It was a good day to query the government’s use of flimsy statistics to justify massive infrastructure projects. After Hinkley, we’re on to Heathrow’s third runway and HS2 – and Andrew Tyrie, chairman of the Treasury select committee, is unhappy on both fronts.
On airports, he still hasn’t had a reply to five requests for more detailed disclosures of the assumptions used in the Airports Commission’s final report. But his bigger beef is with the high-speed railway. “HS2 has the weakest economic case of all the projects within the infrastructure programme, yet it is being pushed through with the most enthusiasm,” he says. He’s right.
What’s more, the cost of HS2 almost puts the other two in the shade. Hinkley and Heathrow are both £18bn projects, or thereabouts. HS2 is a £42.5bn or £55bn adventure, depending on whose numbers you prefer, and could be hurtling towards £70bn or £80bn by the time incidentals, like new trains, are included. The case for review ought to be overwhelming.
The momentum behind HS2, however, seems strong now that Chris Grayling, the new transport secretary, has come out in favour. Like some of his predecessors, Grayling has given up justifying HS2 on grounds of speed and instead relies on the argument that more capacity is needed, especially on the west coast mainline. But then Grayling makes the leap that any new capacity must automatically be of the high-speed variety. “Of course it makes sense, if we’re going to build a new railway line, for it to be a fast railway line, to reduce travel times from north to south,” he said in July. “That’s logical.”
Is it really, though? Has the government approached the cost-benefit analysis with an open mind? A House of Lords committee last year urged the government to review options involving lower speeds, and Tyrie wants to see something similar. “The question of whether it is possible to improve capacity at lower speed and, consequently, at a lower cost, has not been comprehensively examined,” he told Grayling yesterday.
It should be examined. So should smaller-scale enhancements of the road and railway networks that could deliver benefits more quickly. With Hinkley, prime minister Theresa May paused for thought and then failed, it seems, to consider costs. She must do better with HS2.
Choppy waters jolt Next’s even keel
For once, Lord Wolfson’s ingrained caution was fully justified. Next’s chief executive warned of tough trading conditions in his last City outing, and he was correct. Sales at Next rose 2.6% to £1.96bn in the six months to July, but pre-tax profits fell 1.5% to £342m. The punters come out for cut-price sales but it is harder to persuade them to buy new clothes at full price.
In the circumstances, the 5% fall in the share price was understandable. Note, however, that Wolfson, who is admirably strict in providing forecasts of profits for the full year, didn’t tweak his projections one jot. He’s still expecting the final quarter to be strong compared with a year ago, when the country was basking in winter sunshine.
That should serve as a reminder that the post-Brexit fall in sterling, though important for clothing retailers, is not the whole story. Next’s shares, at a shade under £50, trade at about 11 times earnings and carry a 3% dividend yield. Not bad for a company that hasn’t gone seriously off the rails for a couple of decades.
Juncker talks the talk over Barroso’s Goldman affair
“Personally I do not have a problem with him working for a private bank – but maybe not this bank,” says European commission president Jean-Claude Juncker, getting himself deeper into the row over predecessor José Manuel Barroso’s choice of Goldman Sachs as new employer.
Loathing Goldman, as an icon of Wall Street’s power and greed, is a popular sport, and not only in Europe. But let’s hear Juncker’s definition of an unsuitable bank for a former Brussels bureaucrat. Goldman, says Juncker, was “one of the organisations that knowingly or unknowingly contributed to the enormous financial crisis we had between 2007 and 2009”.
But dozens of banks could fit that description – certainly those that originated US sub-prime mortgages. Goldman, as it happens, did little origination, although it was up to its neck in the securitisation of financial junk. Should all banks in the sub-prime game be ruled offside? If so, shouldn’t the commission have drawn up a blacklist, which would include several European firms?
Juncker has booted the Barroso affair to the commission’s ethics committee, but it’s hard to believe he intends to apply any actual sanctions. It would oblige him to draw up a few rules, which is harder than making airy statements.