The Labour government has been at pains to stress the importance of public
investment. A large portion of Spending Review 20001 was devoted to
explaining why we should care about public investment: it provides the
infrastructure that is a prerequisite for improvements in output and growth and
is necessary both to supply and to enhance public services. To these, we would
add another concern. Cuts in public investment are less immediately
noticeable than cuts in current spending, which risks leaving them a soft target
during a period of fiscal retrenchment. For example, a decision to delay
building a new school or health centre might be expected to provoke less
anger than a decision to cut the pay of public sector workers. The risk is that
such short-term political pressures may produce public investment that is
below the optimal long-term level.
Our concern is not just theoretical we know that public investment has shrunk in practice. Public investment recently reached a post-war low as a share of GDP.3 The potential to improve public services depends upon government investment, so it is important that we investigate how we reached this low level of investment and on which public services the axe has fallen most heavily.