Chancellor’s plans for £100 billion investment top-up must balance new growth-enhancing projects with pressing need to rebuild Britain’s broken public services, says new Resolution Foundation research

The Chancellor must balance new growth-boosting infrastructure projects with the need to rebuild Britain's dilapidated hospitals and social housing when she sets out the details of a £100 billion plus boost to capital budgets at the Spending Review, according to new research published today (Tuesday).

The report notes that as well as allocating funding for day-to-day public services, the upcoming Spending Review offers a unique opportunity to reverse Britain's terrible record on public investment.

In recent decades, capital spending in the UK has been low on cash – consistently lagging behind the OCED average since 1995 – and high on inconsistency, with the UK the most volatile investor in the G7.

The Chancellor has sought to address these problems by taking welcome steps to increase capital spending budgets by over £100 billion cumulatively over the Parliament (2024-25 to 2029-30) and changing the fiscal framework to exclude investment from its binding ‘current balance' rule.

However, if the Government wants to avoid cutting departments' capital budgets in cash terms, as implied by plans inherited from the previous government, this would leave just £54 billion to allocate to other investment. Furthermore, maintaining current departmental capital budgets in real per capita terms would see the level of additional investment fall to just £24 billion over the entire Spending Review period. 

The Chancellor therefore faces tough trade-offs in how to allocate this additional investment, says the Foundation.

There is a pressing need to rebuild Britain's social infrastructure, says the report, with problems most acute in health, housing and prisons. Weak capital investment has left the UK with the second lowest share of hospital beds per person in the OECD, the UK's affordable housing stock has fallen by a third since 1980, and prisons are running at around 110 per cent of their official capacity.

Additional public investment will also be needed to support the Government's growth agenda. The report notes that a permanent 1 per cent of GDP rise in capital spending in areas such as transport and energy is estimated to boost growth by 4.9 per cent in the long run.

The Foundation says the Chancellor should aim to balance the competing demands of social versus economic infrastructure with projects that deliver on both fronts.

For example, targeting affordable housing investment in areas with the highest share of families in temporary accommodation would also mean building in urban areas with high productivity potential, such as major cities.

Expanding housing supply in these locations could boost growth by encouraging more firms and high-skilled workers to move to these areas. This strategy could be supplemented by much needed investment in intra-city transport networks to reduce commuting times.

Finally, the Foundation says that spending priorities should also support the Government's goal of raising living standards across the country.

It notes that social infrastructure investment disproportionately benefits lower-income households, as the services it supports such as schools and hospitals are used almost twice as much as by families in the bottom half of the income distribution, as those in the top half.

James Smith, Research Director at the Resolution Foundation, said:

“The upcoming Spending Review offers a unique opportunity to reverse Britain's terrible record on public investment. But while the over £100 billion boost announced at the last Budget sounds like a lot, it's not enough to and fund all our economic infrastructure needs and rebuild Britain's fraying public services. Tough trade-offs lie ahead.

“The Chancellor should look to prioritise investment that boosts public services, economic growth and family living standards. Affordable housing should be targeted in major cities with acute housing needs, where its scarcity limits living standards and economic potential. This investment will help cities to attract new firms and workers – especially if affordable housing is complemented by better commuter transport links.

“Investing in Britain's social and economic infrastructure should ensure that gains from higher public investment are felt by families across the income spectrum, and throughout the country.”