Ah, infrastructure. The cure for our third-world airports, potholed roads, delayed trains…Everyone’s in favour of building the urban environment we feel we deserve. The last government promised to deliver 500 building projects to drag the economy out of recession. It seems to have dragged itself out, despite capital investment actually falling from £57bn to £42bn in the last four years.

The Treasury has a plan totalling a spuriously-accurate £466bn, but it’s a fantasy. The political mileage lies in announcing schemes to great fanfare before shelving them in the face of pressure for spending cuts. The vast majority of those 500 remain unbuilt. Still, we would be grateful to be spared some of them.

The finest candidate for the chop, the biggest, whitest elephant of the lot, is HS2. If there is an economic case for this fresh £50bn slash through the Chilterns, it hasn’t been made, as a robust analysis from the House of Lords committee concluded in March. Next comes the Thames super-sewer, a £4.2bn dig for a marginally cleaner river at a cost of £80 a year onto Thames Water’s customers’ bills, promoted by the specialist financial exploiters of public utilities.

Then there is the smart meter project, which will somehow magically give us all lower energy bills, although it is so unattractive that the companies won’t do it for themselves. The estimated cost is £11bn, and the document that underpins the claims of savings of £17bn reads as though the the case has been constructed to fit the conclusion. In contrast, a recent analysis for the Institute of Directors picked the argument apart and reckoned that the savings are illusory. The meters, by the way, are not all that smart, either. That’s a total of £65bn for a start.

Of course some mega-projects really are worth doing. The return on another runway in the south east is far greater than its cost, but the most likely next step is yet another enquiry. Reliable, universal, fast internet coverage would repay itself in no time. Skimping on road maintenance and improvement is plain foolish.

The transformation of London’s transport system in recent years indicates the gains that this sort of low-key spending on improved efficiency can bring. But where’s the fun in that, compared to announcing a new tube line?

A lifeline for life insurers

It’s barely two months since the UK government borrowed 53-year money at 2.62 per cent, and if any single event rang the bell for the end of the generation-long bull market in bonds, this was surely it. Since then the buyers of these “risk-free”assets have already lost the equivalent of four years’ income as the price has fallen.

It could have been worse. It’s less than a month since the yield on German 10-year debt hit 0.05 per cent. Despite the European Central Bank’s bond purchases, that yield has jumped to 0.7 per cent, as dearer oil has encouraged optimism (sic) that inflation is coming back. This is still a pretty skinny return (the UK equivalent yields 2 per cent) but it’s a tiny step in the right direction for the life assurance companies.

The IMF highlights the plight of the German companies which guarantee 1.25 per cent returns, far above the yield on bunds. Life offices take cash now for returns often far into the future, and the IMF reckons that miniscule yields are producing a “high and rising risk of distress” in weaker players in the industry.

So far, there are few signs of contagion in large UK companies, but “high and rising interconnectedness” across the whole industry is a worry. After all, a life assurance contract is the ultimate expression of trust from the consumer in the provider. This crack in the bond market from recent silly prices could hardly have come at a better time.

Never say never

Once upon a time, long, long ago, a bank called HBOS almost collapsed. What is now the Financial Conduct Authority launched a review. From the minutes of its March meeting: “The board received an oral update from Sir Brian Pomeroy on the progress of the report, the likely timing for approval and publication.” This year, next year, sometime…?

This is my FT column from Saturday

 

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