Analysis: Mervyn King and the Quangos

It sounds like a rock band, but it is more like a clanger. In light of this afternoon’s Comprehensive Spending Review, Mervyn King and the Quangos would make a suitable subtitle for the second main paragraph of the Bank of England governor’s speech yesterday in the Black Country, one of the hearts of the Industrial Revolution.

King praised the efforts of quango British Waterways in regenerating Britain’s canal network after its deindustrialisation, as authorities try to revive manufacturing exports at the expense of services and the public sector.

Unfortunately, according to Google’s archive of public sector body reforms, British Waterways is one of the quangos due to be abolished as part of the government’s spending cuts.

According to King: “At its peak, there were 5,000 miles of canals in Britain. Of course, the importance of canals as the arteries of industry later declined and by the late 1960s only 2,775 miles were navigable. But the regeneration of urban communities, and the efforts of British Waterways, have reversed this decline.

“The number of miles is now increasing. Last year, 13 million people visited our canals and the number of boats is actually higher now than during the Industrial Revolution. Such examples are important because our economy faces the prospect of change again. After an unprecedented financial crisis and deep recession, the UK economy needs to rebalance.” (article continues below)

However, the state is now due to abolish British Waterways as a public corporation in England and Wales, only to resurrect it as a charity – a “National Trust” for waterways.

“The government is not embarking on a round of deregulation to encourage new entrants into ailing sectors”

The episode illustrates an inconvenient truth for British authorities: at a time when they are trying to cut or reshape public spending and replace it with cash from the private sector, they are also ordering a costly overhaul state-sponsored areas which have traditionally stimulated private demand.

One frequently cited example of this is the abolition of the UK Film Council, which has typically pulled in large sums for British film from the private sector.

By abolishing such quangos altogether or replacing them with charities, or philanthropy, authorities will hardly encourage investment on an American scale in response, as the necessary tax write-offs on donations do not exist in this country.

Moreover, the government is not embarking on a round of deregulation to encourage new entrants into ailing sectors.

This is particularly crucial in infrastructure-heavy areas like waterways, which  often require large doses of capital expenditure.

Investors may thank King for highlighting authorities’ predicament so graphically, even if he may have only done it by accident.