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Eyebrows have been raised about this section of John McDonnell’s speech on Labour’s broadband announcement, in which the party pledged to nationalise part of BT and make broadband free.
The Shadow Chancellor said:
“The maintenance costs of the network, around £230m a year, will be more than covered by a new approach to taxing multinationals that we welcomed several weeks ago.”
Mat Lawrence and James Meadway, both of whom are close to McDonnell, have said that the estimate is based on a chart which can be found on page 21 of a report from the National Infrastructure Commission. It shows operating costs on a 30-year basis of £6.9bn.
Apparently Labour has taken the £6.9bn figure and divided by 30 to arrive at the estimated £230m annual operating cost over a 30-year period.
But here is the problem. Footnote 14 points to a report as the source for that figure: Prism and Tactis (2017), Cost analysis of future digital infrastructure, present value in 2020.
The Prism and Tactis report explains that £6.9bn is the present value of 30 years of estimated operating costs, calculated using a discount rate of 9.3%.
Dividing £6.9bn by 30 to arrive at an annual operating cost estimate of £230m is therefore a catastrophic spreadsheet error. Or more accurately, the error is the failure to even use a spreadsheet.
If you do use a spreadsheet, the Prism and Tactis analysis for the National Infrastructure Commission actually implies annual operating costs of £690m.
McDonnell and his advisors are out by a factor of 3, because they don’t know how to use a spreadsheet. Staggering.