A group of economists has publicly urged chancellor Rachel Reeves to reverse her stance on public investment, and relax the Treasury rules that constrain it. They argue in a letter to the Financial Times that low investment is the root cause of Britain’s productivity stagnation, and that the government must invest more to enable private businesses to step up their own efforts.
By investment, they mean spending on assets that enable people to produce more and boost future income. These include infrastructure (such as clean energy and transport networks), and skills and research that lower private producers’ costs and give them new profit opportunities.
Led by former cabinet secretary Lord (Gus) O’Donnell, the dissenting group wants Reeves to overturn spending plans inherited from the previous government, in which public investment rises much more slowly than general prices over the next five years. This real-terms reduction threatens to squeeze central and local government capital budgets as fiercely as in the austerity years from 2010-2019.
