Briefing Note (BN20)

Twenty-five years of falling investment? Trends in capital spending on public services

Date: 01 November 2001
DOI: 10.1920/bn.ifs.2001.0020
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.