A group of eight of the UK’s most distinguished economists has warned that further cuts to public investment would “repeat the mistakes of the past” and undermine the UK’s long term fiscal sustainability.
In an open letter (1) coordinated by the new Invest in Britain campaign (2), the group argues that “underinvestment has resulted in a vicious circle of stagnation and decline”, with investment cuts made in the name of fiscal prudence having “damaged the foundations of the economy and undermined the UK’s long-term fiscal sustainability”. They call on the government to adopt a strategy for “substantially increasing public investment”.
Signatories to the letter include some of the UK’s most distinguished economic thinkers with experience in government, academia and business. The signatories are:
- Lord Gus O’ Donnell Former Cabinet Secretary and Head of the UK Civil Service, Former Permanent Secretary of the Treasury
- Lord Jim O’Neill Honorary Chair of Economics at Manchester University, Former Commercial Secretary to the Treasury, Former Chief Economist of Goldman Sachs and Chair of Goldman Sachs Asset Management
- Professor Mariana Mazzucato Founding Director of UCL Institute for Innovation and Public Purpose (IIPP)
- Dr Mohamed El-Erian President of Queens’ College Cambridge, Former Chief Executive PIMCO
- Sir Anton Muscatelli Principal University of Glasgow, Chair of the Royal Economic Society
- Professor Simon Wren-Lewis Emeritus Professor of Economics, University of Oxford, one of the UK’s foremost fiscal policy experts
- Professor Jonathan Portes Professor of Economics and Public Policy, King’s College London, Former Chief Economist at the Department for Work and Pensions and the Cabinet Office, Former Director of the National Institute for Economic and Social Research (NIESR)
- Professor Susan Newman Head of Economics, The Open University
The group argues that “a consensus is emerging that underinvestment is a central cause of the UK’s poor recent economic performance” and that the government’s strategy of relying on private investment to generate growth will be insufficient without commensurate increases in public investment.
The letter highlights that the government’s inherited spending plans imply further steep real terms spending cuts in the coming years, and the economists warn that “we do not see how the planned “decade of national renewal” can take place if these cuts are delivered”.
The group also takes aim at the government’s fiscal rules, arguing that the current framework is short-termist and has contributed to low growth and rising debt levels. Instead they argue for a process to be put in place to introduce a pro-investment fiscal framework, focused on long term fiscal sustainability.
The warning comes as growing pressure mounts on the government’s fiscal policy in advance of their first Budget in October. A paper from the Office for Budget Responsibility (OBR) over the summer made it clear that the current fiscal rules do not capture the full economic benefits of public investment, and sparked renewed calls for a new fiscal framework.
The statement comes alongside the launch of Invest in Britain, a new campaign calling on the government to focus on the long-term interests of the country and deliver a substantial uplift in public investment for public services, clean energy infrastructure, and just transition to good jobs in greener industries.
Tom Railton, Director of the Invest in Britain Campaign, said:
“An economic consensus is emerging that we need to change course if we are to rebuild our economy and put Britain on a more sustainable economic path for the future.
“That new course has to be based on a long-term approach, including a new fiscal framework that prioritises the long-term public interest, and a substantial increase in public investment to rebuild our public services and create an economy which supports families, businesses and communities to prosper and thrive.
“At next months’ Budget, the government should make clear that it will not go ahead with real terms investment cuts that will undermine future growth, and should launch a process to reconsider the fiscal rules which have trapped Britain in a low growth fiscal straightjacket.”
ENDS
Notes to editors
- Full text of the letter, including a full list of signatories, can be found here. The signatories have endorsed the content of the letter, they are not formally affiliated with the Invest in Britain campaign and bear no responsibility for campaign outputs.