3 Resources

3.6 Government investment
Why is it significant?

The public sector is responsible for a significant part of the nationís capital stock. The state remains an important provider of health, education and housing services, and needs to ensure value-for-money investment if these services are to be delivered effectively and efficiently. 

The public sector also plays a lead role in investment in transport and other communications infrastructure. An efficient transport network reduces business costs and increases the size and efficiency of markets for goods, services and labour. It improves the opportunities for industrial specialisation, enhances consumer choice and supports productivity growth. Transport also has an important role in improving the quality of life, through better access to jobs, services and leisure. And it is an important economic sector in its own right.

How does the UK perform?

In terms of government investment as a percentage of GDP, the UK has consistently underperformed vis-ŗ-vis its main competitors, lagging all G7 countries for the periods 1980-1989 and 1990-2000 (Chart 3.6.1). 

The legacy of under-investment can be seen in our transport infrastructure for example. Total transport investment has been falling in real terms and as a percentage of GDP since the early 1990s (Chart 3.6.2). Increased economic activity and rising incomes have generated more demand for both private travel and the transport of goods and services. A combination of insufficient investment and rising demand for travel has resulted in increasingly congested roads, inadequate public transport services and an overcrowded and unreliable rail network. 

Care is needed when interpreting figures for public sector investment as they do not take account of differences in the demand for the provision of infrastructure, the accounting classification of public investment, the extent to which investment is provided by the private sector, and the quality of investment. A related difficulty is that expenditure is an input measure rather than a measure of the extent to which public sector infrastructure meets requirements. No systematic comparisons of output or outcome measures are available.