Infrastructure Spending and Economic Growth

IEA releases new briefing on infrastructure spending

Executive Summary:

  • Chancellor Philip Hammond has been urged to increase government infrastructure spending to counteract any economic slowdown (demand management) and to improve the productive potential of the economy (supplyside reform).

  • Yet the ‘Keynesian’ function of infrastructure spending ignores the opportunity cost of such activity. Even if it worked theoretically, timing problems create challenges, whilst cutting spending in ‘good times’ is resisted.

  • Importantly, it’s impossible to argue there is a ‘demand-deficient’ high unemployment scenario in the UK now which requires new economic stimulus.

  • Good infrastructure can enhance the productive potential of the economy, but the political decision-making process often leads to bad decisions on spending, whether that is for electoral reasons or inefficiencies driven by a lack of market discipline.

  • For example, the 2010 Comprehensive Spending Review cancelled many strategic road schemes with benefitcost ratios above 3, but pressed ahead with the planned HS2 with a benefit-cost ratio slightly above 1. The costs of the latter HS2 scheme keep getting revised upwards.

  • There is little robust evidence of a systematic link between levels of government infrastructure spending and growth. In many ways, the government impedes the private-sector from delivering infrastructure.


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Ryan Bourne

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.


Diego Zuluaga

Financial Services Research Fellow and Head of Research, EPICENTER

Diego Zuluaga joined the IEA as International Outreach Officer in December 2013, becoming Financial Services Research Fellow in June 2015. He is also the Head of Research of EPICENTER, the pan-European think tank network. In that capacity, he has written on competition policy, trade and financial regulation, among other topics. Diego also writes regularly for a range of outlets including CityAM, CapX and EurActiv. Originally from Bilbao, he holds a BA in Economics and History from McGill University in Montreal, and is fluent in Spanish, German and French.