DEBATE: Is there a case for easing austerity, even though the OBR says it would expose us to economic shock?
YES - Scott Corfe, chief economist at the Social Market Foundation.
The latest economic indicators for the UK do not make for good reading. Consumer confidence is down and household incomes are once again being squeezed as earnings fail to keep pace with inflation. The uncertainty created by Brexit and the General Election result means that business investment is likely to be subdued. Forecasters have generally downgraded their expectations for economic growth over the coming year. Against such a backdrop, there is a case for a more expansionary fiscal policy – boosting growth through well-targeted spending and tax cuts. Infrastructure spending in particular could tackle the UK’s abysmal productivity performance. With interest rates already at rock bottom levels, policymakers have few other options to support the economy through challenging times. The argument that government spending implies higher borrowing in the future is overly simplistic. Without growth in the economy and in productivity, it will be hard to get the growth in tax revenues required to eliminate the deficit in the future.
NO - Vicky Pryce, board member of CEBR and a former government adviser.
Even before the referendum vote, George Osborne’s fiscal rules had been abandoned, and the date for balancing the budget has now been pushed to the middle of the next decade at the earliest. Brexit uncertainty is hindering growth and the OBR has warned of a substantial potential increase in debt from any slowdown in revenues. The public sector has been able to borrow cheaply so far – but this may not continue if the economy deteriorates further. So austerity is here to stay. But with increased pressures on the NHS and social care, among other areas, and major cuts in council finance and unprotected government departments, already there is a limit to how much more the system can take. Things would be easier of course if the economy grew faster, but failing that austerity has to continue. However, the emphasis now should be more on raising taxes to sustain services and pay for necessary infrastructure to assist the economy more generally.