This third briefing in our Spending Choices after 2015 series examines what types of government spending are good for economic growth; what the different parties have committed to post-2015; and, sets out which areas the next government will need to focus growth-friendly spending on.
The long and short term challenges faced by the UK economy mean that when the next Government comes to make its spending choices in its first Spending Review in 2015, economic growth must be a priority.
Clearly, Government policy to boost economic growth is not simply measured by spending alone. But there are many areas of spending that are important for economic growth, and which would not necessarily be replaced by private sector spending if they were withdrawn.
This briefing note:
- Sets out what types of Government spending are good for growth, and where we are falling behind other comparable countries;
- Sets out what the different parties have committed to;
- Shows where growth-friendly spending is located, and argues that the way in which Government spending is currently categorised makes this a difficult task; and,
- Concludes that the next Government will need to take a comprehensive and consistent approach to growth-friendly spending and sets out a number of recommendations.
- The next Government will need to take a comprehensive view of spending – both within departmental budgets, and implicit spending within the tax system. It will need to be able to map out and identify the most growth-friendly areas of spending. The Conservatives, Labour and the Liberal Democrats have all highlighted capital investment as an area of spending that should be protected from cuts. This is a positive move, but risks being too simplistic.
- The next Government will need to find better ways of prioritising different types of growth-friendly spending, based on their likely benefits, so that spending is targeted in places where it can create the greatest benefits. Labour has proposed an Infrastructure Commission to help make better long-term decisions on where infrastructure investment should focus. This is a positive step, but the analysis in this paper shows that other types of growth-friendly spending need to be considered alongside infrastructure spending.
- Growth-friendly spending is important, but Government also needs to ensure that growth-friendly programmes are delivered efficiently. This places great importance on procurement and commissioning. For some types of projects, paying providers based on outcomes can help to ensure that the value of growth-friendly spending is maximised.