Capital gains

In this report we put the big investment decisions facing the Government at the Spending Review in context. It examines the UK’s long history of chronic under-investment, evaluates the recent welcome announcement of £100 billion additional capital spending and sets out how limited resources should be prioritised to support growth and improve living standards. Despite significant funding top-ups, public investment is set to fall slightly as a share of GDP by the end of the decade, with only £20–£50 billion of discretionary capital spending for the Government to play with if it wants to avoid cuts to existing budgets.

The report highlights key areas of historic underinvestment, particularly in the country’s social infrastructure. Hospital bed numbers are well below the OECD average; the affordable housing stock has fallen by over one-third since 1980; and prisons are operating at 110 per cent of official capacity. By contrast, economic infrastructure has fared much better with R&D and net zero investment prioritised during recent rounds of cuts.

Looking ahead, targeted investment in health, housing, and city transport could deliver high economic and social returns. These priorities would allow the Government to deal with the challenging legacy it has inherited, while furthering their missions to boost growth and living standards across the Parliament.