except either in hindsight or in the minds of those who are liable to lose their shirts.

Anyway, amid all the usual rhetoric, it sounds like there's no real impact on the railway at this stage from this announcement, so things could be much worse.

Indeed, five years after it was built he went bankrupt as the City didn't move to the development like he predicted they would, however 3 years later he bought back Canary Wharf and in 2012 it surpassed the City as Europes largest financial district.

 

[matt_world2004]

Well, to give one example, the original builders of Canary Wharf went bust.

There's no such thing as a healthy return with no risk, except either in hindsight or in the minds of those who are liable to lose their shirts.

Anyway, amid all the usual rhetoric, it sounds like there's no real impact on the railway at this stage from this announcement, so things could be much worse.

In the 1980's when someone on an average income could afford to own a home in London.

 

[DarloRich]

Real money is made by taking real risks though. I'd rather NR was run by railway experts who concentrated on running a railway, not on taking punts on property investment.

If we want such investment to be made by the public sector to support public services, we should do it properly with a specialist organisation - like a sovereign wealth fund.

but the money the property portfolio generates makes money for NR which is then invested back into the railway network. In the last control period the property arm of NR generated £1.4bn for reinvestment. That isn't peanuts. I am also sure there must be some "risk" in there as well! How will that funding shortfall be made good?

My view is that sum means the property arm will be hived off to the private sector to enable them to enjoy those profits.

 

[billio]

About twenty.
But it all depends on rental yield.
And there is risk which should not be taken on by a publicly funded organisation - although some can not resist.

Well the people who will buy it will feel that it is a good investment.

And, for transport activities, there are considerable risks of not owning the property that surrounds the major assets because the cost of any major change might become prohibitive. The railway is providing a major benefit to this land, it should reap the long-term benefits.

This sale is all about the transfer of public property to the private sector for personal gain, it is not about sensible long-term planning for development of the railway.

 

[pemma]

So Britain is certainly not the 'only country where austerity is still taken seriously.'

One thing a number of other European countries seemed to have done which we haven't is to introduce a tourist tax to create additional revenue. In Italy it's even irrelevant when you booked the hotel, if you book a hotel stay for October in January and the tourist tax is advertised as 3 Euros per night and in April they announce the tourist tax is 6 Euros per night from 1st September then you have to pay 6 Euros per night. Germany have the tourist tax as well now but the rate you pay is the rate at the date of booking - a more sensible approach.

Another thing that's happened in some European countries, particularly Southern EU countries, is huge increases to local public transport fares. However, some of them were extremely low to start with. For instance instead of paying 1 Euro to make a single journey of 5 miles you now pay 1 Euro 50.

 

[Metrailway]

German austerity was only a 0.5% GDP cut in spending, 80bn Euros. They were spending 124bn a month in 2010, they are now spending 130bn and they last year passed stimulus measures that will increase their spending as a percentage of GDP above when the crisis started.

Quite right to point that out. But the Germans cut €80bn (2011 €s) over three years. The UK has cut under £30bn (2015 £s) in five years according to the IFS. As a % of GDP public spending has shrunk quicker in the UK than Germany but that is primarily due to better GDP growth figures in the UK for the past three years.

Unlike the UK, the Germans are now running budget surpluses (0.6% federal budget surplus in 2014) so arguably can afford to spend more. It would boost domestic demand in Germany which has traditionally been weak when compared to other developed countries.

Of course one could argue (not me) that if we wish to be good Europeans, we ought to honour our treaty obligations re debt to GDP. We, along with the French and Germans have breached the 60% debt to GDP ratio required by the EU's Stability and Growth Pact.
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One thing a number of other European countries seemed to have done which we haven't is to introduce a tourist tax to create additional revenue. In Italy it's even irrelevant when you booked the hotel, if you book a hotel stay for October in January and the tourist tax is advertised as 3 Euros per night and in April they announce the tourist tax is 6 Euros per night from 1st September then you have to pay 6 Euros per night. Germany have the tourist tax as well now but the rate you pay is the rate at the date of booking - a more sensible approach.

