EXPERT HUB – BLOG: Strategic spending: Proactive investment is needed for inclusive growth
By Patrick Geddis, Research Analyst, Centre for Progressive Policy (CPP)
Read CPP’s new report: Funding Fair Growth: How to transform the UK economy now
The UK’s economic outlook is bleak. Lagging growth, poor productivity and crumbling public services have all added to a sense that the UK is in a state of decline. By 2030, spending on public services will have to rise by £142bn per year, to maintain the current level of provision.
It doesn’t need to be like this. Investing in the fundamentals of our economy offers the opportunity to foster real inclusive growth, to improve UK productivity and to get the UK back on track. In our Fair Growth report, CPP demonstrated that closing gender employment gaps, raising public health and delivering a higher level of skills training would all boost productivity and with it GDP. Likewise, CPP’s paper New Horizons shows that attainment gaps in early years are removing billions of economic value from the UK economy.
Proactive spending decisions are needed now if the UK is to overcome its present difficulties.
The UK needs strategic, proactive spending
The 1997 Labour manifesto included a commitment to pilot early excellence centres for under-fives. This commitment, scarcely featured in the election, led to the creation of Sure Start, considered by many to be one of New Labour’s greatest achievements.
Seventeen years later, in a speech in Manchester, Chancellor of the Exchequer George Osborne announced the idea of a “Northern Powerhouse”, a deliberate effort to improve connectivity among a cluster of core Northern cities to attract investment into a broader pool of human capital. In the following years, investment would be leveraged in to support this goal.
Sure Start and the Northern Powerhouse have become textbook examples of proactive spending, providing early investment on projects which would boost drivers of inclusive growth including positive health outcomes (Sure Start) and greater connectivity which led to job growth in the North of England surpassing that of the rest of the UK (Northern Powerhouse).
Eased costs on the health service, improved labour market productivity and inclusive economic growth are all particularly desirable today. New modelling by the Centre for Progressive Policy has found that as a result of changing demographics, wages, productivity and income; public spending will need to grow by 1.56% a year in real terms between now and 2030.
In the 2000s, persistent increases in public spending were paid for by a growing economy. By contrast, in 2023, crumbling public services, stagnating productivity and earnings growth, poor public health, and regional, wealth, and income inequalities have added to a sense that the UK economy is no longer fit for purpose and that Government is no longer able to address the challenges we as a country face.
It would be tempting, given this bleak outlook, to argue that proactive spending decisions like Sure Start are nice-to-haves we can no longer afford. This was a view that emerged following the financial crisis. However, if Government is serious about reversing economic stagnation this decade, it will need to proactively invest in the key drivers of inclusive growth now.
This is why, in spite of the mounting cost of public services, we believe it necessary to strategically invest in key areas over the next parliament. As with Sure Start and the Northern Powerhouse, investing strategically in health, skills, childcare and early years would improve productivity and inclusive growth in the long term.
A healthier population
While major drivers of the increasing cost of UK healthcare, such as an aging population, are unavoidable, poor public health is not and should be a target area for strategic spending. A highly efficient policy we recommend is restoring public health grant funding in line with its 2015/16 peak.
A skills focused green industrial strategy
Currently the proportion of adults receiving training throughout their career in the UK lags behind peer economies. To address sluggish growth and low productivity the Government should invest strategically in the number one opportunity for economic growth, the transition to a green economy, while focusing on developing skills through better training for those building green infrastructure and overcoming skills shortfalls in areas like wind turbine installation.
Delivering childcare and helping more parents into work
Many parents have difficulty accessing childcare. While the number of funded hours available was significantly increased in March 2023, this will not be implemented until September 2025. And even when it is fully rolled out, parents will need to be in work to access the thirty hours offer, meaning job interviews and the first few weeks of a new role need to be balanced alongside childcare demands. On top of all of this, it is widely understood that the childcare sector is underfunded, leading providers to ask for additional contributions from parents and for some nurseries to close. Expanding the 30 hours offer to those who are unemployed and properly funding places for 3 and 4 year olds would empower those who want to re-enter the workforce, offering individuals better long term prospects and helping to overcome the pressures facing the UK labour market and wider economy.
https://www.progressive-policy.net/publications/growing-pains
Investing early
Finally, as the successes of Sure Start have demonstrated, investing in early years is a valuable use of public funds. We have set out a number of a number of areas the government should be seeking to invest in to have a positive impact on early years and education:
- successful in closing the attainment gap
- lift as many as a quarter of a million children from poverty.
If the UK is to keep up with pressures on public service provision, Government spending will need to increase, placing further pressures on public finances and potentially hampering efforts to address economic stagnation this decade. To begin addressing the root cause of some of these issues and put our economy on a stable path to inclusive growth, the government also need to take strategic and proactive spending decisions. Failing to do so would leave us having the same conversation in 2029 as we are doing today.
If we are serious about restoring public finances, a healthier, better educated population and a regionally balanced, growing economy are the ways to do it.
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