In the foothills-of-apocalypse position we now occupy, this may seem a prosaic concern: but where do they hide the budgets? Well, this was always conceived of as basically a business blog, so we can't take responsibility for solving Ukraine, Gaza, Taiwan, small boats, climate change etc.
Here are a couple of examples. Firstly, the mighty Afghan refugee cockup. What do they reckon - £7 billion and counting? How come no canny forensic budget-bore spotted that one on the HMG books? Clever old Sir Humphrey, eh?
Second, and you'll permit me my local interests here - I give you Drax plc. Outwardly just a regular UK listed company going about its chosen mission of incinerating the forests of the world using UK subsidies on the pretence this is helping to solve the aforesaid climate change. But behind the scenes it has to fight legal action after legal action: that's what happens when you are aggressively living a lie which you've determined to brazen out at all costs. The other day I happened on some evidence that they are spending tens of millions annually in legal fees for litigation, amounts dwarfing what they spend on their annual statutory audit plus associated consultancy. The latter, you will find laid out in detail in the Annual Report and Accounts: the former you will not. The ordinary shareholder would never know.
Finally, and this one won't be even remotely surprising, I've had some correspondence that invites me to believe there is a fairly substantial renaissance getting underway of our nuclear deterrent. Yes, there are indeed project line-items in the MoD budget for some of this. But I'm being told it's a fraction of the true total. Still, this probably goes back at least as far as the two Harolds, Macmillan and Wilson ... (Maybe those two aircraft carriers didn't cost quite as much as we'd thought?)
Somebody signs off on all this stuff, supposedly with great solemnity and a straight face, with liabilities theoretically involved. Where's an honest accountant to be found? On the job market, I suppose.
ND
22 comments:
I can’t find who this quote came from, but it was the CFO or similar of a big company, or else a consultant and, when asked about the accuracy of accounting and, specifically, the nonsense of trying to come up with one single definitive figure for “cost” of something quipped:
“See that chair? Want to know how much it cost? Well, I can make it cost anything you like”.
The one on Brown's flat tops is food for thought!!!!
Semi-OT, but is AI the dot-com boom all over again? Potentially great rewards but insane valuations? Anyone remember Freeserve?
"Freeserve floated on the stock market in July 1999 (as Freeserve.com plc), at which point it had approximately 1.3 million subscribers and was valued at between £1.31 billion and £1.51 billion."
At that time I said - "that's a valuation of £1k per customer! No way will they ever get that much profit from them!". But they found a greater fool in France Telecom (now Orange), who bought them for £1.6bn within 18 months.
Similarly, councils will frequently put projects under ringfenced services no matter how tenuous the link, as it's the only way they can budget for them.
@Anon 3:20 - the bell isn't tolling yet, but the AI companies are objectively unaffordable. In order to go into profit - instead of 8-10 figure losses - pricing is going to have to increase by orders of magnitude.
We've seen with ChatGPT-5 initial attempts at cost-cutting, with pushback from customers as to the impact. There keeps being promises of improved efficiency and reduced costs, and those promises keep being kicked in to the long grass.
I think we're a couple of years off yet, but whilst cheap, "good enough" results are fine at lower price points, customers are going to want something rock solid if they're going to be burning a hole in their wallets.
And AI isn't that, because it's not actually intelligent.
Does this mean that in two years time there will be lots of jobs available to replace the employees laid off in the false expectation that AI would do their jobs?
But presumably the new jobs will not go to the laid-off but to younger and cheaper people.
Who may then be found not to be up to it, being il-educated and snowflakey. And so ...
ND, can you be any more specific about the nuclear deterrent? Tick all options that apply:
(a) Trident replacement going ahead
(b) Increase in total number of missiles and/or warheads
(c) More submarines to launch them
(d) Development of alternative methods of deployment, i.e., launch from aircraft or from land
(e) Tactical nukes under UK ownership/control for the planned F-35A fleet in addition to the existing NATO weapons
"Tactical nukes": are those for bombing France with?
"are those for bombing France with?"
Sparkbrook and Manningham?
@dearieme - I'm expecting a bell curve over a few years. A few companies will be reliant upon AI driven services that have either become unaffordable, or gone, and will need people to move them back.
Then there's the question of scale, if you've replaced 4 people @25k p.a. with one AI that now charges 100k p.a. it's probably still value. Just.
The companies paying licences per seat are the ones who are going to be hit hardest, so things like coding assistants.
