Policy instruments (1) - Transport Policy and Planning in Great Britain - page 193

This concern with the performance of the main centres of activity (in the context
of increasingly globalised competition) has prompted a different kind of economic
argument being advanced by the CBI and others. This holds that continued growth
in more buoyant areas is threatened by increasing congestion on transport networks
(particularly in London and the South-East) and that this has a potentially damaging
effect on the national economy as a whole. Additional funding for transport
infrastructure in the housing 'growth areas' to cater for an increasing number of
households and to prevent an 'affordability' crisis for workers is a further dimension of
this argument.
There is clearly a tension in the spatial implications of an investment policy focusing
on 'congestion-busting' and infrastructure in growth areas and one which, on equity or
economic development grounds, gives equal (or possibly more than equal) treatment
to remoter and/or less economically buoyant areas. Significantly the Government
objective of 'reducing the persistent gap in economic growth rates between the English
regions' is shared between HM Treasury, DTI and DCLG but not the DfT, and the
subject of transport investment allocation as between the regions did not feature in
the 2004 Transport White Paper.
12.4 The financing of public investment
It is in the nature of investments that they involve a high initial capital cost with
benefits (including any benefits recouped through user charges) derived over many
years thereafter. The presence of an asset of continuing value enables the cost of
investments to be spread over a period by borrowing. Public investment has the
advantage that loans to the Government are obtained at the lowest level of interest
within the prevailing financial market, because of their almost complete absence of
risk (regardless of the success or failure of individual schemes). In principle therefore
the overall cost of financing an investment (capital plus interest) should be less when
undertaken by the public rather than the private sector.
However the capability of the Government to service the debts generated by
investment programmes is not infinite. Higher borrowing pushes up interest rates
and 'crowds out' resources available for private investment. Gordon Brown, when
Chancellor of the Exchequer, introduced a series of self-imposed 'rules' designed to
demonstrate prudence in the management of the nation's finances. His so-called
'golden rule' was that, over the period of an economic cycle, borrowing should be
limited to capital expenditure only. (Borrowing for revenue expenditure - rather like
a family borrowing to pay for its housekeeping - is therefore confined to dealing with
short-term fluctuations only.) A second 'sustainable investment rule' was that the total
amount of Government borrowing at any one time - the 'Public Service Borrowing
Requirement' or PSBR - should be kept below 40% of the nation's Gross Domestic
Product (GDP).
A combination of good fortune and skilful management meant that the decade
1997-2007 was one of unprecedented economic stability in the UK. This has enormous
importance for the planning and management of public investment since it is undertaken
within a well-established overall profile and not subject to short-term fluctuations in
the face of economic crises. During this time the apparently irreconcilable objectives of
containing public borrowing whilst investing in improvements in transport and other
public services have been met by exploring opportunities for privatisation and private
financing. In the case of rail rolling stock for example privatisation has enabled an