It’s difficult not to be underwhelmed by the lack of detail behind most of Labour’s policy proposals in its manifesto.
“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 invert in the UK’s creaking infrastructure.
But we got the following instead:
In other words: Have an infrastructure problem? We’ve got a commission for that.
But that’s not a plan. It’s a plan to have a plan.
That means, apart from the commitment to back the High Speed 2 rail link, a 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 policy rather than a complement to an 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:
That has left a 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.
And there are longer term 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 new infrastructure into service, the time to start that process is now.
Moreover, the costs of chronic underinvestment in housing — lack of social housing, higher rents and house prices — 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.”
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.
Ed Miliband 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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