Whether small or large, infrastructure schemes boost local business confidence, regenerate areas, create business opportunities for a vast array of UK firms, and “crowd in” related private sector investment. Given decades of underinvestment, chronic delays, deficient digital networks and lagging productivity, an infrastructure-focused stimulus would have long-term as well as short-term benefits.
We have already seen a firm commitment to new nuclear power in Somerset, and we will shortly see a long-awaited decision on aviation capacity in the South East. New investment in road and rail improvements, plus “quick start” projects like housebuilding and business broadband improvements, should also be pursued – particularly given that the cost of government borrowing currently is extremely cheap.
Sure, businesses love tax cuts. But not at the expense of allowing further decay to our sclerotic infrastructure – which is a bottleneck to growth.
Ben Southwood, head of research at the Adam Smith Institute, says tax cuts.
Whenever growth is moribund, you will hear a chorus calling for infrastructure spending. The problem is entrusting nearly every bit of infrastructure to the state. The tiny bits we allow the market to tinker with – especially self-driving cars – are progressing in leaps and bounds that will revolutionise nearly every aspect of our lives.
When the economy is stagnant, the best boost is tax cuts. Governments are bad at playing the markets – firms do it better. Instead of several £50bn projects in one sector, they invest across thousands of projects, directed by guesses driven by skin in the game and the profit motive, with an automatic mechanism to wind down failures – bankruptcy.
If the government wants to raise productivity growth, it needs to raise investment, and let the private sector decide where to put that investment. If Philip Hammond cuts taxes, especially taxes like corporation tax, capital gains and stamp duty, which penalise research and capital investment, we will all reap the rewards.