HIGH-SPEED RAIL: ACCELERATING TRAINS AND DEBT

KEN HOUSTON says spending £73 billion the government does not have on HS2 is symptomatic of a wider malaise that could eventually lead to civil chaos…

Prior to penning a weekly column on the subject for The Scotsman, I imagined that, with a few minor modifications, there was little to distinguish commercial property from the residential sector.

But then I entered a Byzantine world in which, to the uninitiated, the term ‘yield’ was stood on its head: where falling yields were good and rising yields bad. Thus, when the ratio of rents to capital values decreases (generally a positive occurrence), yields are said to ‘harden’ rather than fall.  When the opposite happens, yields ‘soften’ rather than rise.

‘Covenant’ is another word important for a commercial landlord but unfamiliar to the residential owner-occupier, a ‘good covenant’ representing a long lease to a quality tenant which tends to enhance the investment value of a building.

Before the financial crash, RBS, Lloyds, Bank of Scotland and Northern Rock would all have been considered ‘good covenants’ because it was inconceivable that any of them would default on their lease far less go bust.

While the rescue of Northern Rock may have been politically-motivated due to that organisation’s strong connection with Labour-voting Geordieland, the then government really had no other choice but to rescue the major failed banks. To act otherwise would not only have risked financial meltdown but, with it, the real possibility of civil unrest.

In taking this action, however, Gordon Brown and Alistair Darling did not have access to a wad of money stashed away to cope with financial emergencies; already heavily in debt, the government simply increased the public sector borrowing requirement for the next financial year by £50 billion or whatever (does anyone really know what the final bill for the banks will be?)

Similarly, the current Coalition does not have a penny of its own to build HS2, the high-speed rail project between London and Birmingham, with planned extensions to Manchester and Leeds (and perhaps, eventually, to Edinburgh and Glasgow).

Opinion on HS2 is split between those for whom it is a major key to economic advancement and those who see it as just another expensive vanity project.

For what it’s worth, I’m in the latter camp.

HS2 will be ‘Edinburgh trams with bells on’ and rather than enable the wealth of London to ripple northward (as its supporters claim), will probably achieve the opposite and make Manchester and Leeds satellites of London.

Either way, the lack of spare capital did not stop the transport secretary, Patrick McLoughlin, announcing – some might say ‘boasting’ – on Radio 5 Live last month that the government intended to “invest” (a word much corrupted by politicians) £73 billion in the project over the next five years.

Now, despite the unlikelihood of HS2 receiving Royal Asset until 2016 at the earliest, the Department for Transport has begun inviting businesses to pitch for contracts.

Keynesian-style defenders of HS2 will point to how the United States managed to ‘spend its way out of recession’ during the inter-war years with huge capital projects like the Hoover Dam and, later during the Second World War, massive arms production.

The problem with this theory is that unlike the US administration in the 1930’s and 40’s, the UK government is saddled with a huge annual welfare bill (almost 25 per cent of all income tax and national insurance taken by the Treasury is redistributed as benefits) as well as massive outlays on public sector salaries and pension commitments.

Total UK government debt is said to stand at £1.4 trillion – and is still rising.

Compounding the problem is the fact that we are not alone; government debt is a phenomenon across Europe and the wider ‘West’ and the more this increases the greater will be the temptation for other countries to ‘do an Argentina’ and default on their borrowings.

For most of the second half of the 20th century our planet lived under the threat of Armageddon brought about by a nuclear conflict between an American-led NATO and the Soviet Union and its Warsaw Pact allies. Since the fall of the USSR, nuclear conflagration has been replaced by concerns over a growing global population competing for ever-decreasing natural resources.

However long before the ten billionth baby is born and the last piece of rain forest is cut down for lumberjack operations, perhaps the world as we know it will have already disappeared – drowned in a sea of debt.

The result would be a nightmare scenario where humans (even in the formerly-affluent West) spend every day just trying to exist; where people barter personal belongings (and ‘respectable’ women sell themselves) for food and fuel; where money has become so devalued and everyone so stressed that cigarettes become the normal form of currency.

Only this is no nightmare; it was how much of the population of Berlin lived in the two or three years immediately after the end of the Second World War. And who can say that it could not happen again?

DID BORROWED MONEY STOKE WORLD WAR TWO?

MENTION of Berlin in 1945 is a reminder that 2014 marks not only the centenary of the outbreak of the First World War but also the 75th anniversary of the beginning of the second, even greater, conflict.

In the myriad of television and radio programmes already devoted to the Great War, some credence has been given to the conflict having started by accident and not through the militaristic aspirations of the Kaiser’s Germany. There is, however, virtual unanimity that responsibility lay with the Nazi leadership for World War Two. Also, it is no longer non-PC to take the view that the Nazis were eagerly – some would say devotedly - supported by millions of Germans.

Between the two world wars, Germany enjoyed a short, six-year golden age when the democratic Weimar Republic stabilised a currency beset by hyperinflation and then started growing the economy. However this was mostly dependent on large international loans, particularly from America.

Continuing economic improvement under Hitler was not achieved, as is commonly believed, through Nazi-style discipline. Berlin continued to borrow heavily to fund Germany’s rearmament programme so that by 1939 Hitler and his cronies were up to their necks in debt.

With the benefit of hindsight it is clear that, no matter the circumstances, Nazi Germany was determined to wage war. However, having borrowed so heavily to build all those battleships, aircraft and tanks, it must have seemed logical to make the most of them by invading neighbouring countries and plundering their assets.

In other words, even had Nazi Germany not wanted war, a war of aggression would have seemed like a good way out of its financial predicament.

That’s what debt can lead to.

Twitter: @PropPRMan