The coalition's 'infrastructure boost' is a damp squib, but challenges for Labour remain

By funding higher capital spending through cuts elsewhere, Osborne will do little to boost growth. But will Labour finally make the case for borrowing for growth?

The news that the coalition is set to announce £15bn of infrastructure investment in next month's Spending Review is being portrayed by some as a significant shift that blunts Labour's economic critique. The FT's report claims that the move "could overshadow Labour’s attempts to convince the public it is the only party arguing for a big boost to capital spending. But for several reasons, it's less impressive than it sounds.

First, this isn't new money. In the Budget earlier this year, Osborne announced that the government (assuming he's still Chancellor) would spend £3bn a year on infrastructure from 2015-16, amounting to £15bn over the rest of the decade. Second, the fact that the investment will be spread over five years, rather than one, and will be entirely funded through greater cuts to current spending will significantly reduce any increase in growth. 

Though Osborne will claim otherwise, alternatives were on offer. Vince Cable called for him to take advantage of Britain's historically low bond yields and borrow £14bn (1 per cent of GDP) to invest in housebuilding. As he wrote in his New Statesman essay in March:

One obvious question is why capital investment cannot now be greatly expanded. Pessimists say that the central government is incapable of mobilising capital investment quickly. But that is absurd: only five years ago the government was managing to build infrastructure, schools and hospitals at a level £20bn higher than last year. Businesses are forward-thinking and react to a future pipe - line of activity, regardless of how “shovel ready” it may be: we have seen that in energy investment, where the major firms need certainty over decades.

The Economist recommended an additional £28bn of infrastructure investment, with at least half funded through higher borrowing. Bloomberg argued for a minimum stimulus of $21bn, again largely deficit-financed. But Osborne persisting in the delusion that "you can't borrow more to borrow less" (in fact, as any Keynesian knows, you can) has once again chosen austerity over growth. 

Labour remains the only one of the three main parties calling for a genuine stimulus. But if it wants to maintain that position, it will need to make a sustained case for borrowing for growth (as Ed Miliband entirely failed to do in his infamous World At One interview). One key test of the speech Ed Balls will give on the economy on Monday will be whether he finally does so. Too often since 2010, Labour has appeared to be running scared of its own policy. 

George Osborne and Danny Alexander outside the Treasury. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Who will win the Copeland by-election?

Labour face a tricky task in holding onto the seat. 

What’s the Copeland by-election about? That’s the question that will decide who wins it.

The Conservatives want it to be about the nuclear industry, which is the seat’s biggest employer, and Jeremy Corbyn’s long history of opposition to nuclear power.

Labour want it to be about the difficulties of the NHS in Cumbria in general and the future of West Cumberland Hospital in particular.

Who’s winning? Neither party is confident of victory but both sides think it will be close. That Theresa May has visited is a sign of the confidence in Conservative headquarters that, win or lose, Labour will not increase its majority from the six-point lead it held over the Conservatives in May 2015. (It’s always more instructive to talk about vote share rather than raw numbers, in by-elections in particular.)

But her visit may have been counterproductive. Yes, she is the most popular politician in Britain according to all the polls, but in visiting she has added fuel to the fire of Labour’s message that the Conservatives are keeping an anxious eye on the outcome.

Labour strategists feared that “the oxygen” would come out of the campaign if May used her visit to offer a guarantee about West Cumberland Hospital. Instead, she refused to answer, merely hyping up the issue further.

The party is nervous that opposition to Corbyn is going to supress turnout among their voters, but on the Conservative side, there is considerable irritation that May’s visit has made their task harder, too.

Voters know the difference between a by-election and a general election and my hunch is that people will get they can have a free hit on the health question without risking the future of the nuclear factory. That Corbyn has U-Turned on nuclear power only helps.

I said last week that if I knew what the local paper would look like between now and then I would be able to call the outcome. Today the West Cumbria News & Star leads with Downing Street’s refusal to answer questions about West Cumberland Hospital. All the signs favour Labour. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.