Why Governments Won't Invest

The UK Government is currently exerting a sharp and tightening squeeze on public investment at a time when borrowing for public investment has never, historically, been cheaper with interest rates close to zero in real terms on long term public borrowing. Moreover, financially prudent and disinterested bodies like the IMF are calling for the UK to be more expansive in public investment. In this paper I discuss the Treasury's aversion to public investment, an issue which has persisted for some time, but become all the more pressing since the financial crisis. I argue that policymakers should focus on identifying and investing in high quality, professionally assessed, public projects - something that can be aided by a National Investment (or Infrastructure) Bank which would neatly complement the newly created Infrastructure Commission. But, like the Green Investment Bank, and other institutions before it, it would be allowed only a very modest role unless the institutional obsession with curbing public investment can be overcome.