Market Analysis

Think tank argues the UK should quadruple public investment to spur development

Amos Simanungkalit · 07 Aug5.3K Views

Britain needs to allocate an additional 50 billion pounds ($64 billion) annually for public investment to enhance productivity and long-term growth, primarily financed through public borrowing, the National Institute of Economic and Social Research (NIESR) stated on Wednesday.

NIESR forecasts that Britain's economy will grow by only 1.1% this year and does not anticipate annual growth exceeding 1.3% between now and 2029. This falls significantly short of the 2.5% growth target suggested by Prime Minister Keir Starmer during the election campaign that brought Labour to power last month.

When asked if Labour could achieve this goal, NIESR Deputy Director Stephen Millard responded negatively.

Labour finance minister Rachel Reeves has set a more specific target of achieving the highest growth in economic output per capita among the Group of Seven advanced economies for two consecutive years. Millard remarked that this target appears slightly more attainable.

"We have some catching up to do with other G7 countries, so there is some room for us to grow faster. Do we have the capacity to do it? That's the $64 million question," he said.

In its quarterly report on Britain's economy, NIESR, a leading economic think tank, stated that public investment needed to be doubled to 5% of national income to fund improvements in transport, housing, education, and skills, thereby boosting productivity.

Since the 2008-09 financial crisis, growth in output per capita in Britain has lagged behind other advanced economies.

To support this increased investment—which would surpass that of most other wealthy countries—NIESR suggested that the government should exclude borrowing to fund investment from its self-imposed fiscal rule.

This recommendation contrasts with Reeves' public emphasis on fiscal prudence.

In a parliamentary statement last week, Reeves said the former Conservative government had left the economy in a far worse condition than expected, prompting her to cancel some smaller investment projects—a decision Millard described as "quite concerning."

However, NIESR Director Jagjit Chadha questioned whether the British government could effectively manage the additional investment.

"Reluctantly, I think we probably do not. And so we stick to the fiscal rules, pat ourselves on the back for being careful guardians of the public purse, and continue to fail in addressing our deep-seated and persistent issues," he wrote.