It’s which infrastructure, not how much

Neil Record asks whether infrastructure spending increases growth:

The Government has made it very clear that it regards infrastructure spending as a route to improving the productivity of the economy as a whole.

In its June 2025 policy document, UK Infrastructure: A 10-Year Strategy, it opened with the following statement: “High-quality infrastructure boosts growth and plays a vital role in delivering higher living standards.”

It goes on to enumerate the various ways in which it believes this effect works – better transport links; better digital connectivity; more and better housing; higher resilience to extreme circumstances; and so on.

What it has failed to do, however, is make the case that infrastructure spending does indeed create growth.

We agree with the answer as given. But we’d like to expand the point.

Some infrastructure spending undoubtedly increases productivity, creates economic growth. Say, a functioning commercial law system. Or something more than a rutted track as the pathway from Bristol to London. Just to offer a wide expanse of things that could be beneficial. But other forms, types and pieces of infrastructure perhaps don’t. Better housing certainly makes lives better but it’s not an increase in productivity nor a cause of economic growth other than the process of building the better housing itself. It’s even possible for infrastructure to be productivity reducing. Say, the Humber Bridge, which cost a great deal in real resources and never has reached anything like the traffic levels to justify it. Well, except that it was authorised in order to win a byelection, wasn’t it? Perhaps that justification did work, our memory of that far back is a little clouded.

That is, the answer to "infrastructure?” is like so much in economics, the answer is “It depends”. Some is a jolly good idea, more is nice to have and some shouldn’t even be considered. The way we work out which is which is with a cost benefit analysis. Which produces more value - including all those things about productivity, future growth and yes, protecting bats with tunnels - than it costs and which don’t?

So, things that don’t pass their CBA - say, the Severn Barrage - don’t get built and those that do - the M4 - do. That’s the theory at least. Sadly, once people know there’s a system they begin to game it. Which is how we get the claim that paying doctors more is productivity enhancing because it’s “investment” in the NHS, see? And yes, it gets worse. Things with political support which fail their CBA still get built because they’ve got political support whatever the CBA says. Like, say, HS2.

How strange that is, eh? Politics getting the answer to “It depends?” wrong.

Tim Worstall