Danny Alexander MP has announced details of the government’s capital spending plans, which are a welcome indication of the long-term investment planned over the coming decade – a Liberal Democrat strategy. With no new money committed to capital spending over that announced in March’s Budget, however, the Social Liberal Forum is concerned that further cuts to current spending in the Chancellor’s Spending Review are unlikely to repair public finances in the absence of robust economic recovery. The Spending Review and capital investment plans together are insufficient to tackle our real economic challenges following the banking crisis and the alarming collapse in living standards – which may yet take a further substantial hit, not least as the economy stagnates and when details of the welfare spending cap emerge. Liberal Democrat influence has protected some key areas of revenue spending, whilst some very difficult cuts elsewhere were agreed to. We welcome the party’s continued support for science and innovation, green investment, and apprenticeships, but we need to go substantially further – Britain needs a more effective economic approach beyond hoping that cutting government spending will heal the economy.
SLF has consistently argued for greater investment in infrastructure as a key tool in boosting the economy while banks, businesses and households repair their balance sheets. We are therefore disappointed to learn that there will be no real-terms increase in infrastructure investment, despite the energetic announcements yesterday. We are particularly concerned with the planned sale of assets to fund aspects of infrastructure, in particular the student loan book, some of which could prove more valuable if retained in public hands – their sale to plug a hole in government finances would be ill-advised, as would the premature privatisation of state-owned banks.
The scale of investment and how it is carried out needs to be far more ambitious to meet demand – we would like to have seen significantly more investment in affordable housing and green technology by allowing local government to borrow and invest, alongside a radical shakeup of banking. Only then can the government ensure that such investment injects much-needed confidence into the wider economy.
The additional cuts to total welfare spending, local government, transport and public sector pay will squeeze already-strained local services, an add more pressure on the cost of living. Such decisions are the painful consequence of prioritising a balanced budget over a balanced economy and society.
We urgently need real increases in capital spending, reversing some of the damaging cuts from the last five years, to signal the beginning of a new economic strategy. This new approach must recognise the role of public investment at a time of crisis. The government must now focus less on its own short-term balance sheet, and more on the radical reforms to banking, investment and green growth needed to kickstart a sustainable recovery. Without such an approach underpinning sustainable growth, cutting yet more central government spending beyond 2016 will be self-defeating at best and actively harmful at worst.