Economic Affairs - Forward Thinking, Progressive for all

Last updated: 13th September 2016

Henry Ford: “Obstacles are those frightful things you see when you take your eyes off your goal”.

Why Economic Affairs Spending Matters

Spending on economic affairs was strongly cut in 2010-11. Further reductions were made in 2012 and 2013. Since then there has been a near return to 2011 spending levels and in 2015 was £38.4 billion, equivalent to 5.2% of total Government expenditure.

Economic Affairs Spending, 2010-11 to 2014-15 (£ Million)

economic affairs expenditure

Source:  HM Treasury

Compared with other European countries, the UK underspends on economic affairs:

International Benchmarks of Public Spending on Economic Affairs, 2014 (% of GDP and % of Total Government Spend)

expenditure on economic affairs UK and Europe

Source:  Eurostat

In 2015 the economic affairs spending was as follows:

Breakdown of Economic Affairs Spending, 2014-15 (£ billion)

economic affairs expenditure segmentation

Source:  HM Treasury

It is possible to place this breakdown in an international context:

International Breakdown of Economic Affairs Spending, 2014 (% of Total Public Spending)

economic affairs expenditure segmentation UK and Europe

Source:  Eurostat

UK spending is low by EU comparison on every aspect of economic affairs.

Transport represented almost 52% of economic affairs spending in 2014 in the UK.

Transport

Transport is a major issue, being the second highest household expense for most households. It covers many separate areas, but spending follows roughly similar trends:

Breakdown of Government Transport Spending, 2010-11 to 2014-15 (£ Million)

transport expenditure segmentation

Source:  HM Treasury

The largest part of transport spending is on railways. Private companies provide rail services in the UK since British Rail was privatised in 1993. Rail companies then bid for the right to run services. The UK is unusual in privatising the rail sector. The train fares are not enough to cover the costs of running a ‘public service railway’. So to ensure that railways fulfil certain public service duties the Government has subsidised the train operators.

Government support to the rail industry now chiefly consists of Department for Transport support grants, PTE Special grants and a grant to BR to finance its residual activities. Despite recent increases, support in 2013/14 was close to some third lower, in real terms, than in 2006/07. Since its recent peak in 2006/07, real terms public spending on railways have declined, and in 2014/15 totalled £7.2 billion.

The Government has created Local Enterprise Partnerships (LEPs) between local Government and business in economic areas. This gives them the chance to decide the priorities for investment in roads, buildings and facilities in the area. There are 39 such LEPs. The Government funds the maintenance and development of the Strategic Road Network through the Highways Agency. Local roads remain the responsibility of local authorities. In 2015 some £5.5 billion was spent on local roads, and £3.7 billion on national roads including both new construction and maintenance.

There are also non-tax related expenses incurred by people because of the lack of state investment. One example is the lack of spending on repairing potholes in roads. This alone is leading to what the RAC estimates as £100 million in costs of broken wheels, suspensions and tyre wear to drivers. Alongside this are compensation claims paid by councils. This is an appalling misuse of money outside of tax.

The 2015 Asphalt Industry Alliance report shows the estimated one time catch up cost of repairing our roads in England and Wales is now £12.16 billion. They estimate that pothole filing expense amounted to £144.3 million in 2015 with further costs of £23 million in compensation claims.

There are several ‘other transportation costs’ including:

  • street lighting (some £0.8 billion a year)
  • bus service operator grants (£0.4 billion a year)
  • concessionary fares (£1.4 billion a year)

These are partially offset by income from parking fees (a net revenue of some £0.4 billion a year).

Communication

Much of the Government spending on communication is the high-speed broadband roll out. The money covers connecting homes that would not be profitable to private companies.

Agriculture, Forestry and Fishing

A controversial food issue concerns Genetically Modified (GM) foods. GM crop seeds, foods and animal feeds cannot be sold without prior authorisation in Europe. Applications for authorisation are decided at an EU level. In January 2015 the European Parliament agreed a change to EU law. This will allow individual Member States to decide whether to accept planting EU-approved GM crops in their own country.

A proposed benefit of GM foods is that they can produce higher crop yields, which could help by feeding more people from less land. It is also claimed they are more economic, despite the initial higher cost of the seeds. The reason is they reduce the need for pesticides and herbicides as well as reducing the manpower needed to grow the crops. These features should result in lower food prices. Improved food quality is another benefit associated with GM foods. A tomato, for instance, can be engineered to stay fresher for longer, so extending its shelf life in the supermarket and the home. This therefore reduces waste.

A further benefit of GM technology is that crops can be engineered to withstand weather variations and extremes. This means that they can provide enough produce and quality despite a severe, poor weather season. GM foods can also be engineered to have a high content of a specific nutrient that is lacking in the diet of a local population group. The vitamin A rich ‘golden rice’ is one example of a GM food that has been engineered to have high levels of a nutrient.

