Thursday, July 01, 2010

A Little TPA Silliness

Mark Wallace at the TPA comes out against the Forgemasters loan, suggesting that overall it's unlikely to make the government any money. His maths is correct, looking at the loan in terms of the rate that's been given there's even the possibility that the government might make a small loss on the loan itself but this ignores the bigger picture.

The government is not simply acting as a bank and considering the loan in terms of profitability it is also considering it's wider interests.

  • Firstly, although the loan is unlikely to make a profit, it's cost is going to be as close to zero as makes no difference, making this loan is not going to cost anything.
  • The business being lent to is in Sheffield, an area with a serious unemployment problem as well as providing jobs directly, it will give a boost to the local economy providing further jobs
  • By going ahead with these plans Forgemaster's would have presented a viable alternative to buying nuclear parts from Japan, future nuclear power plants in the UK could have been built with parts manufactured in Sheffield, thus reducing imports, the company could also have bid competitively for work in Europe thus generating exports, all helping this country's balance of trade
Another argument advanced is that if this was truly a viable business then the money have been obtained privately, I have my doubts about this line of reasoning. Right now, as banks attempt to rebuild their fragile balance sheets, companies are having to pay high rates as well as considerable fees to investment banks in order to raise money. The cost of obtaining the credit commercially at this point in time would not make it a viable business opportunity (this in my opinion is a problem with our banking system more than anything).

By cancelling this loan the coalition have missed out on a chance to provide good jobs in an area that sorely needs them and improve the country's balance of trade at virtually no cost, it's a terrible missed opportunity.

1 comment:

Robert said...

We are told they the government do not have 80 million, which is a surprise because we have it to buy missiles nukes which will come from America and we will not have the launch code's.