Think tank report

Call for focus on net zero and public spending

Investment is urgently needed says think tank (pic: NIESR)

Britain needs to invest urgently in the transition to net zero and in public spending as part of a radical reshaping of economic policy, according to an influential think tank.

The National Institute of Economic and Social Research calls for a shift in focus from GDP growth to maximising welfare as the structure of the economy evolves.

A report from the institute’s Productivity Commission says the UK must act as  a global leader in the transition to net zero and digital transformation.

“This investment should be seen as a net cost or a trade-off against growth and should be part a new more activist investment strategy.  A fresh and rational policy approach is urgently needed,” says the report’s author, Paul Fisher.

Mr Fisher served at the Bank of England for 26 years as a member of its Monetary Policy Committee, interim Financial Policy Committee and the board of the Prudential Regulation Authority.

His report, entitled Productivity and Investment: Time to Manage the Project of Renewal, explores the productivity slowdown in advanced economies through a new lens and identifies the challenges modern economies are facing.

It says policymakers must embrace maximising welfare over GDP growth and that to make the public sector more productive they will be required to invest more, not less.

“The productivity slowdown does create problems for the fiscal position, but reactions to that have been counterproductive,” says Mr Fisher. “Attempts to reduce taxes, squeeze public sector spending and reduce national debt – sometimes in the name of promoting growth – have produced the exact opposite everywhere, not just in the UK.

“To make the public sector more productive requires more investment spending, not less. Simply squeezing budgets nearly always generates worse productivity outcomes – and that helps bring about perverse outcomes.

“The quality of health and education could and should be slowly expanded as a share of GDP. It is up to politicians to choose whether this happens by either public or private sector provision. However, the UK is not trying to do either.”

He added: “Investing to improve economic outcomes, whether public or private, requires us to recognise the structure of the economy today and its direction of travel, not hark back to the ‘glory days’ of British manufacturing, which are long behind us.

“We need to promote forward, rational, long-term thinking and be more activist in our investment strategy. That would require changes to many areas of policy from the fiscal framework to national and local planning.”

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