A more worrisome issue in GM foods is the ability of a food to trigger an allergy in humans. Some of the genes used in GM technology might be taken from a food that causes allergies in some people. Inserting that gene into another organism could cause the host organism to express that allergen as a trait. Alternatively, a new allergen could be created when genes are mixed across different species. Another potential downside to GM technology is that other organisms in the ecosystem could be harmed, which would lead to a lower level of biodiversity. By removing one pest that harms the crop, you could be removing a food source for another animal. Also, GM crops could prove toxic to an organism in the environment, leading to reduced numbers or extinction of that organism.

Given that some GM foods are modified using bacteria and viruses, there is a fear that new diseases will develop. The threat to human health is a worrisome aspect of GM technology and one that has received much debate.

The wastage of “ugly” fruit and vegetables has been a recurrent complaint of environmental campaigners over the past few years. The UN Food and Agricultural Organisation (FAO) estimate that 33% of food produced for human consumption is lost or wasted globally (about 1.3 billion tonnes a year). According to Wrap, the sustainability agency, each year 90,000 tonnes of produce in the UK are sent to landfill. Much of this is fruit and vegetables which are rejected purely for aesthetic reasons. The Soil Association estimates that in the UK, a staggering 20-40% of produce is rejected simply because it doesn’t look right.

Forward Thinking Economic Affairs Policies

There has been under investment in infrastructure even by the Government’s own admission. This is a common theme of public services and it took privatisation of the major utilities to reverse this.

Britain’s railways are the most expensive in Europe, and possibly the world. While it is right that users of the service pay rather than the state, there remains a public interest (not least in environmental terms) that should encourage use of railways. Train operators have to invest large sums and so need certainty to remain active in the market. HS2 will need a total budget of more than £50 billion including construction and rolling stock. While the investment is needed because of the benefits, public sector budgets have a history of under estimating costs and overrunning. The critical issue, as with most large-scale projects is the contract development and then project management.

A decision also has to be made on a new runway in South-East England. The Airports Commission short-listed three choices:

  • a new northwest runway at Heathrow Airport
  • a westerly extension of the northern runway at Heathrow Airport
  • a new runway at Gatwick Airport.

The Commission decided the proposal for a new northwest runway at Heathrow Airport, in combination with a significant package of measures to address its environmental and community impacts presents the strongest case.

The Local Enterprise Partnerships should be reorganised in line with the nine local regions. A regulator could then oversee the entire sector. The existing Highways Agency work could then be undertaken regionally. There needs to be a concerted effort to relieve highway congestion and to prevent the costs associated with potholes on existing roads. Clearly it is impractical to invest £12.16 billion in a one-off catch up on road conditions as identified by the Asphalt Industry Alliance. However a spend of £144.3 million on pothole filling, a further £23 million in compensation claims, an estimated £100 million to motorists in broken parts, means there needs to be a greater emphasis on repairs. The Asphalt Industry Association identifies there is a shortfall in the road structural budget of £548.6 million.

Local public transport spending should be linked to roads investment because improvements in public transport have a wider environmental benefit. Anyone can access a map of the London Underground, but other cities do not widely publish route maps of local transport networks. This limits their use to locals who ‘know the system’ and excludes visitors.

New street lights should use solar sources and LED lamps to reduce the demand on the electricity grid. This will still offer a brightness suitable for road safety and crime reduction.

Concessionary fares on public transport should be means tested and in the long-term incorporated into the Basic Household income.

The target of 99.9% of homes to have access to high-speed broadband should be retained.

Retailers rejecting fruit and vegetables because of shape and colour has to be changed. Large food retailers should be forced to offer ‘seconds’ at a discounted price and let the consumers decide. France and Germany have met with success in changing this waste. It has a direct potential contribution to reducing the cost of living, lessening landfill waste and improving the income of fruit and vegetable farmers. In the UK this is being promoted on television by two celebrity chefs. Hugh Fearnley-Whittingstall has gained more than 300,000 supporters for his war on waste demand that supermarkets change their policies, while Jamie Oliver is also championing the cause.

GM foods are an issue of great controversy, with Europe in general having been cautious. Yet GM foods have been more comfortably adopted in the USA and India for example. It is an important issue, since it potentially allows better nutrition, at lower cost and with less demand on agricultural space. It also offers potentially greater crop security against pests and disease. There is a need for DEFRA to re-evaluate the evidence so far to examine the scientific evidence that currently restricts use in the UK, particularly in the light of the UK now exiting the EU.

There is a major issue with the replacement of the EU’s CAP. Initially the UK would need to honour CAP payments to farmers on exit, but the entire payment structure needs to be thoroughly reviewed in consultation with the farming representatives and the retail industry. EU policies have effectively forced farmers to become dependent on subsidies, and British farmers receive £3.1 billion per annum (equivalent to £235 per hectare) from CAP. This is paid on the basis of the area of land farmed, and efforts farmers make to improve the environment. Many farmers argue that the benefit from the EU’s subsidy rarely reaches them and supermarkets factor in the expected income in their calculations of what to pay their suppliers. Farmers also benefit from access to the EU market, which accounts for more than half of all British food and farming exports, amounting to more than £11 billion a year. It is a very important area that needs positive policies and needs to take consideration of the situation after final tariff negotiations with the EU are concluded.

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