Debt-financed public investments do not scare the UK public as much as politicians think
by Jan Eichhorn
In its recent report, the National Infrastructure Commission attested to the desolate state of UK infrastructure and highlighted how this impeded economic growth generally and also climate action specifically. Importantly, they concluded that this could only be resolved by massive increases in investment with a step-change in scale especially from the public sector.
While this echoes existing analyses, UK political leaders seem to prioritise a focus on maintaining ‘responsible’ public finances instead. Despite announcing some specific tax cutting decisions, the Conservative government continues to emphasise fiscal discipline as an overarching principle for its upcoming policy decisions. At the same time, the Labour leadership is pressing the point that their ambition for government investments, should they win the next election, will be intentionally limited by “bombproofed” financial planning that restricts borrowing and stresses sound finance. Clearly, both sides think that the UK public would punish any hint of large-scale investments financed by state borrowing.
But is this true? Using data from a survey of over 2300 people representative of the UK public aged 18 to 80 conducted in June 2023 by a team of the University of Edinburgh’s Social Policy department, we can offer new insights.
Many Brits want debt reduction — but as many support debt-financed public investments
At a first, superficial, glance, politicians seem to have gotten it right: When asked whether reducing state debt should be a priority, 62 percent of the UK public strongly agree or agree. But at the same time, nearly as many (61 percent) give support to the proposal that the government should borrow money to invest in infrastructure now. In other words, how much people prioritise debt reduction strongly depends on how the issue is presented to them, as other researchers have also demonstrated. Crucially, while some people clearly prioritise either debt reduction or investments, many people intuitively agree with both goals, if presented with them separately. Indeed, 38 percent of the UK public support both propositions (table 1).
While many people intuitively favour debt reduction, only a minority is put off by the idea of public borrowing, if it is presented for the purpose of major investments. Nevertheless, the two ideas stand in tension with each other. It is therefore insightful to explore who the people are that agree with both propositions as compared to those who clearly support one but reject the other.
Debt reduction prioritisers underestimate the productive role of the state
Extensive research, much of it led by the IIPP, has shown that private sector firms are not always more efficient than the public sector and that indeed states can act entrepreneurially. However, this view has not been adopted across the whole UK public yet. Indeed, those who believe in the outdated convention that private markets necessarily embody greater efficiency, are more likely to support a focus on debt reduction. Amongst those who agree with reducing state debt and who reject debt-financed state investments, just over half agree with the premise that firms are always more efficient than the public sector (figure 1). Amongst those who support both debt reduction and investments, this is only slightly lower at 45 percent, while the percentage drops to under a third amongst those who outright prioritise investments.
Seeing that those in the middle group are much closer to the debt reduction prioritisers in their general views about the role of the state in the economy, we get a first glimpse of what perceptions might hold them back from supporting debt-financed investments more firmly.
There is little belief in trickle-down effects benefiting workers
While orthodox views about state and market relations may persist in certain groups of the population, that does not mean that the public subscribes to the idea of trickle-down economics and believes that the market provides for the population overall. To the contrary, most believe that ordinary working people are not getting a fair share of existing wealth in the UK (figure 2). Amongst those who support debt-financed investments (regardless of their view on debt reduction) that view is rather ubiquitous. 82 percent amongst those who prioritise investments and 76 percent of those who support investments and debt reduction agree. The belief that workers are not getting a fair deal is less often pronounced amongst those who prioritise debt reduction outright, but even amongst them a majority (59 percent) hold that view.
Fundamentally, many people assume that management of private firms will squeeze them as much as possible (figure 3). Two thirds of the investment-prioritisers and the middle group respectively agree with the proposition “that management will always try to get the better of employees”. Even amongst those prioritising debt reduction 61 percent agree.
While people who support debt reduction and public investments over-estimate the efficiency of the private versus the public sector, they do not expect that free market structures and the status quo will deliver for workers any more than those who prioritise investments. Connecting narratives about the entrepreneurial state directly to how it could benefit workers (rather than discussing it in general) could therefore help advance support for public investments. Given that even debt reduction-prioritisers overall agree that workers are not getting a fair deal, it is a line of argument politicians should feel confident to embrace.
A knowledge gap on state financing must be overcome
Prioritising state debt reduction is associated with a lack of understanding how state financing works. We asked people whether it was true or false that after borrowing money in one year, the UK had to lower spending or increase taxes in the subsequent year to repay it right away. The statement is false, firstly because repayment terms for many government-issued debt obligations are much longer than a year, but also because it ignores other funding options. But, as others have shown, too, many people lack knowledge about money and state finance. Around of a third of those in the middle group and those who prioritise debt reduction incorrectly thought that the proposition outlined was correct. (figure 4) Those who supported debt-financed investments and rejected a focus on state debt, however, were twice as likely to answer the question correctly with only a third of them getting it wrong.
While data from a single survey can only show association, not causation, the differences in knowledge are stark. There is a lot of potential to engage publics in a discourse that is better informed in how state financing works — with the potential to open up discussions that could reframe the balance between debt and investment priorities for the middle group.
Conclusion
The UK requires huge amounts of infrastructure investment from all sectors but particularly a step-change in public investment. It is understandable that politicians want to balance this with concerns about the fiscal implications. But the current over-emphasis on fiscal responsibility — at the cost of desperately needed investments — is not just economically questionable. It also does not reflect how the public actually thinks about the topic. While many intuitively care about state debt, for a large proportion of the public this view does not form a priority per se. Debt-funded investments by the state also garner majority support. However, those torn between both positions have not yet been reached comprehensively by narratives about how the state can be entrepreneurial and they often lack knowledge about how state finance works in the first place.
That is why we need political leadership in this discourse. Rather than being afraid of an imagined anti-debt public, we need engagement with a public that does not believe in trickle down economics. Narratives that communicate how state investments can directly benefit workers and connect those to increasing knowledge about how state finances work are likely to help people shift their emphasis from debt reduction to funding productive investments. That is an ambitious task, but politicians claiming they want to rebuild the country’s economy have to start by speaking up for the capacity of the state to act as an agent of meaningful change — rather than defensively justifying every investment they might like to make. They might be surprised how positive the public resonance could be.
— — — — — — — —
This is a guest blog by Dr Jan Eichhorn, senior lecturer in Social Policy at the University of Edinburgh and research director of the Berlin-based think tank d|part.
The data cited in this piece comes from a representative survey carried out by the Social Policy department at the University of Edinburgh and was funded by its School of Social and Political Science.
