UK Government should boost economic growth by borrowing to invest in sustainable energy, transport and cities

Posted on 12 Aug 2016 in

The UK Government should improve economic growth by taking advantage of record low interest rates to borrow money to invest in sustainable infrastructure for energy, transport and cities, according to two new reports published today (12 August 2016) by the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at the London School of Economics and Political Science.

The extensive analysis by Dimitri Zenghelis, former Head of Economic Forecasting at Her Majesty’s Treasury, concludes that an enhanced infrastructure programme could boost economic growth without stimulating inflation, increase financial returns to private sector investors, reduce the risks of  price ‘bubbles’ developing in the housing market and elsewhere, and help to secure the stability of the public finances. Such a programme could also help to bridge any shortfall in investment that might arise from the referendum vote to leave the European Union.

In the first part of the analysis on ‘Building 21st century sustainable infrastructure: time to invest’, Zenghelis warns that “the UK Government risks missing a significant opportunity to boost economic growth by investing public funds in productive infrastructure”. He argues that “the current global economic environment provides an opportunity and rationale to borrow at below-zero real interest rates in order to invest in infrastructure”.

Zenghelis points out that “some in the Government worry that ‘unsustainable’ borrowing might deter investors, but the collapse in UK Government bond yields tells us that the markets are signalling for more, and not less, public investment, with little concern for the risk of debt default or inflation”.

In a second report on ‘Building 21st century sustainable infrastructure: institutional reform’, Zenghelis suggests that “careful institutional design is required to limit political short-termism and take advantage of this unique opportunity to boost the UK’s productive capacity, rebalance the economy and secure a smart, efficient, low-carbon future”.

Among his recommendations are giving the Government the ability to issue infrastructure bonds through the National Infrastructure Commission, and ensuring that the Commission has a “natural capital investment plan”, so that the benefits of the UK’s natural environment are taken into account.

Zenghelis also recommends that the Government provides risk guarantees to reassure private investors in renewable energy projects that its reduced minority share in the Green Investment Bank is sufficient to mitigate against sudden and adverse policy changes.

In addition, the Government needs to develop fiscal rules that are in line with the principles of full resource-based balance sheet accounting, which distinguish between borrowing to invest and borrowing to consume. And the Government should devolve decision-making and financing further to the local level, providing fiscal autonomy for cities.

Zenghelis indicates that “any Government investment in large infrastructure needs to be ‘fit for the future’ and allow the UK to stay competitive by shifting resources to fast-growing low-carbon markets”.

He adds: “Infrastructure investments will last 20 years or more and so must be designed to avoid locking in to, stranding and possibly scrapping, carbon-intensive assets, networks and behaviours”.

Zenghelis concludes: “Tapping a global reservoir of free capital would help the Government to deliver these objectives and strengthen the sustainability of the public finances. Targeted infrastructure investment would boost the value and resilience of public assets. It would also offer private investors, in particular pension, insurance and sovereign wealth funds, a much sought-after reliable source of long-term income.”

For more information about this media release or a copy of the two reports on ‘Building 21st century sustainable infrastructure’, please contact Bob Ward



  1. The ESRC Centre for Climate Change Economics and Policy ( is hosted by the University of Leeds and the London School of Economics and Political Science. It is funded by the UK Economic and Social Research Council ( The Centre’s mission is to advance public and private action on climate change through rigorous, innovative research.


  1. The Grantham Research Institute on Climate Change and the Environment ( was launched at the London School of Economics and Political Science in October 2008. It is funded by The Grantham Foundation for the Protection of the Environment (