We shouldn’t judge a book by its cover. Nor judge a research paper by its title. “Discussion paper No.5: Public investment and potential output”, just published by the Office for Budget Responsibility, doesn’t sound like a barrel of laughs. But unenticing is not the same as unimportant.
This is the official forecaster telling us what economic impact it expects public investment – public spending that creates an asset, like a road or hospital – to have.
Policy debates normally focus on public investment’s growth impact through the lens of what it does immediately to the demand side of the economy (for example, creating construction jobs, something particularly valuable in a recession). But that impact is mainly temporary (the OBR estimates it disappears after three years).
So this unassuming paper focuses on what public investment does to the economy’s supply side – not creating work today, but raising the UK’s ability to produce goods and services tomorrow (for example, because we have a properly functioning transport system). It finds “a sustained 1% of GDP increase in public investment could plausibly increase the level of potential output by just under 0.5% after five years and around 2.5% in the long run.”
The lessons? Not just the obvious one that investment is a long game, given that building takes time and the flow of new investment is small v the stock of public sector assets. But the impact isn’t just long term. It’s big. That 2.5% compares to the 4% estimated economic hit from Brexit.
Of course, it matters what you invest in and whether projects are delivered on time and budget (unlike HS2). But good investment, of the kind the government plans on green energy, builds our nation’s future and needs valuing in the here and now.
Torsten Bell is Labour MP for Swansea West and author of Great Britain? How We Get Our Future Back
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