Quote of the day

“I find economics increasingly satisfactory, and I think I am rather good at it.”– John Maynard Keynes
Showing posts with label supply side. Show all posts
Showing posts with label supply side. Show all posts

Sunday, 30 March 2025

Red tape - gives a broad sense of difference between countries

 

author-image
SEEMA SHAH

Europe must slash red tape if it wants its moment in the sun

Spain’s economy is shining and the Continent is wooing investors fleeing the US. But for this to be a true turning point, we need a bold regulatory reappraisal

The Sunday Times

With full hotels, busy shopping centres and bustling restaurants, my trip to meet investors in Madrid last week felt more buoyant on the streets than any other visit to Spain I’ve made in the past decade.

The Spanish economy is the fastest growing in Europe, and during my week-long trip to the capital, there was a tangible sense of consumer confidence. The country’s new-found mojo reflects Europe’s recent “glow-up”, which has been given greater momentum by investors taking fright at the US administration’s scorched-earth approach to international trade and diplomacy.

According to the data firm Morningstar Direct, European exchange-traded funds have enjoyed an 18 per cent jump in inflows. With President Trump’s efforts to Make America Great Again having the opposite effect on domestic stocks, Europe appears to be the main beneficiary of capital leaving the US.

• Booming Spain is on track to a new age of prosperity

With this and Spain’s hot growth streak in mind, you might have thought the investors I met in Madrid would be especially bullish. But this wasn’t the case. The sense of economic optimism I detected on the streets didn’t extend to the meeting rooms of the city’s financial district.

It wasn’t that the investors I spoke to were entirely downbeat. They acknowledged there had been a “vibe shift” in European markets, and Germany’s scrapping of the “debt brake” — its longstanding, Scrooge-like rules on government borrowing — was hailed as highly significant. The rationale for this reform is to fund a massive increase in defence spending, but it’s assumed that the ripple effect across both Germany itself and Europe as a whole will extend far beyond tanks, planes and cybersecurity.

Investors are betting on a substantial increase in public investment, and particularly an overhaul of Germany’s creaking public infrastructure.

• Merz wins vote to ditch decades of German caution and rearm

Yet the consensus was that easing the debt brake, even with the mammoth investment it will unlock, isn’t enough to Make Europe Great Again over the long term. True growth needs accompanying reforms to Europe’s over-burdensome regulation.

Between 2019 and 2024, the EU produced 13,942 legal acts, while the US produced just 3,725 pieces of legislation and passed 2,202 resolutions. The Madrid-based investors I spoke to fret that German fiscal stimulus will be ineffective at breathing new life into Europe’s ailing economy because it is simultaneously being strangled by red tape. Given Donald Trump’s zeal for deregulation, the transatlantic divide in bureaucracy will only widen.

Parts of the EU’s statute book read as though they were dreamt up by a whimsical toddler — such as the laws governing the curvature of bananas and cucumbers. These oddities may be fairly innocuous in themselves but speak to an endemic and economically unhealthy obsession with rules. When this is applied to labour laws or the burdens placed on the Continent’s banks, which constrict their ability to lend, investors really begin to despair.

Germany has a particular issue with sick days, with the average worker there taking 15 days a year, almost double the US average of eight and (a little surprisingly) three times the UK average of five. You don’t need to be Elon Musk to see the issue here.

The EU’s stringent capital requirements for its banks (known as CRD IV) are generally loathed by investors and blamed for limiting lending to small businesses and stymieing innovation. Critics point out that the US has about 550 more “unicorns” — start-up companies valued at more than $1 billion — than the entire EU, and that, as of last week, European stocks trade at 17 times earnings, compared with the US’s multiple of 26.

Last year Mario Draghi, the former Italian prime minister and European Central Bank president, wrote a 400-page tome of recommendations to boost the EU’s moribund growth, with deregulation as a key component. Most dismissed it as a pipe dream, with European countries seen as too stuck in their ways.

Germany’s recent constitutional reforms would have been considered unthinkable at the time, but the result of them is that investors are now piling into European companies. For this to be a true turning point rather than just short-term respite — as the investors I met in Madrid feared — the radical fiscal rethinking we are seeing in Europe needs to be matched with an equally bold regulatory reappraisal.

Seema Shah is chief global strategist at Principal Asset Management

Friday, 7 February 2025

Infrastructure again - supply side ideas & red tape

 

Why Lower Thames Crossing is taking so long … 36 years and counting

The saga of the road linking Essex and Kent, with endless consultations and £300m spent on the planning application, illustrates why Britain struggles to build infrastructure

Artist's impression of the Lower Thames Crossing southern portal in Kent.
The proposed Lower Thames Crossing, including a road tunnel under the estuary, is expected to cost about £9 billion
HIGHWAYS ENGLAND/PA
The Times

Some 36 years ago — or to put it another way, 22 transport secretaries ago — the words “Lower Thames Crossing” first appear in the parliamentary record.

