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« Why the stimulus won't work | Main | David Semple on home education »
Tuesday
Feb242009

Filling the hole in the national accounts

OK, so we need some money and fast. If you have a look around you, you can see how people deal with this kind of problem in day to day life - they sell assets - shares get flogged, the kids' old toys go on Ebay, the four-by-four gets dumped in favour of something smaller.

The government needs to do the same kind of thing too. There's a lot to flog off, but is it enough to fill the hole? Dunno, because we don't know how big the hole is, but let's see what we think we can get for a firesale of UK assets. Here's a start (valuations per my estimates or per the ASI):

  • the BBC £50bn? (something like Time Warner)
  • BBC Worldwide £2bn
  • Channel 4 £1bn
  • Secondary schools (put in a voucher scheme) 4000 schools at £20?m each= £80bn
  • Primary schools (ditto) 21,000 schools at £6.5?m = £136bn
  • Hospitals (introduce Singapore-style healthcare accounts)
  • Universities
  • HE colleges
  • Scottish Water, £5bn
  • Glas Cymru £4bn
  • Northern Ireland Water £1bn
  • British Energy and Urenco £10bn
  • Trust ports £1?bn (Forth Ports x 2)
  • Commonwealth Development Corporation (£3bn net assets)
  • Royal Mail £4bn

I'm still working on filling in the gaps, but that's £297bn so far. Hospitals and Universities and HE colleges must add quite a lot to that though. I have no idea how to value them though. Anyone got any ideas? School numbers are roughly correct. The cost per school is 50% of the cost of a new-build, which may be a bit on the generous side, given that we know most of the recent capital spending by government is just "invested" up the nearest wall. What's clear from this is that in the wider scheme of things it's only by selling off the education and health sectors that we can hope to plug the gap, which was over £1trillion last time I heard.

Well go on then, get to it.

 

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Reader Comments (14)

- Fishing rights - sell or lease (would require leaving the EU).

- National Trust - lots of very valuable land.

- Forestry Commission - even more land.

- National Rail and the rail network - sell or lease the land and replace with toll roads.
Feb 24, 2009 at 11:23 PM | Unregistered CommenterKit
The motorway network was valued several years ago and the sum was colossal!
Feb 24, 2009 at 11:26 PM | Unregistered CommenterBlue Eyes
And we could seriously cut down the amount of state involvement in welfare provision, talk seriously about public sector pay and pensions and the state pension system.
Feb 24, 2009 at 11:28 PM | Unregistered CommenterBlue Eyes
Directors of fake charities top my list. Second is Northern Rock. They should never have nationalised it as it was twice the going concern that HBOS or RBS are.
Feb 25, 2009 at 1:10 AM | Unregistered CommenterPeter MG
Government accounts are different in many ways to business or personal accounts, but for the sake of analogy, let's think of government accounts in business terms rather than domestic terms for a second (the logic would apply in either case, but it's applied more commonly at a business level).

Selling assets for cash increases liquidity, but it does not help solvency (unless you can somehow get someone to pay more than fair value for your assets). Our problem as a nation is not only (or indeed mainly) that we are illiquid, but that we are insolvent (our liabilities exceed our assets). If the problem were simply liquidity, the Government really could fix the problems by printing more money and/or lowering reserve requirements and capital ratios so banks could stoke up the consumption again by encouraging more borrowing. But we know they can't, don't we?

At every level of our economy (including many households, businesses and public-sector organisations from local councils to central government), we are insolvent, thanks to the debt-fuelled binge of the past 15 years or so. It is not enough to sell assets, we have to reduce our liabilities and increase our efficiency/profitability.

If you are so far in debt that you need to go into personal bankruptcy or an IVA, you cannot improve your position by selling your house, because then you will have to repay some of your debts, and the amount to be repaid exceeds the value of your house.

The same would go for a manufacturer, and worse: he cannot improve his solvency position by selling his plant, not only because he would realise no net improvement in his balance-sheet position, but also because he would be out of business for the practical reason that he didn't have the equipment to produce his goods.

I don't disagree with shrinking the state, nor with many of your targets, and I appreciate that this post was somewhat facetious. But I thought it would be useful to consider how much bigger a hole we are in than one that could be solved by flogging assets (or other means) to provide a one-off boost to the cash available to the Government.

