Macroeconomic Policy

Macroeconomic policy in 2021

  • OECD: “Rethink constraints on public spending”. At the beginning of the year, OECD chief economist Laurence Boone made headlines for pushing governments to revolutionise their approach to macroeconomic policy - and showing concern that the UK government among others has not yet made this leap.
  • ~~No return to 2010. Boone argued that the mistake following the 2008 financial crisis was to withdraw stimulus too early, and that fiscal tightening should be avoided for the first one or two years of recovery. Fiscal, not monetary policy, should do the heavy lifting, for macroeconomic and distributional reasons.
  • ~~IMF: “Spend as much as you can. Then spend a little more.” IMF MD Kristalina Georgieva made similar appeals to governments to push ahead with stimulus, and in particular for global coordination in green stimulus packages.
  • ~~Sunak’s approach. The IMF and OECD’s position - both former cheerleaders for austerity - lies in contrast to the Chancellor’s narratives around a “fiscal emergency”, deployed to support e.g. the public sector pay freeze and potential cuts to Universal Credit. (Read our analysis here.)

  • Ditch deficit and debt targets. Beyond immediate stimulus, Boone argued that “one-size-fits-all” fiscal rules based on short-term deficit/debt targets are unfit for purpose, and that governments should “embrace long-term sustainability goals”.
  • ~~No more rules! In the same vein, a recent paper from an unlikely trio of authors - former US Treasury Sec Robert Rubin, former head of Congressional Budget Office Peter Orszag, and Joseph Stiglitz - outlines a new approach to fiscal policy that abandons top-down anchors or rules, which they argue are unfit to deal with radical uncertainty.
  • ~~New buzzwords: “Semiautonomous discretion”. Their proposals focus on significantly increasing the budget’s responsiveness to broader economic changes - e.g. through beefing up “automatic stabilisers” - thereby making the task of discretionary fiscal policy easier and more streamlined. Read the paper here.

  • Mais lecture. Shadow Chancellor Anneliese Dodds addressed these themes in her Mais lecture. Her proposals included testing “every single budget line” against the Government’s net zero goal - part of centring resilience in economic policymaking - and asking the National Audit Office to submit an annual report to Parliament on the effectiveness of public spending, which the Government must respond to.
  • ~~Fiscal responsibility. Glowing Financial Times coverage emphasises Dodds’ responsible approach to spending - it is worth noting that this fiscal framework appears more expansionary than Labour’s 2016 Fiscal Credibility Rule, doing away with a debt-GDP target but maintaining the current spending balance target. (See Stephen Bush on the politics of her speech.)
  • ~~Fiscal anchor? Dodds does propose a “fiscal anchor” that would limit increases in discretionary current spending during a crisis - the rigidity of this goes against Stiglitz et al's approach (above) to fiscal policy-making “in a deeply uncertain world”, and is based on an Institute for Fiscal Studies paper written before the Covid-19 pandemic.
  • ~~Public sector net worth. While a lot of coverage has contrasted Dodds’ approach to the Fiscal Credibility Rule, relatively little has touched on the “public sector net worth” approach adopted by Labour in 2019, based on a paper written by the now head of the Office for Budget Responsibility. This would take a broader view of public sector liabilities and, crucially, assets. James Mills picks up on this for the Independent.

Weekly Updates


  • Pre-budget leaks. Tax Justice UK’s Robert Palmer summarised the mixed messages around tax from pre-Budget leaks, and argued that while now is not the time for overall tax rises, tax reform (e.g. of council tax) makes sense. (Twitter thread)

  • Recovery-friendly taxes. The Times’ Philip Aldrick outlines areas where tax rises and reforms might support a more sustainable recovery - including carbon border taxation, corporation tax and council tax.

  • “Levelling Up the Tax System”. Onward released a new report arguing that the Government's ‘levelling up’ agenda should not just include increased spending in poorer regions, but “also use the tax system to spread opportunity and growth to less prosperous places”. This includes council tax reform - cutting lower band rates and increasing upper band rates - which would benefit poorer regions. (Telegraph coverage here)

  • Council tax is inefficient. Reforming council tax in London was a key proposal from the IPPR’s Commission on Economic Justice, which argued the banding system is reliant on outdated property prices and is unsustainable as a source of local government finance.
  • ~~Council tax rise now, without reform, is very inefficient. The Chancellor last month promised councils “extra flexibility” in funding social care, but instead of increasing central government funding, he has given councils the power to raise council tax faster than inflation, as they have been doing since 2016. The FT calls this “austerity by stealth”. Without reform of council tax, this measure stands to be regressive and to dampen household spending, and has been criticised by the Local Government Association for not meeting councils’ funding needs.