The Department for Transport’s 1989 white paper, Roads for Prosperity, argued that this road across the Thames estuary might just be the sort of road that would make us prosperous.

Margaret Thatcher at the Conservative Party Conference, with members of her cabinet.
Margaret Thatcher in 1989. The Iron Lady was at the height of her powers when the crossing was first suggested
ROWNTREE AND ALLEN/MIRRORPIX/GETTY IMAGES

Ministers went, governments changed. Tony Blair came to power, Blair lost power. There was Gulf War One, and its less critically acclaimed sequel Gulf War Two. John Prescott became transport secretary. Prescott ceased to be transport secretary. He did so having never driven even one of his two Jags over a Lower Thames Crossing.

Then, in 2009 — ten transport secretaries ago — Britain was at last ready. The Department for Transport once again backed a Lower Thames Crossing, this time in earnest.

A mere four transport secretaries later we had an agreed route, and had agreed it was a tunnel. It took just two transport secretaries more for planning to be submitted.

And what now, as we await the decision on the application? Last week the chancellor, Rachel Reeves, confirmed that she very much intends for the crossing to go ahead, describing it as “the infrastructure that our country desperately needs”.

Chancellor Rachel Reeves speaking with a staff member at a modular home manufacturer.
Rachel Reeves is keen to back major infrastructure projects such as the Lower Thames Crossing but the government may struggle to afford it
IAN FORSYTH/GETTY IMAGES

• Reeves to back Heathrow third runway in push for prosperity

Paul Channon, the Tory transport secretary who commissioned Roads for Prosperity, will be pleased. Or he would be, if he hadn’t died in 2007.

How has it taken so long?

The case

Today, as every day, 150,000 vehicles, 40 per cent of them lorries, will cross the Thames at Dartford. As with most days, there is a good chance they will be delayed. They have no choice but to wait it out: for traffic crossing the river east of London, this is the only option.

It is, says Jim Dickson, Labour MP for Dartford, “a single point of failure” in critical infrastructure. The gridlock is also, for his constituents, really annoying. “I see every day the missed hospital appointments, the inability of people to get to work or get to school on time.” So, he says, we need another crossing. And not just because it will help Dartford.

Traffic on the Dartford Crossing.
The existing Dartford Crossing, consisting of a tunnel and suspension bridge, is often heavily congested
DAN KITWOOD/GETTY IMAGES

In the summer, three former transport secretaries — or nearly one of five of the surviving holder of the post since 1989 — wrote a letter to The Times calling for the construction of the Lower Thames Crossing, “supporting tens of thousands of jobs and adding tens of billions to the UK economy”.

Kate Willard, the government-appointed envoy for the Thames Estuary, called the plan — a 14.3-mile road, including a 2.6-mile tunnel— a “game-changer for the estuary and for the national economy”.

As with every major infrastructure project, there are detractors. Jen Craft, Labour MP for Thurrock, argues it will only be a temporary relief from congestion.

Transport Action Network, a campaigning group, disputes the economic benefit, and says better options, such as improving public transport, had not been considered. “The people tasked with solving the problem are the National Highways agency,” says its director, Chris Todd. “The only thing they know about is highways.”

The Woodland Trust laments the destruction of “six veteran trees”. There are, of course, newts to consider.

But the newts, for once, are not so important in the tale of what comes next. Nor are the campaigners. Because even if it is yet to be built and whether doing so is desirable, there has long been political consensus that the crossing is needed. That dates back to 2009. And as the British state lumbered into gear, it meant only one thing: it was time for a consultation.

The consultation(s)

Michael Dnes, head of transport policy at consultants Stonehaven, likes to refer to a flow chart used in infrastructure planning. It has 300 steps.

To understand why the planning process is so exhaustive, he says, you need to understand what this flow chart really is. It’s not a set of instructions. “It’s more like a map of a minefield, through which you must travel without losing a leg.”

The incentive is to invest in absolute certainty — £100 million-bat-tunnel-certainty, to use an example from HS2 — that you have covered every concern. The reason why is because what can happen if you don’t. There is a final, terrible hurdle that can appear, reanimating like a horror movie baddie, even when you think you have won. This has a name: judicial review.

Illustration of a bat protection structure over a high-speed railway.
How the HS2 bat tunnel will look
HS2/PA

“If you get it wrong, opponents can take you to court,” he says. Even if you win, doing so can take months and cause tens of millions of costs in delays. “This creates a risk-averse culture where delivery comes second.”

