Good morning from New Economy Brief.
It’s no secret that the UK is suffering from an investment gap, consistently ranking lowest in the G7 for private investment and well below average for public investment. In fact, UK investment as a proportion of GDP hasn’t made it above the G7 median since 1990. But in gloomy economic times, investment is exactly what the UK needs. From the US Inflation Reduction Act to the EU’s Green Deal Industrial Plan, governments around the world are realising that investment is the key to boosting growth and stepping up to the challenge of Net Zero. For the moment at least, it seems the UK is getting left behind.
This week’s newsletter explores different methods of state investment, including a new proposal from the Institute for Public Policy Research (IPPR) for a National Investment Fund.
The current state of affairs. So how does a state actually invest? Before we look at the IPPR’s new proposal, let’s explore some existing mechanisms:
A national investment fund. To plug the UK’s investment gap, the IPPR proposes the establishment of a National Investment Fund (NIF). This would provide finance to help companies expand green manufacturing activities and decarbonise heavy industrial processes. To access investment from the NIF, companies would have to sign up to specific projects aimed at making them more sustainable - for example, investing in net zero manufacturing technologies. The IPPR says the NIF would not be “picking winners” but instead “picking the willing”. It would publicly outline the kinds of economic activity eligible for funding (according to policy priorities), and companies would then draw up project proposals.
The politics of investment. Following the US Inflation Reduction Act (IRA), how to finance the green transition has been a central political question on both sides of the Atlantic. While Labour’s pledge to invest £28bn a year a part of the Green Prosperity Plan has had its fiscal prudence scrutinised, with Shadow Chancellor Rachel Reeves recently arguing that “economic stability, financial stability, always has to come first”, less attention has been paid to how such investment should be made. Last year Reeves argued for a National Wealth Fund, but there is little detail on how it would operate. As IPPR’s paper shows, this question is almost as important as the scale of investment itself. As an election approaches, it will be interesting to see how political parties propose to close the investment gap, and whether any of them seize on the idea of a NIF as a model that would work for the UK.
Don’t go for growth. “Putting growth at the center of economic policymaking is a mistake” argues economist Mariana Mazzucato in a new piece for Project Syndicate. Although growth is often seen as economic ‘mission’ in itself (as it is for Labour, who have a mission to make the UK the fastest growing G7 economy), Mazzucato argues that it is a by-product of pursuing other socially and economically useful missions.
Investors back Labour’s Green Prosperity Plan. 78 per cent of investors believe that ambitious climate investment, such as Labour’s Green Prosperity Plan, will bring ‘more rewards than risks’ to the UK economy, according to new research from the Labour Climate and Environment Forum.
Labour’s inheritance? In a long read for Renewal, Nick Pearce and Gavin Kelly examine the likely economic inheritance of a Labour government and how the situation differs from the last time a Labour government took office. In order to address policy challenges and maintain voter coalitions, they argue Labour should “review the fiscal framework, with the intention of ensuring that high and stable public investment is prioritised.”
NHS workforce plan. Almost half of all public sector workers will be NHS employees by 2036/7, according to IFS analysis of the NHS workforce plan. The IFS argues that “returning to the NHS’s long-run average funding growth rate could be enough to fund the workforce plan.”
TUC AI taskforce. The TUC is launching a new taskforce to examine the interaction of AI and workers’ rights. It is made up of representatives from unions and academia as well as legal experts and employers, and aims to produce recommendations by next Spring.
Essentials Guarantee. The Guardian has backed calls for a new ‘essentials guarantee’ for universal credit payments, an idea championed by Joseph Rowntree Foundation and the Trussell Trust. Drawing on new research from the Stop the Squeeze campaign, the paper’s editorial argues this would be popular with voters.
Millionaires, economists and politicians tell G20 to tax the rich. In an open letter to the G20 before its meeting in Delhi, the group of almost 300 millionaires, economists and politicians say urgent action is needed to prevent extreme wealth “corroding our collective future”. The letter was organised by Patriotic Millionaires, the Institute for Policy Studies, Earth 4 All, Millionaires for Humanity and Oxfam and include signatories such as Brian Eno and Richard Curtis.