Last night, I noticed some data in the Office for Budget Responsibility commentary on the Autumn Statement that jumped out. You had to get to page 154 to find it. I summarise the data as follows:
That data makes clear that the scale of public sector investment in the UK will fall over the next few years.
That is true in both nominal terms, as noted above, and also in real terms because the above figures are stated before the impact of inflation is taken into account, and that will reduce their real value significantly over the period.
Charted, that data looks like this:
Expressed as a percentage of nominal GDP (which is appropriate) the decline in investment looks like this:
That is a 16.7 per cent decline from this year to 2028-29.
So, in other words, it does not matter what your concern is the issue that worries you is not going to get the investment funding it needs.
Then think about what those issues are:
- Social housing
- RAAC in schools
- Flooding
- The green transition
- Failing public infrastructure
The government does not plan to address these issues. Instead, it intends to reduce its commitment to doing so.
Few budgets set out a plan for failure as big and bold as Hunt's did. This particular failing seems not to have been noticed much as yet. It needs to be. This is our future Hunt plans not to invest in. And that makes no sense at all.
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If inflation is negative as you have predicted then there is a small real increase. You’re only right about the impact of inflation if it’s a positive number.
Inflation is not negative in that forecast
So what are you talking about?
Yes – this was conspicuously missing in the speech.
Few would disagree that public services are on their knees and (literally, in many cases) crumbling. Indeed, I think I heard a government minister use “on their knees” in an interview…. yet Hunt is content let things slide further.
In practice, it is all about election optics. Investment today won’t help in an election next year and in order to meet his “fiscal rules” AND cut tax then something has to give. What better way than to throw an incoming government under the bus by leaving them with an even worse (if that is possible) mess.
Luckily this govt won’t be there for the next few years.
Unluckily, Starmer’s Thatcherite tribute act will be.
I’m more interested in the top line – gross investment, which is broadly flat in nominal terms, and so down in real terms.
I suppose the failure to match depreciation might mean some investments are degrading but not being replaced. But I think there can be a debate about the extent to which a depreciation charge is a real cost of investment or provision for replacement, and might go faster or slower than the loss in value or utility of an investment. Perhaps I need an accountant to explain the error in my thinking.
You are right to focus on the top line
And that is declining as the % chart shows
It is interesting how little the OBR has to say on private investment; two charts and the forecasts are unimpressive. If the government are looking for growth, they are neither finding it, nor believe the provate sector will deliver vey much.
This is a contradiction of Hunt’s whole neoliberal tone, of course; but it is usefully confirmed by Lord Harrington’s Report on foreign Direct Investment (The Harrington Review of Foreign Direct Investment; https://www.gov.uk/government/publications/the-harrington-review-of-foreign-direct-investment).
Here, I shall ‘cut to the chase’; because Harrington’s Foreword is interesting, and usefully summarises the fallacy of neoliberalism. Harrington is wrong, incidentally about the change in capitalism. What Harrington describes is the real history of capitalism. What we have had for forty years is an appalling, failed experiment in so-called free-market neoliberalism that has led us here, and to the mess we are now trapped in. I have extracted what I consider a crisp summary of Harrington’s Foreword that encapsulates the problem. (NB. I ask that readers pass over the reference to “taxpayers money” without dwelling on it, for the wider context).
“I have formed the view during this process that capitalism has changed. Gone is any
residual view that government shouldn’t use taxpayers’ money and other resources to
assist private companies in investment decisions. Often this position comes with a fear
that civil servants and ministers alike will try to pick winners, and fail, or that it will
manifest as companies with ‘begging bowls’ at government’s door, asking for money
when they would have invested anyway. The reality is that many of our competitors chase investments via their industrial strategies backed by substantial government support.They identify which ‘races’ they want to be in, which sectors and sub-sectors they have a competitive advantage in, and how they are going to attract the finest businesses in the world to their country.
The UK needs to respond. To do this, I believe we need a new Business Investment
Strategy, headed up by a senior minister at cabinet level, with dedicated cross-
government machinery to deliver it here and abroad. The prize is a big one: most of our
competitors have about 12% of GDP in business investment (domestic and foreign), our
equivalent is 10%. The difference is about £50 billion per year. If we can attract a sizeableportion of that from abroad, the effects on the economy would be very significant, helping to make the country more prosperous, with better-paid jobs, and tax receipts to fund public services.”
Thanks
This is so striking an anti-neoliberal proposition (unconscious or not), I think I should provide it with a title that possesses some heft:
The Harrington Declaration ……