If you have ever had the builders in, you will probably have found that the final bill was a bit higher than the original estimate. At some stage in proceedings, the workman will make an alarming sucking noise with his tongue, make some disparaging reference to his predecessor (‘Oh dear, you’ve had a right bunch of cowboys in here…’) and warn that due to these unforeseen deficiencies, extra work will be required.
Yet when it comes to the public sector, these cost overruns take on biblical proportions. This week, there was a report in The Times that the cost of rebuilding the derelict Casement Park stadium in Belfast ‘has ballooned from £73 million to £310 million’. That’s over four times the original estimate.
The report states:
‘Sir Keir Starmer’s chief of staff has been accused of ‘subverting’ cabinet ministers in an effort to secure a government bailout to cover the £310 million cost of rebuilding a derelict stadium in Belfast. Sue Gray has angered government officials and ministers by ‘personally dominating’ negotiations for a bailout for Casement Park, a dilapidated Gaelic games venue due to host matches at the 2028 European football championship’.
Is there any level of cost beyond which Gray would oppose a bailout? £400m? £500m? No doubt the budget for the Casement Park stadium will continue its exponential journey into the stratosphere. Will her insouciance be maintained? I fear so. The problem is that it is not her money. If she was getting a loft conversion done to her home and was asked to pay four times the agreed amount, I suspect her attitude would be different.
PJ O’Rourke, the American satirist, offered this insight into economics:
‘There are four ways to spend money. If you spend your own money on yourself, you are concerned about both value for money and quality. If you spend your own money on someone else, you are concerned about value for money, but less about whether it is suitable. This is why kids get socks for Christmas. If you spend other people’s money on yourself, you are still concerned to get good stuff, but the price no longer matters. And if you spend other people’s money on other people…that’s the Government.’
There is nothing more expensive than a politician in search of a legacy. When you hear a politician call spending ‘investment’, that’s another signal that you need to watch out for your wallet.
HS2 is the most notorious example of our time. It was going to cost £37 billion, then £72bn, then it was £98bn. Some 167 staff were employed in its PR department. When Rishi Sunak decided to scale it back last year, there were howls of indignation. David Cameron, George Osborne, Theresa May and Boris Johnson were all furious.
The cost didn’t matter – they wanted their share in the legacy. Nobody really attempted to claim it was value for money. Cameron said ‘thinking big’ was the key thing. That scaling back the project ‘throws away fifteen years of cross-party consensus’.
When you hear of a ‘cross-party consensus’ for a project, that’s another alarming signal we are going to be fleeced.
Johnson used his Daily Mail column to dismiss concerns about cost as ‘Treasury-driven nonsense’. Lord Heseltine, who promised the Dome would be a triumph, joined the attack.
The ‘sunk cost fallacy’ thus reared its ugly head – the claim that billions have already been wasted, so we should carry on and waste billions more.
Virtue signalling is also costly. An investigation found that £138m spent by Thurrock Council on solar energy has ‘gone missing’. Labour proposes a new state-owned energy company following the pioneering municipal examples in Nottingham, Bristol and Portsmouth. Robin Hood Energy run by Nottingham City Council lost £38m, Bristol Energy run by Bristol City Council lost £32m.
Hosting big sporting events also tends to be irresistible to our leaders. As Culture Secretary, Tessa Jowell promised to keep the 2012 Olympics budget below £3bn, but let it zoom up to £9bn. Half a billion went on the Media Centre alone.
Something shiny and innovative is also seductive. The DeLorean car factory in Belfast cost taxpayers £73m in subsidies before it closed. Then we had the Tanganyika groundnut scheme, which was abandoned in 1951 having cost British taxpayers £36m and producing nothing much in the way of nuts.
Defence is another area where rigour on bold new procurement tends to be lacking. There is much debate about how much we should increase spending – rather less on ensuring more bang for our buck. Stella Artois used to have the slogan ‘reassuringly expensive’. The Ministry of Defence could adopt it too. Except it is a false reassurance to imagine that just because we have spent billions on a new weapons system that it will work properly.
Theresa May desperately scrambled for a legacy in her last weeks as Prime Minister. But heroically Philip Hammond, the Chancellor of the Exchequer at the time, largely thwarted a last-minute binge of vanity projects. But she did bring in a statutory requirement for net zero emissions by 2050. The cost of that makes HS2 look like loose change.
It is human nature for politicians to use our money to show how important and caring they are. In a democracy, they are entitled to make decisions not entirely based on economics, providing they can retain the consent of voters. Sometimes an inspirational gesture might be justified.
‘We choose to go to the moon in this decade and do the other things not because they are easy, but because they are hard’, declared President Kennedy. A powerful message – though I’d prefer the likes of Elon Musk to pick up the tab for such endeavours. Hosting the Olympics or Euro 2028 does enhance our national pride. But not when it comes to an extortionate cost. We should not get into frantic international bidding wars over who will pour on the most subsidies for the greatest extravagance.
Public sector inefficiency is pretty dire at the best of times. But when there is distortion due to political objectives, it can become insane. We need to watch out.
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