Sam Bowman, executive director at the Adam Smith Institute, says Yes.
Whatever we borrow today we’ll eventually have to pay for tomorrow. So government borrowing just defers taxation – there really is no free lunch.
It’s worse than that, though. Government borrowing crowds out private borrowing, so the more the state borrows for itself, the less money is available for the entrepreneurs and investments that drive growth.
It’s a myth that borrowing to fund infrastructure spending is expansionary: such spending is often wasteful and poorly targeted and timed. And as long as the Bank of England is targeting inflation, it will offset whatever the government does with tighter monetary policy, negating the supposed expansion.
That's not to say that the government shouldn’t cut taxes: the right tax cuts, focused on things like stamp duty, capital gains tax and corporation tax, would boost growth and produce bigger tax receipts for the government, as well as making the rest of us richer. But giving up on deficit-cutting would slow down growth and innovation, and would be a big mistake.
Scott Corfe, director at the Centre for Economics and Business Research, says No.
Economic growth has to be granted priority over deficit reduction.
A tripling in inflation next year is set to squeeze household incomes and take steam out of an economy which has proven remarkably resilient since the referendum. We think GDP growth could slow to just 0.7 per cent next year – about a third of the rate of expansion seen in 2016.
Fiscal expansion – spending increases and tax cuts – can help offset the economic headwinds created by rising inflation and the negative impact of Brexit uncertainty on business investment. With gilt yields relatively low, policymakers have the fiscal room to invest in productivity-boosting infrastructure. Such investment will pay for itself over the long term, with increased economic activity increasing tax revenues.
Similarly, some tax cuts such as a reduction in fuel duty would pay for themselves as well. Loosening the purse strings today could actually go a long way to bolstering the UK’s long-term fiscal sustainability.