So the consultation process is very important.

The first consultation was about where the crossing should actually be. There were three options, and from the 5,776 responses, the report concluded that they could exclude the middle one. That meant things were ready to move on: to the second consultation.

The second consultation had 47,034 responses. It meant that, by 2017, we had the final route. Now the project was at last able to progress: to the statutory consultation.

Once that was over, the hope was that things could be wrapped up speedily, with the Supplementary Consultation and the Design Refinement Consultation.

• Root for Reeves — Labour’s green faction would cut growth to net zero

Planning

In 2020, the Lower Thames Crossing at last submitted its planning application. It was considered not detailed enough and withdrawn. Two years and two more consultations later, it was resubmitted. It had cost £300 million — or, as has been pointed out, somewhat more than Norway took to actually build Laerdal, the world’s longest road tunnel.

The final document was big.

How big?

There is, it needs to be made clear, some disagreement. Britain Remade, a group in favour of more infrastructure investment, calculates that if you printed off all the Lower Thames Crossing planning documents and laid them end to end, they would stretch 66 miles. Transport Action Network, their nemesis, disputes that figure — claiming that once duplicates are excluded it comes to less than 12 miles.

• Plan for new Thames crossing runs to 359,000 pages

Whether it is 25 times the length of the planned 2.6 mile tunnel or merely 4.5 times, the problem, says Dnes, is not that what is contained in those pages is absurd. It’s that it’s not.

“Every single thing that the planning system considers is reasonable in its own right. Few people actively wish to harm scarce species, worsen flood risk or release pollutants into the breathable air,” he says. “But taken together they have created a workload that often can’t be shifted in a five-year parliament.” It is now, he says, impossible for politicians to promise they can do something. “Planning and democracy do not always point to the same outcomes.”

Juliano Denicol is director of the MBA Major Infrastructure Delivery at University College London. He and his colleagues conduct research into the delivery of megaprojects, and the reasons they fail. He says regulations are crucial but in a democracy, especially for significant infrastructure projects, so is getting the balance right. Too often, he says, we see projects caught in the same morass. “We are observing an expansion in the requirements, scale, and duration of planning applications, with thousands of pages that are often too open to legal challenges.”

The tale of the tunnel borer is instructive, argues Sam Dumitriu, from Britain Remade. In the original plans for the tunnel, there were two boring machines, working in parallel on each carriageway.

Then someone had an idea. Why not use just one? It could cross one way, then return. It would cost less, reduce disruption and, the project managers calculated, wouldn’t actually add any time.

It was a good idea, says Dumitriu. But as a significant change to the plans it also required they go back with more paperwork to gain amended approval. In a small but telling way it added another delay.

“Whoever figured out that only one tunnel boring machine is needed has saved taxpayers millions of pounds,” he says. “They deserve a medal, but under our planning system they get a meeting with legal instead.”

What happens next?

Just because the tunnel hasn’t started, it doesn’t mean that nothing is getting done. So far, the Lower Thames Crossing has backed dozens of individual projects. They include two community farms, exercise classes in Tilbury, a pop-up immersive dance experience and LGBT social nights in Thurrock.

The tunnel itself though? A summer decision was postponed by the election. Another before Christmas was postponed again.

• Broke Britain’s roads and rail need fixing — so PFIs to the rescue

One of the problems now is how it will be funded. It has seen political epochs come and go. It was first planned in the era of private finance initiatives. Then, when PFI became a dirty word, it was going to be publicly funded. Now Reeves has indicated that she wants private backing after all, probably with the inducement of a toll. A final decision will come in the spring.

Heidi Alexander, UK Transport Secretary, at a cabinet meeting in Downing Street.
The decision on the Lower Thames Crossing will fall to Heidi Alexander, the present transport secretary, in the spring
ALAMY

Then, if in favour, comes the simple bit: building it. It should take six years.

What are the lessons? Stephen Hammond is one of the many transport ministers the Lower Thames Crossing has seen come and go. He worked on it when the planning application was young. He wishes Labour well in reforming planning. “We’ve got to find a way of agreeing certain projects are of national significance and streamlining the process, otherwise we won’t build anything.”

Dickson, the Dartford MP, has a graphic timeline of the project planning. It is titled “Lower Thames Crossing, 15+ years in the making”. Under “May 2025”, he has the entry: “decision due”. That is not, though, the last entry. Immediately after, with a certain weariness, comes “anticipated judicial reviews”.

Headshot of Jim Dickson MP.
Jim Dickson backs the project but not all of his Labour colleagues do

“I wouldn’t want to look like I was expecting it,” he says. “But there are always people who want to continue the conversation.”