Another thing that's happened in some European countries, particularly Southern EU countries, is huge increases to local public transport fares. However, some of them were extremely low to start with. For instance instead of paying 1 Euro to make a single journey of 5 miles you now pay 1 Euro 50.

I'm not sure of a Tourist tax. Don't know how it is implemented but it does sounds rather discriminatory if local citizens are exempt?

 

[pemma]

I'm not sure of a Tourist tax. Don't know how it is implemented but it does sounds rather discriminatory if local citizens are exempt?

I think the first example of a Tourist Tax was actually by the Swiss, which wasn't so much for them to make money but to attract use of public transport by tourists by giving them a pass but to fund the pass they introduced a tax.

In the case of Italy they introduced it to reduce their deficit and the rate is set by the mayor of the city you are in, so it may be different in Florence than in Rome. I think in Italy it's payable if you live outside the local area opposed to just foreigners, so someone from Rome who books an overnight stay at a hotel at Rome Airport would be exempt but someone from Rome who books a hotel stay in Florence isn't exempt.

A tourist tax isn't paid when you book the hotel, it's paid in the local currency when you check out of the hotel.

Personally I don't think it's a good solution but as long as people from Britain are being charged it in Europe then I think it should be looked at here.

 

[WatcherZero]

Only a third of the 34m visitors to the UK are tourists, 1/3rd are visiting friends or relatives and 1/3rd is business. So could potentially be a disincentive, but if you say that 2/3rds stayed in hotels with an average stay of 7 days and you charged them £3 a night then it would raise just under £500m.

Frankly I don't think it would be worth it, the disincentive might outweigh the tax take.

 

[Mojo]

I'm not sure of a Tourist tax. Don't know how it is implemented but it does sounds rather discriminatory if local citizens are exempt?

And they say Britain is unfriendly to foreign visitors... :roll:

 

[Tubby Isaacs]

The only country? I guess you haven't been reading the European news.

Angela Merkel introduced in 2011 the largest cuts ever seen in Germany since WWII and of course the Germans are a well known advocate of austerity througout the Eurozone.

Recently, the Germans amended their constitution which makes a Federal Government structural deficit of 0.35% of GDP illegal from 2016, and will also forbid State Governments running a structural deficit from 2020. For comparison the UK has a structural deficit of around 3% of GDP IIRC.

Prior to Frau Merkel, centre-left Gerhard Schroeder introduced austere welfare measures, to boost German competitiveness (Hartz IV reforms) in the mid 2000s. The UK is embarking some years later on similar reforms with the (delayed) introduction of Universal Credit.

Away from Germany, the Finnish Government have been the greatest advocates of austerity in the Eurozone for the past few years. After the recent general election the new government is intending to be even more austere.

So Britain is certainly not the 'only country where austerity is still taken seriously.'

Universal Credit is combining various benefits into a single payment. It's not really relevant to austerity or Haartz. Anyway, Haartz was done against a backdrop of a growing EU economy. Making changes like that are politically difficult to do at times like that, but economically much easier than what Britain, Spain etc have tried to do since 2010.

Nonetheless, the biggest boost to the German economy has been the Euro and the resulting low cost of German exports.

The return to growth came after Osborne abandoned plan A.

http://mainlymacro.blogspot.co.uk/2013/12/osbornes-plan-b.html

 

[TheKnightWho]

The only country? I guess you haven't been reading the European news.

Angela Merkel introduced in 2011 the largest cuts ever seen in Germany since WWII and of course the Germans are a well known advocate of austerity througout the Eurozone.

Recently, the Germans amended their constitution which makes a Federal Government structural deficit of 0.35% of GDP illegal from 2016, and will also forbid State Governments running a structural deficit from 2020. For comparison the UK has a structural deficit of around 3% of GDP IIRC. You also later go on to talk about a strong economy "affording" to boost spending - this has things totally backwards; a strong economy doesn't need the boost of additional spending, and is in fact exactly when you begin saving.

