Blog Five ways the next government can build a strong economy for all Whoever forms the next government, they cannot be afraid to invest – otherwise our economy will never improve By Lydia Prieg, Tom Pollard, Chaitanya Kumar, Hollie Wright, Benedikt Stranak, Emmet Kiberd 31 May 2024 We’re going to hear a lot about the state of the UK economy during this election. But from the way politicians talk, you could forget that our economy is made up of
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Five ways the next government can build a strong economy for all
Whoever forms the next government, they cannot be afraid to invest – otherwise our economy will never improve
31 May 2024
We’re going to hear a lot about the state of the UK economy during this election. But from the way politicians talk, you could forget that our economy is made up of people. We make up the economy – whether we’re getting the train to work, taking our kids to a play group, or going out for a meal with friends.
This election is taking place against a backdrop of decades of economic failure. Government after government has failed to invest in the people, public services and national infrastructure that are vital for a thriving economy. If we struggle to get a doctor’s appointment, can’t afford nursery for our kids, or are forced to live in a home riddled with mould, this affects our health, wellbeing, and our ability to work.
We are living with the result of decades of underinvestment. More than four in 10 households cannot afford life’s essentials. Our schools and hospitals are literally crumbling. And farmers are struggling to grow food because of extreme weather caused by the climate crisis.
Whoever forms the next government, they cannot be afraid to invest – otherwise our economy will never improve. Saying we can’t afford to pay nurses properly, repair our crumbling schools, or create truly affordable housing is back-to-front: we need to invest to build a strong economy, and this investment will more than pay for itself over the short and medium term.
The next government needs to create the strong economic foundations so we can all live a good life. Here are the top five ways they should start:
Replace fiscal rules to improve living conditions
Lydia Prieg, head of economics
It is widely acknowledged that the UK is currently living with the consequences of decades of underinvestment, which include stagnant productivity and crumbling public services. By sticking to arbitrary borrowing and debt rules, otherwise known as “fiscal rules”, our major political parties are threatening to doom the UK to years of stagnant or even falling living conditions, along with an inability to meet the future challenges of the climate crisis and an ageing population.
The amount a government can safely borrow is determined by a complex set of macroeconomic dynamics, not by a simple metric, such as the debt-to-GDP ratio. Our fiscal rules are a political football; they are not a tool of effective policy.
At NEF, we have suggested that fiscal rules are replaced with “fiscal referees”, a new independent advisory committee that would estimate a target range for optimal government spending. Decisions over tax and spending would remain with the chancellor; however, if he disagreed with the proposed range, he would have to explain why, which would improve accountability in the fiscal policy process.
An Essentials Guarantee to ensure no one falls below a minimum level of income
Tom Pollard, head of social policy
No one should be left without enough income to meet their essential costs, but over 14 million people are suffering the consequences of living in poverty. A key driver of this is the inadequacy of our social security system, with rates of support not pegged to any meaningful assessment of what people need to make ends meet.
The next government should, at the very least, commit to an Essentials Guarantee so that no one is allowed to fall below a minimum level of income. The longer-term ambition should be a Living Income that supports everyone to meet a decent standard of life.
We also need to see a shift away from a prescriptive and punitive approach to pushing people into work. People should be supported to find well-paid, secure and fulfilling jobs, not pressured to take any job going under the threat of benefit sanctions.
A National Energy Guarantee to protect essential energy needs and cut carbon
Chaitanya Kumar, head of environment and green transition
Energy is essential for life and yet millions are unable to afford enough to keep warm and have a decent standard of living.
The next government should introduce a National Energy Guarantee (NEG). This is a commitment to every family that, regardless of their means, they will be entitled to a minimum of essential energy for free or at heavily subsidised rates.
This energy can keep their homes warm and power all their appliances. As consumption grows, the amount a household pays for each unit of energy will go up. This will incentivise wealthier households who tend to consume more to reduce their energy use. The NEG should combine with a Great Homes Upgrade, a government scheme for mass home retrofitting, to make sure everyone lives in a warm, low-carbon home.
By providing an energy safety net for lower income households, and encouraging energy efficiency for higher income households, we can have a fairer energy system, cut carbon emissions, and make the UK more resilient to future energy price spikes.
A new generation of social homes to solve the housing crisis
Hollie Wright, assistant researcher
Everyone should have the right to a secure, warm and affordable home. One of the key drivers of the current housing crisis is the lack of social housing. This has left tens of thousands of families stuck in temporary accommodation, while millions more struggle to afford their rent.
The next government should aim to build 90,000 new social homes annually, in part by reorienting the Affordable Homes Programme to strongly prioritise social housing. Social landlords should also be better supported to acquire and upgrade private rented sector properties, converting them into social homes. Local authorities should have the power to limit or suspend the right-to-buy scheme when necessary to stem the loss of existing social homes.
By rebuilding our tradition of publicly owned housing and ensuring that social landlords can provide truly affordable homes, we can create a strong foundation for everyone to build a good life.
An emergency funding package for local government
Benedikt Stranak, researcher, and Emmet Kiberd, researcher
Local government across the country is at breaking point, with many councils on the verge of bankruptcy following years of chronic underfunding. In 2024 – 25, councils will need to make do with 24% less money in real terms than in 2010-11, with some councils losing half of their core budget to cuts.
Due to rising demand and increasing costs, councils are now facing a huge shortfall even to maintain services at current levels. An emergency funding package will be needed from the next government, so that local governments can continue delivering vital services, from everyday infrastructure to important parts of the UK’s safety net, such as homelessness prevention and social care.
The crisis in local government is in stark contrast to the cross-party consensus on devolution. Promising more devolution without fixing local councils – the foundation on which English devolution is built – is reckless.
Longer term, local and combined authorities will need greatly enhanced powers, multi-year funding and autonomy over how it is spent. This would allow them to deliver the major public investment needed to close spatial inequalities: high-quality public transport and active travel, local energy and retrofit schemes, well-planned places, parks and social infrastructure.
You can’t just magic up a resilient economy on a wish and a prayer – it takes serious government investment in the things which make our economy stronger: our NHS, schools, and climate-proof infrastructure. If we want a thriving, resilient economy, whoever forms the next government can’t be afraid to spend.
Image: iStock
Topics Macroeconomics Social security Housing & land Climate change Local economies