Government’s structural deficit goal hampers ‘smarter choices’

In my attempt to be brief, I think that my point about ‘smarter choices’ was a little lost (Letters LTT 26 Oct).  I was trying to point out that the way that Government accounting rules work make it harder for ‘smarter choices’ to get a fair hearing and biases policy towards capital projects – even where ‘smarter choices’ may represent better value for money.

The point is this. The Government has an over-riding objective to reduce the structural deficit. You might even say that is the Government’s raison d’etre.  However, note that the target is to reduce the structural deficit, rather than the deficit itself. A structural deficit is one that results from a fundamental im-balance rather than just short-term factors. Put another way, it occurs even when the economy is running at its full potential and so won’t be naturally eliminated as the economy recovers from recession.

As defined by the Government, investment in capital expenditure doesn’t add to the structural deficit, because it expands the ability of the economy to produce wealth. This of course assumes that capital investment genuinely does contribute to growth; an assumption that, not unnaturally, the Government is likely to make about its own investments.

The implications of this for transport policy are simple. Investments such as High Speed Two can be made without harming the Government’s prime objective, but spending on anything that adds to revenue expenditure, such as ‘smarter choices’, can’t. That explains the apparently perverse position by which the Government is cutting tens of millions of pounds from ‘smarter choices’ initiatives at the same time as planning to spend tens of billions of pounds on projects such as HS2.

I’m not sure what the proponents of ‘smarter choices’ can do to get round this, but I don’t think they will get far unless they do.

Discuss this topic at LTT's Re-Booting Smarter Travel event this December