Going long – How Britain’s new government is aiming for a decade of national renewal with long-term plans for infrastructure

When I tell my American colleagues that Britain has a new Prime Minister and a new government, among the questions that I sometimes receive is: “What? Another one?”

Yes, for the sixth time in eight years, Britain has a new Prime Minister.

Joking aside, this time around, things are different.

For the first time in 14 years, and only the seventh time in our nation’s history, Britain will be led by a Prime Minister representing the Labour party.

Last week, Keir Starmer was elected Prime Minister after standing on a platform promising political and economic stability and pledging to deliver a decade of national renewal.

While the Labour party’s manifesto was more than 140 pages long, its political slogan was one simple word: change.

The result of the General Election campaign saw Keir Starmer and the Labour party rewarded with a 172-seat majority—the third largest Parliamentary majority in British history—providing a strong foundation from which to deliver a mandate for change.

In this blog, I want to look at how Labour might upgrade Britain’s creaking infrastructure.

Two of the five missions Labour is pledging to deliver include:

1. Securing the highest sustained growth in the G7—with good jobs and productivity growth in every part of the country making everyone, not just a few, better off.
2. Making Britain a clean energy superpower to cut bills, create jobs, and deliver security with cheaper, zero-carbon electricity by 2030, accelerating to net zero.

In common with most developed western economies, Britain has suffered from years of low economic growth. However, in recent times, the U.K. has been suffering more than most.

Analysis conducted in May 2024 showed that the U.K. suffered the highest inflation and lowest economic growth of any G7 country since the end of 2021.

Britain faces a significant challenge on economic growth but also has an opportunity to achieve faster growth while starting from a lower base than our G7 counterparts.

However, the U.K. is facing a tough problem with the size of its national debt, which reached GBP 2.7 trillion in May. The national debt has risen from 64.7% of GDP in 2010 and is expected to hit 104% of GDP this year.

The new Labour Chancellor of the Exchequer, Rachel Reeves, said this week: “I have repeatedly warned that whoever won the general election would inherit the worst set of circumstances since the Second World War. That is why, over the weekend, I instructed Treasury officials to provide an assessment of the state of our spending inheritance so that I can understand the scale of the challenge. And I will present this to Parliament before the summer recess.”

Perhaps the largest challenge facing the new Government here is that they want to deliver high-growth while sticking to tough spending rules and promising not to raise income tax, national insurance or VAT as three of Britain’s main sources of tax receipts. Ruling out tax increases inhibits the government’s ability to raise more revenue to fund public investment but the tax burden for UK taxpayers is already at a 70-year high.

Given this backdrop, how does Labour plan to deliver growth?

Going long

With plans for a decade of renewal, much of Labour’s industrial and investment strategy is centred around delivering long-term certainty and stability to attract more private investment.

While Labour plans to deliver fiscal discipline and keep a tight rein on spending, it thinks it can stimulate investment and enable businesses to borrow more cheaply if it elongates the length of its budget programmes and promises funding over a longer time period.

This situation delivers greater certainty to investors and lenders.

The new government’s long-term plans include developing a new 10-year infrastructure strategy, as well as a new industrial strategy to “give business long-term certainty for investment decisions.” It also plans to provide 10-year budgets for globally recognised innovation institutions in the U.K.

In a joint interview in last week’s Sunday Times, Starmer and Reeves said they are preparing to attract private investment worth billions of pounds in the first months of a Labour government, which they hope will help the party meet its ambitious growth target and avoid tax rises and spending cuts.

In the interview, they said that “stability of the economy and the stability of the team that is running the country” is something they believe investors will be looking for as they make choices about where to spend their money.

It is a theme that Reeves returned to on Monday (8th July) when announcing GBP 7.3 billion in funding for green innovation projects. Money specifically targeted at investing in nascent technologies or projects at early stages of development that “enable and encourage” risk taking.

Reeves said, “For the first time in a long time, investors will look at Britain and say it’s a country with a stable government, with a clear plan and mandate from the election. That’s different from other countries in the world today,” she said.

Additionally, the new government’s programme is bolstered by plans to create a new National Wealth Fund, which aims to attract GBP 3 of private sector investment for every GBP 1 of taxpayer funding.

The fund was a key commitment in Labour’s manifesto but has been redefined after a report led by the globally recognised economist, Mark Carney, the former governor of both the Bank of England and the Bank of Canada.

Infrastructure

Labour is aiming to attract private finance with public funding catalysing the funding of infrastructure projects, providing a 10-year infrastructure strategy to be set out within the first year of a Labour government.

A significant bulk of Labour’s manifesto pledges on infrastructure relate to energy, including updating Britain’s creaking National Grid and putting the U.K. in a better position to tackle the energy transition.

Labour has committed to achieving clean energy by 2030, which it will be achieved by investing in offshore and onshore wind facilities, carbon capture and storage, nuclear power opportunities. The party also proposed doubling the government's commitment on green hydrogen production and creating Great British Energy, a new, publicly owned clean energy company to be headquartered in Scotland.

Labour will also reform the energy regulation system and put measures in place to attract investment, such as rewarding clean energy developers with a British Jobs Bonus. Another plan is to allocate up to GBP 500 million per year from 2026 to incentivise firms who offer good jobs and build their manufacturing supply chains in the U.K.

Plans are also being drawn up to streamline the planning system for nationally significant infrastructure projects, including building power stations, roads, railways, hospitals, and large-scale housing.

While I appreciate and enjoy the steps that are being put in place to deliver greater stability and attract more private funding, I also want to gently challenge whether the U.K. could be more ambitious.

The British economy was burned two years ago when Prime Minister Liz Truss announced a new budget, which she refused to have reviewed by the Office for Budget Responsibility. This budget increased spending while, at the same time, promising large tax cuts caused great concern to global financial markets who were concerned that the U.K. was ditching fiscal responsibility and preventing expert independent oversight of the plans.

Investment in infrastructure is capital spending. Capital spending is different to revenue spending as a form of long-term spending which aims to deliver long-term benefits.

As the Conservative MP Kevin Hollinrake said in 2022, “Investment spending is a different kind of spending, which is good for taxpayers and will ultimately reduce the burden on taxpayers.”

The U.S. has higher levels of national debt as a percentage of GDP, but this has not cowed leaders from announcing huge levels of spending on infrastructure.

Four bills announced by President Joe Biden—including the Inflation Reduction Act (IRA), CHIPS, and The American Rescue Plan—delivered USD 1.1 trillion of spending on energy and infrastructure, with most of it coming from the Bipartisan Infrastructure Law.

Analysis shows that the IRA alone generated?nearly USD 100 billion?in new investment and over 80,000 jobs—in both red and blue states—in 2023.

Some nations go even further. Japan has the highest percentage of national debt in the world, at 259.43% of its annual GDP. This national debt did not stop Japan spending USD 12.9 billion to host the Tokyo Olympics in 2020 or approving the extension of the bullet train line in 2012, which included the construction of six new stations built as part of the 125-kilometer Hokuriku Shinkansen extension. The estimated cost of the bullet train extension increased to around USD 14 billion last year due to rising material costs.

While I’m not advocating that the UK should grow its national debt to anywhere near Japan’s levels I find the different approaches to infrastructure spending in the US and Japan interesting.

What do you think the UK should do on infrastructure investment and funding?

I’d also be interested to hear from my readers on any lessons the UK can learn from the US or indeed any nation on how they are funding increased investment in infrastructure.

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