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Higher infrastructure investment could be hit by private investment retreat - think-tank

Lee Baker
28 November 2016
 

The capital spending announced by the Chancellor in his Autumn Statement is well above the average spending of the last three decades, but a fall in private investment in infrastructure will mean a smaller increase than expected pre-referendum, according to think-tanks.

The Institute of Fiscal Studies said after Philip Hammond's decisions that while announcements of additional capital spending are "often overhyped, this was not the case yesterday... The additional capital spending plans will take public sector net investment to around 2.3% of GDP - pretty much exactly Labour's pre-crisis planned level of investment". The IFS said that borrowing two per cent of national income was exactly what the former shadow Chancellor Ed Balls had planned, leading them to declare that "the new fiscal plans aren't Osborne's, they are Balls'".

The new fiscal plans aren't Osborne's, they are Balls'

Demos said that many of its recommendations to invest and devolve had been followed, and that it was "encouraging to see an emphasis on increasing investment in infrastructure, with much greater funds focused outside London" with the lion's share of £1.8bn of funding for local enterprise partnerships going to the North of England, and new powers for mayoral combined authorities to borrow to invest in economically productive infrastructure.

The Resolution Foundation said it was welcome that whilst Brexit will add an extra £59bn to borrowing by 2020/21, the Government had decided to borrow a further £26bn for public investment. However, it highlighted that the Office for Budget Responsibility "believes it will be more than offset by bigger falls in private investment". It said: "Raising public sector net investment to 2.3% of GDP would mark only the second time since the 1970s (after 2008-2011) that such a level of investment has been secured. However, the Government's approach is not expected to be replicated by the private sector.

"Business investment is set to rise by nine percentage points less than was previously forecast. Because private sector investment forms a much larger share of overall investment, overall investment will rise by 14.8% over the course of the Parliament - some eight percentage points less than projected in March." Projects such as Crossrail (pictured) have relied on private investment.

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