We have to get our liabilities down and our profitability (as a nation) up, which means cutting things like unaffordable public-sector wages, pension provision and support for white elephant projects and loss-making institutions, and improving the competitiveness of the economy by reducing the overheads that no one would pay good money for, like many of the quangos, and costs of social protection.
Feb 25, 2009 at 2:58 AM | Unregistered CommenterBruno Prior
By the way, what you get for something depends on the state of the market. I doubt you would get that much in the current conditions. And that is even before you add the depressive effect on prices of a fire-sale of such magnitude.
Feb 25, 2009 at 3:06 AM | Unregistered CommenterBruno Prior
David Semple - priceless
Feb 25, 2009 at 5:50 AM | Unregistered CommenterIanH
Bruno
Yes, you would probably have to phase it to get full value.

I hadn't really clicked with the idea of the country being actually insolvent, but this is kind of the conclusion my firesale idea tends to anyway. I'm not sure though whether anyone really knows what assets the state has. Consider the Universities - you can look up their book value but even then there are land banks and intangibles that don't appear on the balance sheets.

Addressing pensions is of course vital.
Feb 25, 2009 at 7:15 AM | Registered CommenterBishop Hill
But doesn't this all assume that the buyers are willing and solvent? IIRC, government auctions are regularly advertised as the places to go to get things very cheap...
Feb 25, 2009 at 1:54 PM | Unregistered CommenterJames P
Good grief Eminence Bishop! You are not daring to advance the proposition that dare not speak its name... the P Word, privatisation of the NHS. You mean whilst guaranteeing universal health cover by public subscription the Government - demonstrably incapable of running anything - is not the best to provide and run a health service?

It is hard to estimate the asset cost of a hospital, but including land, equipment and additional premises such as residences, storage and offices and revenue potential, I think an estimate of £1 billion to £2 billion per hospital depending on its size.

Since there are over 600 hospitals then this is £600 billion to £1.2 trillion.

I have been involved with the NHS between 1971 and 1997 - it has never worked but each successive Government has bought the Emperor a new set of clothes and the People gape in admiration.
Feb 25, 2009 at 2:00 PM | Unregistered CommenterLaroquois
Liquidating public assets does decrease the State's liabilities and borrowing requirement because by selling off public bodies, the State would no longer be liable for salaries, NIC, pensions, capital investment, maintenance, insurance, etc within these public bodies.

There are for example more than 1.3 million employees in the NHS; In fact the State could keep most of the NHS assets, land and buildings, and rent them to the new owners to offset against spending, plus there would be tax receipts from activity.

In health and education, assuming universal coverage through public subscription, a sell-off should encourage foreign, inward investment as it involves areas with a growing business and guaranteed customer, the State.
Feb 25, 2009 at 2:26 PM | Unregistered CommenterLaroquois
Depends on how fast you want the money. Let's try over five years.

1. Leave the EU. Savings north of £75bn.

2. Lose the 1m public sector jobs created over the past twelve years. After social security, save £50bn.

3. Following 2, limit all SS claims to two years, save £30bn on that clearout alone.

4. The two-year limit applies to everyone, save perhaps another £60bn.

5. Now squeeze out another 1m public sector jobs, consultancies. Might take five years, another £25bn at least.

The back of my envelope says £240bn. Do something about armed forces equipment, say £230bn net over 5 years, not really trying too hard. Will this help?
Feb 25, 2009 at 9:36 PM | Unregistered CommenterJeff Wood
Jeff

Going to have to pay out some social security on those jobs you're cutting. I like the gist though.
Feb 25, 2009 at 10:03 PM | Registered CommenterBishop Hill
Thanks, Bish. I will send you a Note of my Fee in due course.

I have allowed Social Security at each stage. I also think a general time limit on claims, especially for those under 50 or so, is a sensible reform. And the result is that the savings inthe second five years are even greater.

Each line is give or take, but overall we are in the right sort of area. Then, start on proper cuts to the civil service/ quango/local authority establishment. I suspect another million could go.

Chairpolishers suddenly released into the real economy will find it uncomfortable, more so than most of the suddenly unemployed, so one could devote some funds to retraining.

None of this is radical. Over the first five years it would be possible to seriously consider the ifs and buts of the Health Service and Education funding reform.

Actually, schools could be made independent and voucher-funded within two or three years. Savings should come from the closing down of local authority education departments, offset by greater funding of inspectors and special needs children - these might be seen to be fewer once discipline is restored. And, yeah, I would give some money to home shoolers.

Still on the subject of education, I would take an axe to the number of institutions allowed to call themselves universities, and slash funding for social science degrees. No savings here: make the money available to science and engineering faculties. That would pay dividends in future years.

Essential to success would be to, from the start, share the savings between the taxpayer and the national debt.

But I am boring on...
Feb 26, 2009 at 4:50 PM | Unregistered CommenterJeff Wood

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