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POLITICAL ECONOMY
Walker's World: A British revolution?
by Martin Walker
London (UPI) Jul 1, 2013


disclaimer: image is for illustration purposes only

Something very remarkable is taking place in Britain, a policy revolution in which three years of austerity are to be balanced by the government's announcement of a dramatic $150 billion surge in infrastructure spending.

The spending plan over the next six years includes the biggest investment splurge in the rail network since the Victorian era, 21,000 miles of road resurfacing and upgrades and making superfast broadband available to 97 percent of the population within three years.

There is $50 billion for a school building program, to cope with the birthrate surge that is delivering a million more schoolchildren, new bridges and a new fast rail route across London from north to south.

But this goes hand-in-hand with continued controls on public spending, particularly in the welfare and pension budget, that by the 2020s will see the state's share of the economy shrink to its smallest size since the 1970s.

So how is the infrastructure boom to be financed?

First, the government plans to sell $20 billion in public assets, including the student loan portfolio, and $8 billion in property.

Second, Keynesianism lives; it is ready to take advantage of low long-term interest rates on gilts (state-backed bonds) to invest in the sinews of future growth.

Third, it plans to clear away the planning and other hurdles that stand in the way of Britain following the United States to exploit much larger reserves of shale natural gas than previous estimates suggested.

Last week, the British Geological Survey reported, after two years of research, that the Bowland Shale under northern England contains more than 1.3 trillion cubic feet of gas. Extracting just 10 percent of this would supply Britain's energy needs for 50 years.

Similar surveys are under way for other known gas fields in the Weald in southern England, in south Wales, in Lincolnshire and Yorkshire in eastern England and around Scotland's Firth of Forth.

Some private surveys by energy companies suggest that Britain alone could supply Europe's energy needs for more than a century.

"The survey confirms the huge potential that shale gas has for the U.K.," said Danny Alexander, first secretary of the Treasury. A member of the Liberal Democrats, the junior partner in the governing coalition, Alexander emphasized that the government stood "ready to unleash the energy revolution our country needs."

The government reckons it has solved the key problem of local opposition to the drilling by persuading energy companies to agree that each township and locality will receive $150,000 for each well drilled, plus 1 percent of production revenues. A total of 176 licenses for onshore oil and gas exploration have been issued and 50 new exploratory wells are to be drilled in the next two years.

"This has the potential to be a game-changer for energy security," said Energy Minister Michael Fallon. "Today is the day that Britain gets serious about shale."

The government says it will "publish a comprehensive package of reforms to enable shale gas exploration including proposals for the tax regime, for planning, and for community benefits, to give the U.K. a world-leading regime for investment. With the package announced today on planning, environmental regulations, and community benefits, it is clear that we want to encourage a shale industry that is safe and that doesn't damage the environment."

The government also hopes that, as with the exploitation of North Sea oil and gas over the last 30 years, the shale gas boom could build a new industry and produce a new generation of skilled employees who market their expertise elsewhere in the world. By reducing the need for energy imports, it should ease Britain's trade deficit and low-cost energy could be a shot in the arm for British industry.

The government has been careful not to say that this new approach of infrastructure investment represents a major policy shift from the vaunted austerity of the past three years. But the shift is nonetheless profound, with the new readiness to invest in road and rail links, in energy supply and in broadband.

While the austerity is to continue, with future spending plans paring away the number of state employees and eroding pension benefits for the wealthy, austerity has shown results. Over the past three years, the number of state employees has been pared to where it stood in 1997, undoing 13 years of the expansion in public employment by the previous Labor government.

At the same time, the numbers employed in the private sector grew. At the end of 2012, the U.K. total public sector employment estimate was 313,000 lower and the U.K. total private sector estimate 904,000 higher, than it was a year earlier.

The British economy isn't out of the woods; the financial crisis hit its vaunted banking sector very hard. The fall in the value of the pound explains much of the nominal decline in gross domestic product that pushed Britain just behind France and Brazil in the global GDP pecking order.

But recovery appears to be under way. The service sector, which accounts for more than 70 percent of the economy, grew much faster than expected in May and the purchasing managers' index points to healthy growth in manufacturing. The surge of infrastructure investment can only reinforce this trend.

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