High Finance. A Question.

[WelshGas]

This is not about the validity of HS2. Just using it as an example.
If HS2 costs £102Billion how much of that is an actual cost to U.K.plc?
Because a substantial amount would be paid in salaries and the recipient of that salary would be paying a substantial amount back to the government in income tax, NI, VAT etc and this would be true all through the expenditure trail of the individual workers and companies. Only payments made overseas would basically be lost to the Treasury.
So what would be the actual expenditure/loss to U.K.plc? 10% of the total expenditure?

 

[B J G]

Difficult to be exact but I do think that you are in the correct frame of thought.
The 'Buy British' criteria needs to be applied to all aspects of the purchasing process or at minimum built in UK under licence.

I once tried to guesstimate how much of my gross business earnings didn't end up back in the treasury's coffers. Got very depressing when business, personal, rates, VED, fuel tax, VAT, National Insurance taxes etc got taken into the equation and then what is spend goes into another business to start their cycle off and the next etc.

 

[Amarillo]

Only payments made overseas would basically be lost to the Treasury.

Think of all those foreign born navvies remitting back to their home country.

 

[WelshGas]

Ultimately the raw, elemental material is free but its value is determined by some arbitrary figure related to the manhours etc to secure it and that value is taxed in some way and to a significant extent as it is spent on other items or services and so the process extends and repeats.

 

[WelshGas]

Think of all those foreign born navvies remitting back to their home country.

Only a proportion as they are also living and spending here and transferring funds is not without a cost to them from a financial entity which pays taxes and salaries to staff who pay taxes etc.

 

[Legin]

Its the reason big infrastructure projects are often used to kick start a stagnant economy.

 

[Joker 1299]

Its the reason big infrastructure projects are often used to kick start a stagnant economy.

Quantitative easing

 

[Calimili]

Its the reason big infrastructure projects are often used to kick start a stagnant economy.

Certainly. So I wouldn‘t see it as an expense at all. Because if the economy gets kick started there will be lots of revenues after, coming in in the form of taxes, less money spent on unemployment benefits etc. And there will be an infrastructure left that will bring benefits, even environmental ones...

 

[Calimili]

The damage will be higher with a stagnant economy, and in the short term when the real B kicks in, it may well be the case, i think

 

[WelshGas]

The damage will be higher with a stagnant economy, and in the short term when the real B kicks in, it may well be the case, i think

That's what you hope that side of the water.

The ? IMF report on Economical growth for the next 2 years must have been really upsetting .

 

[Calimili]

That's what you hope that side of the water.

The ? IMF report on Economical growth for the next 2 years must have been really upsetting .

No WelshGas, you got me wrong there. I certainly don‘t wish the UK a recession, on the contrary if the UK will be successful after Brexit it will pave the way for other unhappy countries stuck in the EU that would want out, but don‘t have the means or the b@ll$ to do it first, like the UK did, as usual.
My doubts , as an economist, remains that in the first years after B, it may get tough, but it is certainly not my wish. Long term the UK will be fine no questions there.

 

[Amarillo]

That's what you hope that side of the water.

The ? IMF report on Economical growth for the next 2 years must have been really upsetting .

What an odd way to view things.

 

[WelshGas]

No WelshGas, you got me wrong there. I certainly don‘t wish the UK a recession, on the contrary if the UK will be successful after Brexit it will pave the way for other unhappy countries stuck in the EU that would want out, but don‘t have the means or the b@ll$ to do it first, like the UK did, as usual.
My doubts , as an economist, remains that in the first years after B, it may get tough, but it is certainly not my wish. Long term the UK will be fine no questions there.

My apologies for my misunderstanding of your post.

 

[2into1]

Is this developing into the same argument that going around smashing shop windows is good for the economy?

 

[WelshGas]

Is this developing into the same argument that going around smashing shop windows is good for the economy?

I hope not. I’m just interested as to what % of a large infrastructure project cost is lost to U.K. plc?
If it is 10% then HS2 will actually only cost a little over £10 billion as the rest will be returned to the Treasury via some form of tax.

 

[Legin]

I hope not. I’m just interested as to what % of a large infrastructure project cost is lost to U.K. plc?
If it is 10% then HS2 will actually only cost a little over £10 billion as the rest will be returned to the Treasury via some form of tax.

One unpalatable truth is that to keep the cash in the Uk economy the resources and money needs to be spent with UK taxed companies and employees. I have seen this employed in Indian companies for instance.

 

[Velma's Dad]

The position from the government's point of view is of course that there is no net cost to the economy, but rather a positive payback over the lifetime of the project (very long in this case, 60 years). Back in 2011 the govt's CBA showed a return of about 2.3 to 1, ie more than £2 back in economic benefits for every £1 invested.

That was when the costs were estimated at £50bn, not £100bn+. So if nothing else has changed then we might assume the CBA has shifted close to a neutral position, ie no net benefit.

But of course all the CBA figures will be extremely sensitive, on a such a long project, to what 'discount rate' was used, ie what is the time-value of money assumed to be, or put another way the assumed cost of capital. From a quick google it looks like they used a figure of about 3.5%. Given that the Treasury can borrow money at much less than that, it seems (to me as a non-economist) to be reasonable. But should really be compared with what rates of return could be obtained on alternative public investments, eg improving education of public health or (whisper it) the roads. I can only assume the Treasury has done that.

If it turns out that the project delivers no net benefit at the chosen discount rate, it becomes a political decision whether to go ahead, ie should it be done anyway to redress regional inequities? I suspect that's now the crux of the decision.

Where I live, in the Chilterns, you can't really have any kind of rational discussion about HS2 though.