Britain’s new government will have to spend an additional £50 billion annually to fuel long-term economic growth to reverse the effects of low investment in recent years, a think tank has claimed.
Significantly more funding is needed to bring public services like the NHS “up to scratch” and to secure long-term prosperity, the National Institute of Economic and Social Research (NIESR) said in a report on Wednesday.
This would require higher taxes, more borrowing, “or both,” NIESR deputy macroeconomic modelling director Stephen Millard warned.
“The new government has inherited an economy with low investment and low productivity growth, and it is these issues that need to be tackled,” he said.
Spending would have to rise to upgrade public services, buoy growth outside of London and the southeast and for the government to meet its mandated 2050 net zero target, he added.
Were the government to find the funding, public investment would climb to 5% of gross domestic product, against roughly 2.5% currently.
However, new chancellor Rachel Reeves has already scrapped some spending on infrastructure projects due to a £22 billion black hole in public finances.
She has since doubled down on election manifesto pledges to avoid national insurance, income tax and VAT hikes in October’s budget, though this has left the door open to increases elsewhere, such as from capital gains and inheritance.
NIESR forecast economic output will grow 1.2% over the course of the current parliament, adding unemployment was expected to remain at roughly 4.5%.
“The government needs an overarching strategy to rebuild state capacity, not tinkering at the edges,” NIESR public policy deputy director Adrian Pabst added.