We need to invest more in both people and infrastructure if we want to deliver long-term economic growth.

It’s hard to get away from the general impression that the country’s in a bit of a mess. And with economic instability and soaring inflation cutting people’s quality of life, huge backlogs in the NHS and strikes across huge sectors of the economy, it’s hard to argue.

The national debate has focused on the impact on individuals. Hard-up families struggling to make ends meet, strikes led by workers demanding better pay and conditions, while workforce shortages across the entire economy are driving wage inflation, limiting economic activity and contributing in no small way to the waiting lists in our health service.

But people and pay are only part of the puzzle.

The truth is that we also need a seachange in the way we approach capital investment.

The UK is terrible at long-term capital investment, with short-term thinking hampering the ability to keep pace with the infrastructure demands of the population, let alone being at the forefront of the technological developments that will drive the new “green economy” that politicians are so keen to talk about.

The problem lies firmly within the politics of it all.

In part, it’s due to politicians constrained by thinking in 5-year electoral cycles, a Treasury whose ‘orthodoxy’ (to coin a phrase) looks for short-term results and not pay-offs over 10 or 20 years and decisions hemmed in by restrictive planning laws and NIMBYism across the country.

However, more importantly, it is the popularisation of the idea that a nation’s finances must be run like a household’s, with talk of balancing budgets, fixing the roof while the sun is shining and rainy day funds. It was an analogy first put forward by Margaret Thatcher telling a selection meeting early in her career that “The Government should do what any good housewife would do if money was short, look at their accounts and see what was wrong.”

The idea was adopted again and pushed by David Cameron in 2010 talking about how Labour had “maxed out our nation’s credit card” and that there was a moral responsibility to rebalance the budget.

Whilst this analogy might have been useful to justify the cuts of the austerity era, and has successfully set an ongoing trap for Labour politicians who want to increase public spending, it is a fundamental misconception of economics and has become an orthodoxy that now strangles the debate.

There are too many reasons to delve into here as to why this analogy is false (how many households have their own central bank or currency?), but fundamentally it misunderstands and underestimates the role of government in the economy and how its actions impact growth.

It was this approach that led to the austerity of the 2010s in the UK, which saw cuts not just to day-to-day spending but swathing reductions in government capital investment – cut by more than 30%.

This is the long-term investment in our national infrastructure that enables services and the economy to function properly and is fundamental to driving economic growth.

Yes, there are staff shortages in the NHS, but there is also more than £10bn of maintenance backlogs, almost 50% of which is deemed critical and a potential threat to life. 

Yes, teachers are asking for pay rises but capital investment in UK schools is 50% of what it was in 2010 (adjusted for today’s prices), with the Department for Education itself saying the risk of school buildings collapsing was now “very likely”.

This approach to capital investment is not only undermining existing services, but it is hamstringing our potential for growth.

It’s why the UK’s current and capital investment in R&D is flatlining, tracking below the OECD average for more than a decade and now at a smaller percentage of GDP than Estonia, Slovenia or the Czech Republic.

It is why it is taking 20 years to build the most expensive railway in Europe, all 330 miles of it, whilst in 15 years China has managed to build a network spanning 25,000 miles.

It is why our attempts to secure part of the lucrative global market for batteries have collapsed and why, for all the talk of seizing the opportunities presented by the net zero revolution, without a significant change in attitudes they will fail too.

But they do not have to. The world is awash with investors looking for somewhere to put their money and UK Government Bonds have long been an attractive (ignoring a short blip in 2022) place for institutional cash.

We need to move beyond the turmoil of 2022, lift our heads up and rebuild the nation’s infrastructure. 

Without that, we will only ever be papering over the cracks.