The Big Lie 1 – an economists view of the general election

There is always one big lie in any election campaign and this year’s one is that the government’s election promises are practical because only they have realistically costed their programmes.   Natalie Bennett leader of theGreens was ‘monstered’  in the media for failing to explain how she would fund the house building programme that she promised. Instead of stumbling over the figures, she should have replied that all costings of public expenditure programmes are little more than  ‘guesstimates’ and some are more accurate than others. Given the access the government has to advanced computer technology, one would assume that it’s costing of programmes would be more accurate than that of others, although that is not always true. A glimpse at the history of government spending projects would demonstrate this; it is difficult to think of one government project that has come in on budget.  The costs and management of Britain’s two latest aircraft carriers demonstrate this all too clearly. Not only were the costs grossly underestimated, but so were  the ancillary costs were ignored, such as the need to construct supporting vessels. The consequence us that when completed only one aircraft carrier will be able to be put to sea and then only if our NATO allies can provide a projected shield of warships. There is even the suggestion the the costs were so grossly underestimated that their might only be enough money in the budget to provide enough aircraft for one carrier only. Yet this is the government that accuses the opposition of failing to fund its plans,

  

Canary Wharf http://www.rsh-p.com

Why cannot the government accurately cost its programmes? The first answer is that most programmes are intended to operate over a number of years and many unexpected factors can throw the best laid plans into chaos. Large construction projects very rarely come in on budget, unexpected geological problems might occur, or a spell of bad weather delay construction or conflict in a country providing essential materials all of which can lead to a spiralling of costs. Usually to avoid this most projected plans include an element of overspend. Even allowing for this large spending projects can bankrupt the business. Perhaps the best example is Canary Wharf, where the one company Olympia and York Canary Wharf Limited won the contract to build and develop a commercial centre on the  site of the old Canary Wharf Docks. Yet this well run business went bankrupt in 1992  having constructed most of the buildings. What bankrupted the company was the collapse of the property market in1992. If well run commercial enterprises can get costs and revenue so wrong, is it any surprise that government running much larger projects get their figures wrong? Uncertainty about the future is why so many cost estimates are wrong.

Government cost estimates for projects such as the High Speed 2 rail network and the Queen Elizabeth aircraft carriers are subject to an unusual budgeting practice, one based on the two principles over optimism and underestimation of the costs. Whereas in commercial practice an element of over spend is built into the costs, the government adopts the reverse practice, where the practice is to choose the most favourable cost projection (even if it’s an unrealistic option) in the belief that this is the best way to sell a project to the country. There are two infamous examples of this the cost estimates for the IT programmes in the Health Service and the now universal credits  programme for the Department of Work and Pensions. The first was abandoned because it proved unworkable and too costly, a fate that will be probably shared by the Universal Credit programme. Despite having proved so inept at costing their own programmes the government sneers at the other opposition parties for their so called ‘unfunded’ policy options.

Perhaps the best explanation lies with Disraeli who said there are ‘lies, dammed lies and statistics’. Statistics while if used correctly can be invaluable in the decision making process, all too often they are used to confuse. Part of what can be called a policy of disinformation. Confuse the opposition by getting them stuck in an unfathomable morass of misleading statistics.

Politicians also seem to believe that using statistics confers validity on their policies; I suspect because they believe that the arguments in support of their proposed policy option are not very strong. Using statistics no matter how flawed or selective is assumed to make their arguments more convincing to the electorate. What it signals is a lack of confidence in the politician who realises that they cannot win the debate by reasoned argument. Statistics are the screen behind which weak policies and politicians hide.  

Statistics when used properly are a useful guide to policy making, it is essential to have a reasoned estimate of the costs of a programme. Unfortunately politicians all to often make the most optimistic, rather than the most realistic cost estimates for their programme. When Ian Duncan Smith (Minister for Work and Pensions)  started the reform process to introduce universal credit, he claimed it would cost the tax payer £2.2 billion to introduce, yet three years later he acknowledged costs have risen to £12.8 billion. One estimate suggests that for every person placed on the scheme the cost was £225,000, an incredible figure for a programme that was intended to reduce the cost of administering welfare.  Perhaps the bible has the best explanation of Ministers who claim only they and not their opponents have properly costed their programme. Matthew 7:3 ‘And why beholdest thou the mote that is in thy brother’s eye, but considerest not the beam that is in thine own eye?’ (from the King James Bible). Whenever a government minister or senior opposition politician claims that only there policies are practical because they have been properly costed, the only answer can be an expletive. 

 

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