AI will fade into the background, and the next big thing will be here. See blockchain, metaverse...
AZ
(a) Trident replacement - yes, public domain
(b) Increase warheads - sounds plausible
(c) Submarines - not the big Trident carriers, there'd be no hiding that kind of order. But coupled with (d), very plausible
(d) Alternatives - very logical. Add sub-launched cruise missiles etc to your list: there is to be a new generation of attack subs
(e) F35-A ordnance - would be very logical, but haven't we foresworn "atom bombs" per se? Not sure
For flexibility I have long advocated boosting our cruise / UAV fleet, to be launched from whatever platform, the more the merrier. That dates from when each vehicle was a major outlay. Now, they are on a cost spectrum from 500 bucks to any number you care to mention (see "chair" above), there's no excuse for not building them by the million (not all nuke, of course!)
Spider's Web has changed everything. It's public domain that the lesson has been hoisted onboard in the MoD.
But ... the motors will come from Japan or China, so will the electronics.
And ... China has vast amounts to spend, and the stuff from China is inexpensive ... we have shut down our factories and the descendants of millions of lathe and milling guys are unskilled ... we don't have either the money OR the industry (and those things are connected).
I first got involved in politics aged 16 in the Labour Party, 1971 Bromsgrove by-election (Terry Davis won). Could I have been transported to 2025 for a couple of days and then taken back, I might have switched to the National Front.
It must be almost impossible for young people to imagine a world where almost everything we used was made in the UK, and "abroad" was for things we couldn't grow, like tea, grapes (before GW) and cocoa beans.
Umm… what do you think the 50,000 BAE Systems employees do? Or the 22,000 in Rolls Royce aerospace? QinetiQ?
And just how Chinese is the “Chinese” COMAC C919, exactly? China likes to try to make out it’s an all-domestic product. But engines and flight control systems, perhaps not so much. With Honeywell and Collins Aerospace being the main avionics source, it’s only “all domestic” if Wolverhampton has been relocated to SE Asia.
How old are you exactly?
I’m in my mid fifties, which is pretty ancient, and even I remember lots and lots of talk in the 1970s about the influx of “foreign imports”. Heck, I vividly remember the Metro launch adverts in TV, how it’s going to see off Johnny Foreigners from Europe and Japan. Talking of TVs, the Japanese invasion in that market was virtually a rout by 1980. There never was a domestic video recorder.
Only in the 1950s and 60s were domestic products anything like near universal. That was not, of course, because they were especially good. It was due to exchange controls and an industrial policy aimed at “defending the pound” — for various reasons we won’t go into here, but none of them particularly good.
Nostalgia isn’t what it used to be, so they say. Nitwittery online, though, that’s just as good as it always was, it seems.
Japan 1950s - cheap plastic toys
1960s - consumer electronics, motor bikes
1970s - ships, motor bikes, hi-fi, cars (Nissan and Datsun)
"What does Japanese “targeting” mean? The term refers to a pattern for the Japanese state to make common cause with Japanese corporations in a no-holds-barred effort to seize leadership in important global industries. Some tactics are more covert than others and not infrequently they are completely unethical. But we needn’t dwell on this as in reality one of the most effective Japanese tactics was the relatively mentionable one of keeping the yen massively undervalued. To that end Japanese officials organised cast-of-thousands pantomimes aimed at convincing visiting foreigners that Japan was a Third World country and thus posed no threat to the advanced industries on which the West’s economic success was based. Thus although worker productivity in the Japanese shipbuilding industry was broadly on a par with the UK industry, London acquiesced in a hugely undervalued yen. This meant that the wage bills Japanese shipbuilders had to pay were little more than half of UK levels. With a cost advantage on that scale, the Japanese soon had the entire UK shipbuilding industry on the run. Cities like Newcastle, Glasgow, and Liverpool soon felt the impact but nowhere were the consequences more lamentable than in Belfast. Yet no one in London lifted a finger. The pound was kept permanently overvalued in a manoeuvre that suited a callous and blinkered City of London. Meanwhile London elites rejoiced in the fact that an overvalued pound meant their money went further when they travelled abroad on holiday. It is worth considering the might-have-beens. Had successive British governments stood up to Japanese targeting, the outcome could have been very different. Just how different is apparent from a look at the trajectories of Harland & Wolff’s once puny Japanese challengers. Take, for instance, Mitsubishi Heavy Industries (MHI). In the 1950s it was broadly as advanced as Harland & Wolff. Today it is a manufacturing colossus that leads the world in a host of super-advanced industries. MHI’s products include space launch vehicles, missiles, aircraft, machine tools, hydraulic equipment, and aerospace components (it is a major supplier to Boeing of components so advanced that Boeing can’t make them for itself). MHI’s achievement can be summed up in one number: it recently employed more than 81,000 workers. As for Harland & Wolff, the yard that built the Titanic survives, sort of, doing marine engineering odd jobs. According to Wikipedia, at last count it employed just 79 workers — little more than, say, a successful suburban car servicing workshop."
