Daily Archives: November 24, 2011

Jim Pickard

Any idea that the British government could afford to take its eye off Libya was dashed today by news of an imminent report by the United Nations suggesting some 7,000 detainees are being held in the newly liberated country.

The report by the UN secretary-general, Ban ki-Moon, says the prisoners include women and children. There are also many black Africans who have been tortured for their skin colour as suspected Gaddafi sympathisers. The report, due to be published on Monday, suggests that many prisoners have been held in private jails not under the control of the interim government. Prisoners lack access to legal due process and many courts are “not fully operational” 

Jim Pickard

I revealed a few weeks ago that the government is considering paying families “cashback” of £150 to take up the Green Deal, the flagship energy-saving scheme. The deal begins in October next year and lets people spend thousands of pounds improving their home insulation; the cost then comes off their (lower) bills gradually over the ensuing years.

I’ve just been told that the Treasury (in the form of Danny Alexander) is about to announce £200m for the project as part of next week’s growth review. 

Kiran Stacey

The outcome of last week’s final quad meeting before next week’s autumn review seems to have resulted in rather a strange compromise.

George Osborne entered the meeting arguing for a freeze in some benefits (not pensions or disability living allowance) to pay for a package of other measures, including tax cuts and action on youth unemployment. But he was met with stiff resistance from Nick Clegg in particular, who didn’t want to punish the poorest by giving them a sub-inflation rise in benefits.

In the end, as we revealed this morning, they agreed that benefits would go up with CPI, as would normally be the case. But the chancellor insisted that money had to be saved somewhere, and the surprising compromise reached would be that it would come from tax credits instead. Treasury officials are now working on how exactly that money will be saved.

Clegg also won his argument that some of the money (£1bn to be precise) should be used to fund a short-term work placement scheme for young people to get access to the jobs market. 

Jim Pickard

George Osborne wants to channel billions of pounds of pension fund money into big infrastructure projects such as rail, road and energy projects.

This is the premise of Monday’s “infrastructure review”, in which the chancellor will update us on progress on getting this big plan off the ground – along with a list of 40 or 50 “top priority” infrastructure schemes which we should see happening quite soon.

The curious thing, however, is that pension funds already pay for infrastructure projects, and not only through PFI schemes. This is because they regularly buy tens of billions of pounds of government bonds (gilts) which are then used to finance general government stuff: including capital investment.

Investors in infrastructure schemes usually expect more income given that risk is perceived as higher than supposedly risk-free gilts (although the Eurozone crisis has put a dent in that concept).

So why would Osborne want to borrow in this more expensive way? Could it be a rather less visible way of accumulating government debt than simply going to the capital markets? That was of course one of the true rationales for the now controversial PFI system.

Here is the government spiel:  The World Economic Forum ranked the UK at just 33rd in the world for the quality of its infrastructure, down from 9th in 2005. The government anticipates that some £200bn needs to be invested in UK economic infrastructure over the next five years, with most of that spent in energy and transport. The coalition believes that previous governments failed to produce a coherent view of the long-term needs for British infrastructure.

Ministers are determined to lever in private sector investment and reduce the cost of capital for projects and programmes – and officials have been working for months on “efficient and effective funding models“. Key to this is encouraging participation by pension funds also overseas sources such as sovereign wealth funds.

In the UK the level of infrastructure investment is estimated to be under 1 per cent of pension fund assets compared to 8-15 per cent in Australia or Canada. Officials and ministers want to change this.

So far, so straightforward.

The key is to lower the cost of capital, which increases as “risk transfer” increases. For example building a toll road is high-risk