The UK cannot cut its way to growth, top economists tell Chancellor ahead of Spring Statement

Dear Chancellor,

We understand the scale of the challenge that Labour’s economic inheritance poses to the successful delivery of your government’s missions. 

Years of underinvestment have locked the country into a negative, self-reinforcing cycle of low growth, poor productivity, crumbling public services, weak demand caused by squeezed household finances, and high exposure to inflationary shocks such as the war in Ukraine and increasing global trade tariffs.

The economic outlook remains concerning: the Bank of England has halved its growth forecast for 2025 to 0.75% and now expects inflation to rise to 3.7% this year – well above the 2% target. 

We welcome the necessary increases in current and capital spending announced in the 2024 Budget, as well as the establishment of the National Wealth Fund and the changes to the fiscal framework which provide a more holistic view of the government’s financial position.

These changes to investment and current spending were a welcome first step. But given the difficulty of our economic situation, they will be far from sufficient to drive the decade of national renewal that your government has committed to, and which the UK sorely needs.

The increases to public investment announced last October only cancel out the cuts planned by the previous government. The rise in capital spending will maintain public investment at around 2.5% of GDP over the next five years, which still falls short of the OECD average of 3.7% over the past 25 years.

The last fifteen years have taught us that the UK cannot cut its way to growth. Spending cuts now would further undermine both growth prospects and fiscal sustainability, storing up even greater problems with government borrowing costs further down the line. Achieving growth will require rebuilding public services; investing in skills, R&D and the strategic, climate-safe industries of the future; and boosting demand by strengthening the social safety net. 

It would therefore be a profound mistake to change course and introduce new cuts to spending or investment. We recognise that global turmoil has created new fiscal pressures, both on defence and in the form of higher government borrowing costs, but this should not deter the UK from pursuing the economic strategy needed to deliver your missions.

Ultimately, substantial additional tax revenue will be required to meet these spending needs. You will rightly be searching for options that recognise ongoing pressures on working people and ensure that those with the broadest shoulders pay their fair share of tax, as well as enhancing overall economic growth. While there will be no easy choices, the government should be looking at all options to balance these objectives.

We urge you to continue to chart the course away from austerity, and make the bold policy choices needed to truly kickstart growth and deliver the economic stability, prosperity and resilience this country needs.

Professor Mariana Mazzucato

Professor in the Economics of Innovation and Public Value, University College London

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 

Professor of Economics, The Open University

Professor Ha-Joon Chang

Distinguished Research Professor, SOAS University of London

Professor David Bailey

Professor of Business Economics, Birmingham Business School, University of Birmingham

Professor Phil Tomlinson, 

Professor of Industrial Strategy, University of Bath

Dimitri Zenghelis 

Special Advisor for the Wealth Economy Project, Bennett Institute for Public Policy, University of Cambridge 

Professor Leslie Budd

Emeritus Professor of Regional Economy, Open University

Professor David Vines

Emeritus Professor of Economics and Emeritus Fellow of Balliol College, University of Oxford