A lot of those jobs (though not all) are defence-related. How long can we have world-class defence industries with zero industrial hinterland, and a shrinking real tax base?
Sweepstake on when the IMF are called in? This lot are going to make Denis a pussy cat...
Not mentioned in the assessment is that much of MHI’s growth was as a result of forced (by Japan’s powerful MITI) mergers of smaller, often bankrupt or near-bankrupt, uncompetitive companies after the bubble era. South Korea and, latterly, China, eat the Japanese shipbuilders’ lunches and relegated Japan to a global also-ran https://en.wikipedia.org/wiki/List_of_the_largest_shipbuilding_companies
Ditto consumer electronics. Japan never did manage, either, to break into commercial aviation despite much attention an resources being devoted to the task.
The moral of this story? No country, anywhere, ev-ah, succeeded in a winner-takes-all beggar-thy-neighbour industrial policy. Sooner or later, the featherbedding of domestic manufacturing brings both sloppily conceived, uncompetitive production and lazy, complacent product development. Oh, and your export markets get — justifiably — annoyed with your antics and realise there’s a high cost to your low prices. It always — always — ends in tears. Yours.
Just reading about those poor Chinese with only 5% growth and a 30% drop in house prices.
https://www.bbc.co.uk/news/articles/c14g7r44566o
"Wall Street investment giant Goldman Sachs warned in June that property prices in China will continue to fall until 2027. Ms Wang agrees, and estimates that China's stricken property market will "hit the bottom" in around two years when demand finally catches up with supply. But Ms Garcia-Herrero puts it in starker terms: "there is no real light at the end of the tunnel." Beijing has sent a "clear message on its intention of not bailing out the housing sector," Ms Wang adds. The Chinese government has been careful to avoid the kind of measures that could encourage further risky behaviour by an already heavily indebted industry."
Whereas the UK solution to unaffordable housing is to push the price up even more by relaxing lending criteria!
Arguably banks are now over-capitalised and what has turned into potentially an abundance of caution is hampering access to mortgage finance, especially for contract workers and the self-employed and skewed in favour of those with epic LTV ratios (who don’t really need any help with buying). It could all be acting like fiscal drag but for the private sector.
Of course you are right in that housing is always and everywhere a public-private partnership, there’s no such thing as a free market in housing. Increasing demand, through relaxing lending criteria will only provide price-support.
That said, conversely, it’s in no-one’s interests to have a weak housing market, and price falls create balance sheet recessions for borrowers. So there are problems with that, too. Of course the CCP claims all sorts of things, such as that one about how their housing market will magically sort itself out and then everything will be hunky dory. Wake me up when it happens.
Of we don’t pick one of these two contrasting poisons, we are claiming we can engineer some sort of Goldilocks scenario in perpetuity for the housing market. If anyone can describe what that should be and how we can guarantee to bring it about, I’m all ears. Very incredulous ones, but I am all ears nonetheless.
The economy is expected to grow between 1% and 1.2% in 2025. How is the tax base going to shrink in a context of a growing economy?
The problem ailing the UK is seemingly more about hopelessly inefficient public service delivery and productivity. Industrial policy — producing a diversified manufacturing and services mix aiming at high-margin specialist niches (avoiding trying to slug it out with low cost counties fighting a losing battle with commodification) — doesn’t seem to be any area of failure. Except perhaps in the minds of those bemoaning that the UK isn’t an autarky. Something it hasn’t been since Victorian times, or even before that.
Simon Nixon, late of the Times, has a bizarre take on his Substack. Essentially there is no threat of a UK meltdown because sterling has been appreciating against other currencies this year and the economy is growing. I would like to ask him the source of these "facts" but his followers would gang up on me.
https://open.substack.com/pub/nixons/p/the-coming-crash?utm_source=share&utm_medium=android&r=4rn71
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