Conservative Home

« Alistair Lexden: On this day, 225 years ago - the birth of Robert Peel, the first Compassionate Conservative | Main | Lord Ashcroft: Former Treasurer Peter Cruddas wins another victory in his bid to clear his name »

Greg Clark MP: Lessons for modern government from Victorian visionaries

Screen shot 2013-02-05 at 15.41.46
Greg Clark is Financial Secretary to the Treasury and MP for Tunbridge Wells. Most Tuesdays he will be writing this new 'Letter from a Treasury Minister' for ConservativeHome readers. Follow
 Greg on Twitter.

Screen shot 2013-02-05 at 15.43.31From most parts of the Palace of Westminster you can’t actually see the River Thames. But in the summer of 1858 you could have certainly smelled it. The so-called Great Stink was so bad that Members of Parliament were finally persuaded to do something about London’s need for a proper sewerage system.

The great engineer, Sir Joseph Bazalgette was commissioned to build the Thames embankments and the vast sewers that run beneath them. A century-and-a-half later the embankments and the sewers are still serving us well – thanks, in no small part, to Bazalgette’s foresight. Realising he only had one chance to get things right, he worked out the sewer-pipe diameter required for the demands of the time and then doubled it – an object lesson in the benefits of long-term thinking.

For an object lesson in the disbenefits of short-term thinking it’s hard to do better than the present-day banking crisis, itself just one part of an even bigger debt crisis. Here we saw Bazalgette’s principles thrown into reverse, the needs of the future disregarded in favour of immediate gain.

In 2011, the Government asked Professor John Kay of the London School of Economics to undertake a review of UK equity markets and long-term decision making. His final report is available here and the recent Government response here.

I’ll have more to say on issues like the City’s bonus culture in future letters, but today I’d like to comment on something that Professor Kay said about long-term thinking in relation to different subject: infrastructure investment.

Looking back on Bazalgette’s achievements, Kay wonders whether a scheme as visionary as the Thames Embankment would have had a chance of going ahead in our own time. For instance, one can easily imagine that, in place of the can-do attitude of the Victorians, Bazalgette would have faced one long planning inquiry after another.

But an even bigger obstacle, says Kay, would have been our modern day accounting practices – which don’t fully capture the long-term benefits of major infrastructure improvements. Part of the problem is that, obviously, we can’t quantify the benefits that we’re unable to anticipate. For instance, in Bazalgette’s day, medical science was not sufficiently advanced to understand that cholera was caused by contaminated water – thus the public health benefits of the sewers were not fully appreciated at the time. But even if the future benefits had been understood, then the application of a standard Treasury discount rate would have meant that the enormous value that the scheme is still delivering today would have counted for very little when the decision to go ahead was being made.

Of course, we mustn’t take the argument too far. The Treasury’s cost-benefit analysis methodology provides a stern test for proposed investments, which is exactly as it should be when taxpayers’ money is at risk. Furthermore when it comes to controversial projects like HS2, it is vital that the economic justification is established according to exacting standards – as HS2 has been.

And yet, John Kay makes a powerful point. A rigorous cost-benefit analysis is necessary part of the case for investment, but not the only one. As important as the numbers are, there are other, more fundamental, arguments. The Victorians, for instance, had to decide whether they wanted an open sewer to flow through the heart of London, or whether they wanted to bequeath something altogether better to future generations.

150 years on, we have some big decisions of our own to make. Whether on high speed rail, new housing or energy infrastructure we have to choose whether to stay stuck where we are or to move ahead.

Whether the issue is one of infrastructure investment, deficit reduction or public sector reform, governments who dodge the big questions don’t pay the price of a tough decision – but nor do they build the future. I’m glad to be part of a Government that has chosen the harder path.

Comments

You must be logged in using Intense Debate, Wordpress, Twitter or Facebook to comment.