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Labour still won't tell us how it's going to fix Britain's crumbling infrastructure

It's difficult not to be underwhelmed by the lack of detail behind most of Labour's policy proposals in its manifesto.

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"We literally would not know what we're voting for if we voted for Labour," Paul Johnson, director of the independent Institute for Fiscal Studies, accurately told the BBC.

Many were hoping to at least get some clarity about the party's investment plans in the next parliament. This was expected because Labour has gone out of its way to exclude the investment budget from its deficit reduction targets which, at least in theory, should allow it to take advantage of ultra-low government borrowing costs in order to raise money to invest in the UK's creaking infrastructure.

Ed Miliband wave
Britain's opposition Labour Party leader Ed Miliband waves after unveiling his party's election manifesto at Granada studios in Manchester, northern England, April 13, 2015. REUTERS/Andrew Yates

But we got the following instead:

Labour manifesto infrastructure
Labour

In other words: Have an infrastructure problem? We've got a commission for that.

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But that's not a plan. It's a plan to have a plan.

That means, apart from the commitment to the (already announced) High Speed 2 rail link, a vague pledge to "address the neglect of local roads," and do some cheerleading for cycling, the infrastructure investment plan is not only uncosted it may also be delayed in the short-term while the new Commission's "assessment" is being undertaken. This is simply not enough.

A National Infrastructure Commission may be a good idea to keep governments honest about their investment plans (providing, that is, it receives cross-party backing and is given teeth to criticise ministers much like the Office for Budget Responsibility) and highlight the most urgent infrastructure challenges facing Britain. But if setting up a commission delays an increase in growth and productivity boosting investment then announcing it as the policy rather than a complement to an actual infrastructure plan is folly.

Here's the problem: Since the Coalition government took office in 2010, Britain has seen its investment spending slashed as a proportion of GDP. Net investment has dropped by more than half from £53 billion in 2009-10 to £25 billion in 2013-14:

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UK public sector investment
Bloomberg

That has left a long backlog of necessary improvements to Britain's road and rail network and plans to build new schools and hospitals. Worse, its effects are already being felt with flooding across parts of England in 2013 causing misery for hundreds of households and prompting a lot of public finger pointing at the government for slashing the Environment Agency's budget.

UK productivity
ONS

And there are other reasons to be worried about sustained underinvestment in infrastructure. Since the onset of the financial crisis, the amount of output per hour produced by British workers has stagnated in what is being called the "productivity puzzle." If the Labour manifesto is right and this problem can be improved by targeted investment then, given how long it takes to bring these projects to fruition, the time to start working through that backlog is now.

Moreover, the costs of chronic underinvestment in housing — lack of social housing, higher rents and house prices (not to mention the runaway housing benefit bill) — are helping to lock in intergenerational inequality and concentrate savings in bricks and mortar rather than more productive areas.

It's not like the government can't afford to borrow either. As Bloomberg's Jamie Murray points out: "Since the government can borrow for 20 years at close to 2%, it is staggering that the opportunity has not been taken to invest more."

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As long as the UK's nominal growth (economic growth plus the inflation rate) is higher than 2% per year — which would be well below its historic average — then that debt would effectively pay for itself. It's the closest thing to a free lunch that a government can get (outside of the bizarre world of negative nominal rates in the eurozone).

Yet given the opportunity to tell us that this is what they are planning to do, Labour has come short.

That's a mistake. Low interests rates will not last forever, with the US Federal Reserve under pressure to consider raising interest rates this year in a move that could push up international borrowing costs. The longer they are squandered the bigger the opportunity cost for the UK economy becomes, giving the lie to the parties' claims of having "long term economic plans."

Labour has made a big effort to carve out the investment budget from their spending cuts but now seems embarrassed to admit that they would be comfortable buying in to Britain's future. While they remain so the party will be vulnerable to Conservative attacks that they are claiming to "balance the books" but are still the same old borrow-and-spend Labour.

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The first page of Ed Miliband's manifesto boasts that "not one commitment requires additional borrowing". If he genuinely wants to earn fiscal credibility, however, he needs to make the case for higher public investment as the most responsible way to stabilise the country's finances in the long-term.

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