The current rounds of austerity in the UK are justified neither by the level of debt nor the rate of interest paid on that debt, both of which are currently low by historical standards. There has rarely been a more favourable time for the government to borrow to invest in renewing infrastructure and fostering new industries. Yet the UK is damaging the productive capacity of the economy by neglecting investment. Only cash strapped Cyprus, Greece and Ireland invested less in 2012 as a proportion of GDP.
The UK is one of the most expensive countries in which to build infrastructure, largely because of Private Finance Initiative (PFI) schemes and their derivatives. The House of Commons Treasury Committee report which investigated PFI in 2010 recognised that the cost of paying off PFI debt would be over 40 per cent cheaper if government funding were used.
A Common Weal approach would abandon such failed models of investment. Moreover, it must ensure that investment results in tangible benefits to the public, in higher wages, more interesting work and in greater revenue for public services. To enable stability going forward, capital and revenue investment should be separated with the objective of ending deficits in revenue expenditure. Borrowing for public investment is justified where it develops the capacity of the economy so that returns ultimately meet the cost of borrowing.
These returns may be: indirect, such as with the Scottish Government’s childcare proposals which, by helping more women into employment, realise gains through an increased tax take; or direct, where, for example, investment in a major housing project is financed through borrowing by local or national bodies against future rents. Other approaches may include the establishment of Special Purpose Vehicles to source funds at public rates of borrowing on behalf of locally or nationally owned companies or, more radically, large scale companies could be developed as national or local mutuals in which each member of the country or community would receive a non-tradable share, providing voting rights and a return on investment through a dividend. A central component of an investment strategy should be a national investment bank. National investment banks, such as Germany’s KfW, provide stable long term financing, promote diversity in the commercial banking sector, direct lending towards societal goals and provide profits to the states which own them, helping to reduce deficits. Beyond this, a more stable and sustainable investment landscape could be realised while simultaneously providing government with considerable sums in seigniorage, which could be allocated for investment, through the implementation of a full reserve banking system.