In a sense, he says, that’s absolutely as it should be. On “a crowded island” consultation and planning are crucial. Conversations are the cost of democracy. He also, though, agrees with Hammond. “There is something wrong with a process in which the construction takes half the time of the decision.”

Something on plans to tackle economic inactivity (they are being "adjusted"):

 

Starmer ditches plans to end Britain’s ‘sick note culture’

Scheme to tackle worklessness abandoned even as crisis in long-term illness grows

Keir Starmer as a doctor

Sir Keir Starmer has scrapped reforms designed to end Britain’s “sick note culture”, The Telegraph can reveal.

A flagship Tory plan announced last year proposed to let work specialists, rather than GPs, decide whether employees were fit enough to do their jobs.

The reforms were an attempt to tackle the surge in sick notes – now officially called “fit notes” – after they more than doubled from 5 million in 2015 to 11 million in 2022, fuelling Britain’s worklessness crisis.

However, a Labour minister in the House of Lords confirmed in a written response to a parliamentary question this week that the drive has now been abandoned.

Baroness Sherlock said: “The Government has no current plans to reform the fit note (Statement of Fitness for Work) in terms of the content of the form or the healthcare professionals who are legally allowed to issue them.”

A Department for Work and Pensions (DWP) spokesman confirmed it was the first time the Government has said publicly it is not going ahead with the reforms. A Labour source argued they were lacking in detail.

The number of people deemed unable to work owing to long-term sickness hit a record high of 2.8 million in early 2024, up from 2 million before the Covid pandemic.

The increase, in part driven by an increasing number of people citing mental health illnesses, has put growing pressure on the Treasury’s revenues.

Tens of billions of pounds of taxpayer money is expected to be needed to cover the UK’s benefits bill, including supporting those on long-term sickness, between now and the next general election due in 2029.

Critics of the current sick note system have questioned whether there is enough incentive for GPs, who get paid for appointments where sick notes are signed off, to reject requests.

Given the tightness of the public finances and the current push to find savings, the Treasury, No 10 and the Department for Work and Pensions are aligned in the need to identify potential welfare budget cuts.

Rishi Sunak’s plan was to use figures with more work expertise, rather than just GPs, to sign off sick notes.

Mr Sunak said last year: “We don’t just need to change the sick note, we need to change the sick note culture so the default becomes what work you can do – not what you can’t.”

He added later: “We’re also going to test shifting the responsibility for assessment from GPs and giving it to specialist work and health professionals who have the dedicated time to provide an objective assessment of someone’s ability to work and the tailored support they need to do so.”

A formal call for evidence was then issued by the Tory government. It warned “there is currently not enough capacity or specific work and health expertise in primary care to make an effective assessment of a patient’s ability to undertake work”.

The move to ditch these plans will prompt fears that the actions of Liz Kendall, the Work and Pensions Secretary, will fail to live up to her tough rhetoric about the need to tackle the ballooning welfare budget.

Sir Keir has also been criticised for once again giving in to the unions after the British Medical Association (BMA), the trade union which represents doctors, criticised the Tory plans.

A senior BMA figure accused Mr Sunak of “hostile rhetoric” on sick notes.

The move to ditch the sick note reforms follows Sir Keir’s decision to hand train drivers and junior doctors above-inflation pay rises in an effort to end strikes.

‘Capitulation’ to unions

Helen Whately, the Tory shadow work and pensions secretary, said: “Changing how fit notes work is essential to getting the benefits bill down.

“But despite Labour talking tough in public, in private they’ve capitulated to the unions and canned our plans. This is bad news for taxpayers, and it’s also bad news for people being written off under the current system.

“Getting the welfare bill down requires tough decisions, but in seven months in office Labour have achieved absolutely nothing.”

Lady Sherlock, a work and pensions minister, also confirmed that the Government would still be taking forward eight new “trailblazer” sites that will test new ways of helping people back to work.

It is understood that three of these sites will look at how fit notes are working, meaning there remains some wider interest in how they are being used, even though the Sunak proposal has been dropped.

A DWP press spokesman could not offer any additional information about what specific changes to fit notes will be explored in these pilot schemes.

The three trailblazer sites will be in the North East, South Yorkshire and West Yorkshire. Specific locations and more details about how they will work are expected to be unveiled in the coming months.

A DWP spokesman said: “We inherited a broken welfare system, with a spiralling benefits bill and soaring inactivity levels. We are already testing new approaches to the fit note system in economic inactivity hotspots as part of our wider plan to Get Britain Working.

“We will also bring forward all-encompassing reforms to the entire health and disability benefit system through our Green Paper in spring.

“As part of this, we will overhaul the broken assessment process which currently pushes people towards welfare instead of work, taking into account the role of the fit notes process.”