My series of posts on detoxifying government debt was all about why Labour should not be afraid to increase public investment substantially. Public investment should be matched by borrowing because future generations benefit from individual investment projects. The same is not the case for most day to day (current) public spending. If the economy is not suffering from deficient aggregate demand, it makes sense to match increases in day to day spending with higher taxes. A fiscal rule that does this (often called the ‘golden rule’) makes sense.
That day to day public spending needs to increase substantially should not be in dispute. It is hard to think of any area of public spending that is not suffering badly after years of cuts, without any significant cut in what that spending is designed to achieve. The Institute for Government and CIPFA’s Performance Tracker shows that performance in most services is worse than before the pandemic, and much worse than it was in 2010. Our prisons are full, more people of working age are too ill to work, councils are going bankrupt, and poverty is increasing rapidly because benefits are too low or needlessly restricted. In addition many public sector workers have seen their relative pay squeezed over many years leading to either severe shortages or reliance on workers from overseas.
Additional public investment, together with some reforms, may ease these pressures a little, but they take time and will not be enough on their own to make a noticeable difference to public service provision over a five year period. It is also clear that the majority of voters want to see the next government achieve more in terms of improving public services than marginal increases in efficiency. Over the last six months the Conservative government
