Among expert economists a consensus is emerging that under-investment is a central cause of the UK’s poor recent economic performance and the root of many of the problems we now face as a country (“Reeves faces Whitehall cuts revolt”, Report, September 6).
This under-investment has resulted in a vicious circle of stagnation and decline, whereby low investment leads to both a weaker economy and greater social and environmental problems.
The new government is right to argue that a change of direction is needed, one that puts the country on the path to greater prosperity and longer-term fiscal sustainability.
The challenge of renewing Britain requires the rebuilding of crumbling public services while also investing in the clean infrastructure needed to meet our climate targets and create an economy that is more resilient in the future. This challenge cannot be met by the private sector alone, it requires a step change in levels of public investment.
Yet the government has inherited spending plans that imply substantial real-terms cuts in public investment over the current parliament. We do not see how the planned “decade of national renewal” can take place if these cuts are delivered. To follow through on these plans would be to repeat the mistakes of the past, where investment cuts made in the name of fiscal prudence have damaged the foundations of the economy and undermined the UK’s long-term fiscal sustainability.
The current fiscal framework has helped to drive this short-term thinking and created an inbuilt bias against investment. A more responsible approach, which better reflects the significant long-term benefits of increased public investment, will require changes to our fiscal rules and to the mandate for the Office for Budget Responsibility.
In the upcoming Budget it is essential that the government recognises the important role that public investment must play in the decade of national renewal. Further cuts to public investment must be avoided, a strategy for substantially increasing public investment adopted, and a process initiated to implement a pro-investment fiscal framework that focuses on long-term fiscal sustainability.
With these steps, the government will have a real chance of genuinely fixing the foundations of the UK economy and ushering in the period of national renewal that is so sorely needed.
Lord Gus O’Donnell
Former Cabinet Secretary
Lord Jim O’Neill
Former Commercial Secretary to the Treasury
Professor Mariana Mazzucato
University College London
Mohamed El-Erian
Former Chief Executive of Pimco
Sir Anton Muscatelli
Chair of the Royal Economic Society
Professor Simon Wren-Lewis
Emeritus Professor of Economics, University of Oxford
Professor Jonathan Portes
Professor of Economics and Public Policy, King’s College London
Professor Susan Newman
Head of Economics, The Open University
