Today’s UK growth figures mean that the Government should urgently reopen the spending review to enable it to adopt an immediate funded stimulus, according to the Social Market Foundation think tank.
Responding to the news that the UK economy contracted by 0.7% in the last quarter, SMF Director Ian Mulheirn said:
“These appalling figures show that the Government must take bold and decisive action to boost growth. It makes no sense that at a time when the UK is crying out for housing and infrastructure investment we are experiencing a double-dip recession driven by a collapse in construction.”
The think tank, which was recently named UK Think Tank of the Year for its contribution to the economic debate, said that today’s figures underline the need to give the economy a significant boost through direct investment in infrastructure, funded by reallocating spending from elsewhere.
As the Government is committed to identifying more than £20bn of further public spending cuts after 2015, the SMF urges the Government to identify those cuts now and redirect the savings over the next three years into badly-needed infrastructure investment. Such a plan would directly tackle the construction and manufacturing slump driving the UK’s double-dip recession and lay the foundations for future growth.
Ian Mulheirn continued:
“The good news is that the Government can resolve this emergency without giving up its deficit cutting plan. Last week the IMF echoed our proposals for an economic boost funded by reallocating Government spending from low growth spending to growth-boosting infrastructure investment. Our plan would boost output by around 0.7% in each of the next three years – a much bigger stimulus than reversing last year’s VAT rise, and one that wouldn’t add a penny to the deficit.
“The government needs a political and economic exit strategy from today’s terrible figures. A funded stimulus provides both of those things. But it will require political courage, and time is running out. The Government must act boldly and reopen the spending review to identify low-growth measures to axe, including benefits for better-off pensioners and higher rate tax relief on pensions.
“Further deep spending cuts will have to be made by 2015 in any case and these will be politically painful. Better to enact them immediately and use the money for growth now than to run scared from tough decisions and leave the economy to founder.”
Notes to Editors
- The Social Market Foundation’s paper, Osborne’s Choice: combining fiscal credibility and growth, called for a funded stimulus to boost growth and maintain fiscal credibility. It is by Ian Mulheirn, Director of the SMF, and has been endorsed by commentators and economists including Gavyn Davies, Professor Robert Shiller and Sir Richard Lambert.
- Last week’s IMF country report on the UK advised the Government to pursue a budget neutral fiscal stimulus
- The Social Market Foundation is a leading cross-party think tank, developing innovative ideas across a broad range of economic and social policy. In July 2012 the SMF was named UK Think Tank of the Year and Economic and Financial Think Tank of the Year in the Annual Prospect Magazine think tank awards.