Should the chancellor abandon his deficit reduction target to increase spending on public services?
Scott Corfe, chief economist at the Social Market Foundation, says YES.
While the latest UK economic growth data was better than expected, choppy times remain ahead. Squeezed employee earnings and subdued business investment are both set to make substantial economic growth over the coming years difficult to achieve.
Critically, the UK remains in the midst of a major productivity crisis. As a nation, our workforce is less productive than that of France, Germany, and the US. And we are struggling to close the gap as productivity growth remains elusive.
If the chancellor is to have any hope of eliminating the fiscal deficit over the coming years, he needs to tackle this productivity crisis head on – investing more in the infrastructure and skills that the UK economy needs to step up a gear.
Borrowing more today can mean borrowing less in the future, if the money is invested prudently. The real question is not whether the chancellor can afford to spend a bit more, but whether he can afford not to.
Read more: Hammond must find room to manoeuvre
Duncan Simpson, policy analyst at the TaxPayers’ Alliance, says NO.
At the 2010 election, Philip Hammond called for Britain to have a “credible plan to resolve the fiscal crisis over a sensible period”. He also said the preference should be for spending cuts, not tax rises.
But what has happened?
The tax burden has reached a 30-year high, borrowing is still more than £1bn a week and national debt interest payments now exceed the defence budget. So much for resolving the fiscal crisis.
There are still obvious spending reductions that should be far less controversial than they are – from scrapping the pension triple lock, to cancelling HS2, due to cost £403m a mile.
Any fiscal loosening should still focus on tax cuts, not spending rises. The corporation tax cut was followed by an increase in revenues and new business creation, and is a great example of the benefits to the economy of lower taxes.
The chancellor must retain the deficit reduction targets and recommit the UK to sound finances.