Do Not, Under Any Circumstances, Believe New Estimates On Costs Of Britain’s Nuclear Submarines

There are all sorts of lovely ways that it is possible to fiddle with estimates of costs and benefits of things off into the far future. This is actually what the Stern Review is about, how should we account for things in that far future? Our entire climate change problem is that the benefits come now, the costs in 50 to 80 years. If we use normal market discount rates then those damages are spit now – this perhaps being not quite the way we should think about boiling Flipper in the fumes of that last remaining arctic ice floe.

Or perhaps we should, it’s a moral point and thus one that can and is argued either way. But do note what Stern’s result is – that we should still be using a discount rate, it’s just not the market one. Because not to use a discount rate when considering future costs is just too stupid for words. Even, too stupid even as a method of doing very partial indeed sums.

Which discount rate to use can be argued. Not to use one is colei*.

At which point we get this:

Britain’s nuclear deterrent is set to cost five times more than the official Ministry of Defence (MoD) estimate over the 40-year life of the programme, new figures show. The costs for replacing Britain’s four nuclear-armed submarines could be as high as £172 billion by 2070, a new report by the campaign group Nuclear Information Service has suggested. The study says a “perfect storm” of risks, including a lack of suitably qualified manpower, uncertain currency exchange rates post-Brexit and the rising costs of reactor cores, could make the programme more than five times the MoD estimate of £31 billion.

As you know, around here we actually read reports. Even, try to examine their assumptions. Which gives us this:

The MOD assesses the cost of the long-term liabilities
of the Enterprise to be £18.5bn over the next 120
years.254 The liabilities include decommissioning and
disposing of sites and submarines and the nuclear
waste generated by the programme. This figure has
increased by over 186% over the last 3 years because
the Treasury has changed its discount rate guidance.255
A discount rate is the way that future costs are typically
accounted for. Usually future costs are priced below the
same cost incurred in the present, however the current
Treasury discount rates are negative to account for the
fact that the government can borrow very cheaply. The
undiscounted figure for long-term liabilities of £9.2bn
is used in our calculations.

So, the MoD number uses a discount rate.

Figures for past spending have been inflation adjusted
to provide an accurate comparison with 2019 values.
Costs which fall in the future have not been adjusted
for future inflation, nor has a discount rate been
applied. This is because figures that factor in future
inflation or a discount rate would be more a product
of the assumptions made than of current spending
figures, due to the long timescales involved. The
assumptions used in the calculations for each element
are explained in detail in Annexe A.

This report does not use a discount rate. Which gives us more than just a clue as to how seriously to take this number they’re giving us. If you’re doing your sums in a manner too stupid even for Nick Stern then you’re doing something wrong.

Thus we can reject the report as the purest colei* that it is.

*Gibbon.

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