Columnist

We need a longer-term focus on public money

The Chancellor's first Budget introduced new fiscal rules that separate day-to-day spending from investment, allowing for a significant expansion in the UK's expenditure, particularly on infrastructure. 

If delivered effectively, this could help improve the UK’s productivity performance and potentially reduce future public spending.

These changes will increase the UK’s level of debt relative to GDP over the next five years, staying just below 100 per cent.

However, to put this in context, the Office for Budget Responsibility projects that, based on current policy and demographic trends, public debt will exceed 270 per cent of GDP by the mid-2070s. 

The primary driver of this increase is Government spending, which is expected to grow significantly due to an ageing population and worsening health.

At the Northern Powerhouse Partnership, we have identified four key challenges holding the North of England back, which could be addressed to help tackle that potentially worrying forecast for public borrowing. 

Firstly, the lower educational attainment of young people from disadvantaged backgrounds increases the likelihood that they will become reliant on the benefits system after completing their education.

Secondly, far too many people are unhealthy and, therefore, unable to participate in the workforce. 

According to the Office for National Statistics, 24.2 per cent of the working-age population in the Northern Powerhouse is economically inactive, compared to 19.5 per cent in London and the greater South East.

Thirdly, the lack of efficient east-west transport between relatively close locations remains a significant issue. 

Remedying this has been a longstanding priority of the National Infrastructure Commission, with Northern Powerhouse Rail being a key part of the solution.

Fourthly, we have yet to fully tap into the potential of the transition to net-zero. 

There is a risk that areas of historic strength, such as our nuclear sector, could be decommissioned without a new-build sector to replace it. 

Similarly, our industrial base could be offshored rather than decarbonised.

Tackling each of these four challenges could increase productivity by allowing people to engage in the labour market, access a wider range of learning and work opportunities and secure good jobs in green energy here in the North of England.

If productivity growth was increased to 2.5 per cent per year, the average rate during the 1990s, net debt would fall to just 65 per cent of GDP by 2073/2074.

As the Government finalises its plans for next spring’s spending review, we believe it needs to change the way spending decisions are prioritised. 

For example, transport projects often place too much emphasis on time savings, rather than considering the wider potential benefits. 

Connecting an area to better jobs leads to higher earnings, an improved standard of living and positive impacts on health.

Currently, the benefits of improved health outcomes — such as reduced future NHS spending and a population that can remain engaged with the workforce, pay taxes and not rely on benefits — are not fully recognised. 

We need a new, longer-term focus when prioritising where to invest public money.

Andrew McPhillips is chief economist at the Northern Powerhouse Partnership

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