Though Cowards Flinch

This is very exciting news, and if it turns out to be true, probably the best economic news in the UK for four years:

Ministers are finalising a radical plan to boost investment in UK infrastructure and stimulate the economy, with proposals to pool the vast assets held in British pension funds and use them to back an ambitious programme of road and house building.

Pension and insurance funds are to be encouraged to invest up to £50bn in improving infrastructure, including private and social housing, power stations, super-fast broadband and motorway toll roads.

The plan was pushed by Cable at BIS earlier in the year, but knocked back by the Treasury.  Now, with the Treasury desperate, it looks as though Cable may get his way.

Clearly, the plan will take ages to bring to fruition.  Pension Funds are required under fiduciary duty to maximise the value of their investments for their pensioners, and the due diligence that will need to be undertaken by them, their advisers and their fund managers will not be quick.

Even so, it’s a huge step in the right direction towards a more sensible economic policy, and if it is delivered will be a victory for Cable the Keynesian over Osborne the Fool.

Of course you could argue that it doesn’t need to be this complicated.  Government could simply just get on with the spending, and allow Pension Funds to make their own minds over time as to whether it’s worth investing in the government debt that support this new economic growth.  After all, Pension Funds (together with Insurance Funds) already own around £300bn of the £1,069bn  government debt  out there (DMO, June 2011), so an extra £50bn invested in programmes designed to relfate the economy would seem like a pretty good bet, and much easier to arrange. 

However, the Cable-proposed way allows them to keep government debt of balance sheet, and as with Labour’s PFI programme, this is an important political consideration. In a more mature political environment, it wouldn’t be, but it is.

So this is good news, and Labour should react to it as good news. In the week that Ed Balls goes out on the road selling his Five point plan (sensible enough, but small beer in comparison to the Cable plan), the worst thing Labour can do is start whinging about how the Tories are u-turning, and how hyocritical the Coalition is noe being about off-balance sheet debt.  That would be easy, but wrong, politics.

Instead, Balls and team should welcome Cable’s initiative.  They should welcome Cable back to the Keynesian fold, while pressing more advenurous (and more direct) long term action of the same ilk, as well as for short term action (e.g. Balls’ Plan B) while the Cable plan gets underway.

One more thing to note, a little parochial.

The person pushing this stuff from behind the scenes is almost certainly Giles Wilkes, Cable’s special advisor.  Long term readers of this blog and Liberal Conspiracy will remember Giles as a regular back in late 2009/early 2010, and it is here (and at his own blog) that he developed some of the ideas that now may save the economy. 

This is what Giles said in reply to my pre-election post, in which I argued precisely what Cable is now arguing – that being in debt to Pension Funds can be a very good thing, because it allows people saving for a pension to invest in their children’s future:

I think this point Paul is making with this post is extremely important. Right wingers seem to only ever see the debt side. The most important number in debt arguments is zero; that is how much the world owed Mars.

At last, it looks like Giles and Vince may be winning the argument, and we should celebrate that even if they’re only winning it eighteen months too late, and because Osborne’s version of economic reality has now been shown so clearly wrong.

Welcome back, Giles. Welcome back, Vince.  And if we do see eventually see growth through this incipient UK New Deal, remember, the plan started here.