  • Call for submissions. The Work & Pensions Committee launched a wide ranging inquiry into child poverty. (Call for evidence here, submissions deadline 25 Feb.)

  • Free school meals. Marcus Rashford signed a joint letter to the PM alongside top chefs and leaders from civil society, business, health bodies and education sectors, calling for a review of the free school meals policy. The letter cited research from the Child Poverty Action group which found 20% of children below the poverty line are currently ineligible for the scheme.

  • Levelling up. New research from Bright Blue examined the differences in uptake of new Universal Credit claimants across England and found the pandemic has exacerbated geographic inequality, with the most deprived areas seeing the sharpest increases in claimants.

  • Universal Credit debate. MPs debated the Government’s plans to remove the £20 per-week uplift to Universal Credit. After six Conservative MPs defied the call to abstain on the non-binding vote, the Guardian reported that "the Treasury is considering a partial climbdown".
  • ~~"Inadequate". Torsten Bell, head of the Resolution Foundation, has argued that even at its current level, Universal Credit is inadequate - cutting by £1000 per year at this time is "madness".


  • Recovery bonds for “sourdough savers”? James Meadway wrote for the Times explaining how the £100bn+ savings accumulated over the course of the pandemic - mostly by the middle-classes - could be mobilised to invest in regional recovery through bonds issued by local authorities and Mayors.

  • Community municipal investments. Abundance Investment and the Bauman Institute launched a crowdfunding investment model last year as a new way of financing local government infrastructure projects through citizen and stakeholder investment. (See the following guide for local authorities: ‘Assessing the Suitability of Crowdfunding for the Public Sector’.)

  • Purpose-driven banking. The Financial Innovation Lab’s most recent discussion paper outlines the barriers to expanding the purpose-driven banking sector - including credit unions, community development financial institutions and ethical banks - in the UK.


  • NHS Pay Rise. The Royal College of Midwives and 13 other Health unions (representing more than 1.3m NHS workers) wrote to the PM urging him to bring forward a wage increase for all NHS staff. A poll commissioned from Savanta ComRes found 86% of the public back some level of pay rise, with 40% supporting a significant increase.
  • ~~Costs recouped... A report from London Economics found that the Exchequer could recover 81% of the cost of raising the wages of 1 million nurses, midwives, health professionals and NHS support staff by 10%.
  • ~~...through growth and tax receipts. Previous research by NEF and TUC showed how a modest public sector pay rise could increase GDP and bring between £810m and £1.5bn in additional tax income.

  • Analysis: We covered the public sector pay freeze in advance of last year’s Spending Review. The announced measures differed from expectations - notably, no pay freeze for public sector workers below the median income - but the arguments against the freeze based on macroeconomics, the need to rebuild public sector capacity and ongoing recruitment/retention problems remain. Read our summary here.

Climate change

  • Green innovation. Experts from the Green Innovation Policy Commission wrote to the Prime Minister last week arguing for a “paradigm shift in green innovation across government” and setting out six policy recommendations for reform (more detail here).

  • Lifestyle change. ICYMI, the UN Environment Programme’s focussed on the role of lifestyle change for the first time in Dec 2020’s Emissions Gap Report. The authors argue that “lifestyle and system change are two sides of the same coin”. For more info, see BBC coverage or sign up to the authors’ webinar on 20 January.


  • Labour market standards. The FT reported on the government's plans to deregulate the UK labour market post-Brexit, which may include changes to the 48-hour week working time directive, rest breaks, overtime pay and holiday pay entitlements. (IPPR critique here)

  • Singapore-on-Thames? City of London bosses have argued “there is little need for wholesale deregulation in the UK… the government should focus on ‘re-regulation’ - reshaping regulation in response to the post-pandemic environment - rather than deregulation.
  • ~~Financial deregulation. Fran Boait, Director of Positive Money, and Jesse Griffiths, CEO of the Finance Innovation Lab, warned MPs against the risk of the post-Brexit ‘race to the bottom’ in regulatory standards last November.