Saturday, 17 August 2013

When Benefits Are Really Costs

I'm amazed how often issues crop up in politics that lead me to question whether a particular politician is a muddled thinker or whether they are trying to pull the wool over the public's eyes.  Here’s a classic case in point. The HS2 project is a high capacity railway project linking London to cities in the North of England (such as Manchester and Leeds).  This might be a strange Hitchhiker’s guide-type phenomenon for many Londoners who have never travelled further north than Watford before, but never mind.

Both David Cameron and Nick Clegg have recently been raving about this report which details the benefits of HS2, including the creation of thousands of jobs.  Naturally the report is a bit vague on the precise number of jobs that HS2 will create with regard to organising, building and administrating the project – but the estimate is several thousand jobs, which Cameron and Clegg have both enthusiastically cited as major benefits of the HS2 project.  This is such an absurd claim to make that I can only infer, either that Cameron and Clegg have a muddled understanding of accounting, or that ‘employment’ is such a positive watchword for the electorate that they are trying to deceive the public by simply saying what people want to hear. 

It strikes me as fairly obvious, but job creation is not a benefit to the HS2 project – it is a cost.  Yes, if the HS2 project helps generate jobs by way of businesses starting up to capitalise on high speed transportation, then that can be included amongst the benefits of HS2.  But Cameron and Clegg hardly even gave that a mention – their preoccupation was on the benefits of the project’s inception with regard to jobs created for organising, building and administrating the project. 

To see why such jobs are a cost, not a benefit to the taxpayer, suppose for the sake of argument that David Cameron’s Government is about to spend £50 million on wages for a UK Local Government building project, but then found out that they could hire cheaper workers to do the job at the same standard for £30 million.  According to Cameron and Clegg’s rationale, they should hire the £50 million workers not the £30 million workers, because spending an extra £20 million on the project increases the benefits of the project, and is better for the economy.  That's absurd. It’s obvious that the £20 million saved is a benefit to the taxpayer, because it can be spent on other public goods and services.

The same is true in the real life example of the HS2 project; the labour required to organise, build and administrate the project is part of the overall cost of the project, not part of the benefits.  When politicians proclaim costs as benefits, it leaves me wondering whether they are muddled economists or disingenuous hoodwinkers. 

* Picture courtesy of