Neil Bennett, Global Co-Ceo of advisory firm H/Advisors, writes for City A.M. fortnightly – this week on HS2, water companies and a new Netflix must-see
IN business, I sometimes make mistakes, we all do. Occasionally they are expensive (fortunately not too often). When they happen, I say to my team: ‘we’ve paid a lot of money for this lesson, so let’s ensure we learn it properly, so it doesn’t happen again’.
Let’s all hope, poor overburdened taxpayers that we are, the HM Government learns a really big lesson from the debacle that is HS2, and never, ever makes the same mistake again.
Britain, and more specifically our public sector, has long been inept at commissioning and delivering large infrastructure projects. We build aircraft carriers without planes and exorbitantly expensive nuclear power stations, while our schools crumble and our roads deteriorate into cart tracks.
This is not a new phenomenon, but nothing however comes close to the £100bn fiasco of HS2. If the Government does indeed decide to cancel the northern section to Manchester, we will be left with a line that goes from a remote London suburb to somewhere outside Birmingham for a price that could have refurbished every school in the country.
It is almost too painful to list all the mistakes and wanton political grand-standing that created this project. It is probably more useful to look at the government structures and practices that facilitated this gross error and ensure that it never happens again. What is needed is the following:
- Brutal honesty. Too often these projects are initiated wreathed in rose-tinted smoke. The initial estimates in terms of cost and timing are the stuff of fantasy. If politicians knew at the outset what the cost would be of a project and the timing, they would be less likely to sign them off.
- Realism. Too often Governments sign off pie-in-the-sky projects involving the latest technology and barely achievable technical specifications, without any consideration of cost – often egged on by starry-eyed engineers. They need to be confronted by reality at an earlier stage and forced to choose something cheaper and more achievable.
- Independent oversight. Too often the engineers and their political masters are left marking their own homework on these projects until it is too late. We need a separate organisation, like the Office of Budget Responsibility, to hold all major projects to account – the Office for Capital Investment.
- Private sector involvement. Left unchecked the public sector will always spend money like water. Worse it will write blank cheques to private sector contractors. At its outset HS2 should have been a public/private partnership in which both sides were incentivised to keep costs down, rather than bump them up.
- Effective incentives. This follows from the last. It strikes me that there is no-one in the whole HS2 circus that is incentivised to keep costs down. Instead, everyone benefits from spending as much of our money on it as possible. The government should work with contractors who are paid in relation to the savings they make.
Let’s put all this in context. By the time it is built, HS2 will have cost every man woman and child in this country £1500 each, which doesn’t feel like good value to me.
At the very least this Government should certainly commission an enquiry to look at all the mistakes that have been made in the commissioning, the design and execution of this project and ensure they never, ever happen again.
Bad news. Ofwat deemed yesterday that the water companies must cut customer bills by £114m next year as a penalty for underperformance.
When will it learn that lower bills are not top of our priority list? We want water mains that don’t leak or burst, sewage works that don’t flood, and rivers and beaches that aren’t polluted. For this, the water companies need funds for investment. Starving them of capital in this way as a punishment merely perpetuates their downward spiral.
Can I quote you on that?
“I think me and Warren Buffett should launch a campaign to say life is sweeter if you go out to work when everyone else is retired”Tim Martin, boss of Wetherspoons, discusses his retirement plans in typical style.
Finance on film
A couple of years ago, we all enjoyed the tale of the day traders who took on the big hedge funds to pump up the price of GameStop. Well here is the film, Dumb Money – with all the turmoil and confused reality turned into a simple David vs Goliath tale. It is a fun evening out for anyone interested in the madness that is the equity market.