Prior to Frau Merkel, centre-left Gerhard Schroeder introduced austere welfare measures, to boost German competitiveness (Hartz IV reforms) in the mid 2000s. The UK is embarking some years later on similar reforms with the (delayed) introduction of Universal Credit.

Away from Germany, the Finnish Government have been the greatest advocates of austerity in the Eurozone for the past few years. After the recent general election the new government is intending to be even more austere.

So Britain is certainly not the 'only country where austerity is still taken seriously.'

I really hope you've read WatcherZero's post well. Also, using an example from 2011 when I stated that most other countries don't take austerity seriously really misses the point - even the IMF has dropped austerity, and most other countries did in around 2012.

There is an exception to austerity - Greece, where there is little other choice. However, the fact is that Britain is the only country that seriously tried to save its way out of recession, and quietly resorted to the standard practice of spending to boost the economy when the initial round of austerity caused the recovery to founder.

 

[Clip]

The wonders of RailUK Forums - some times people ( who have posted on this thread) complain about NR using station space to turn them into shopping areas and say they should only concentrate on running the railway and not be landlords yet now those same people are saying they should be and earn a return from the land round the cross. That very land that had lay barren and underused for many a year bar a few nightclubs.

How wonderful.

 

[Metrailway]

I really hope you've read WatcherZero's post well.

I really hope you have read my response to WatcherZero's post. If you had you would have noticed that I accepted WatcherZero's valid point.

Also, using an example from 2011 when I stated that most other countries don't take austerity seriously really misses the point - even the IMF has dropped austerity, and most other countries did in around 2012

If you read my initial post I stated that the Finns have elected a Government advocating austerity. This Government formed on the 29th May 2015. I hope this is a sufficiently recent example.

I also note that you now state 'most other countries'. Forgive me for taking your previous post literally when you stated:

Britain is the only country where austerity is still taken seriously

In my initial post I was merely pointing out that Britain is not the only country where austerity is still taken seriously.

There is an exception to austerity - Greece, where there is little other choice.

Disagree with regards to Greece. Further punitive austerity is not going to help Greece. The problem is the Greek people do not want it. They are fed up of the depression. They have already suffered a nominal GDP drop of 25% with the future still looking bleak. With Greek debt at ~ 180% to GDP, the creditors really should take a massive haircut but the various creditors government do not want to admit they have failed to their electorate. Until the Greek people feel that there is some easing of austerity, there will be little support for vital reforms Greece needs such as improved tax administration and reform of pensions.

Of course the above doesn't fundamentally solve the issue of states sharing a currency with divergent economic policies. To solve this while keeping the Euro would require significant transfers of sovereignty. Some of these transfers of power, such as fiscal transfers and issuing Eurobonds with pooled liability, may be unconstitutional in certain member states and unpalatable to the general public of cerian member states. Which is why IMHO European politicians have been kicking the can for the past five years.

However, the fact is that Britain is the only country that seriously tried to save its way out of recession, and quietly resorted to the standard practice of spending to boost the economy when the initial round of austerity caused the recovery to founder.

Which is why I think is disingenuous for the Tories/Coalition to have claimed the word austerity for their policies.

 

[yorksrob]

The wonders of RailUK Forums - some times people ( who have posted on this thread) complain about NR using station space to turn them into shopping areas and say they should only concentrate on running the railway and not be landlords yet now those same people are saying they should be and earn a return from the land round the cross. That very land that had lay barren and underused for many a year bar a few nightclubs.

How wonderful.

I don't object to NR making a few bob on the station. Lord knows, I spend enough in such places - although I can see the objections when concourses are turned into obstacle courses.

Better to be able to earn a nice little income on the side without impinging on day to day operations.

If this sell off is so wonderful for the railway, how comes it's taken the Government to strong arm NR into doing it?