As the chancellor plans a policy “reset”, would jettisoning austerity be grossly irresponsible?
Dr Madsen Pirie, president of the Adam Smith Institute, says Yes.
The economies that have emerged best from the financial crisis are those that have combined curbing spending with having a looser monetary policy. Those that have sought to cut back spending while also providing a stimulus have prospered, and have bounced back faster than those which did not. The UK's economic growth is among the leaders of developed countries precisely because we have sought to stop living beyond our means, while simultaneously using quantitative easing. It would be utterly irresponsible for us now to borrow recklessly again to sustain government spending. The key to success is to boost private investment, and every pound borrowed by the government is a pound the private sector cannot invest in Britain's future expansion. There is much still that can be cut. There is wastage, there is spending on frivolous things that can be afforded in prosperous times, but not in more straitened times. Spending went out of control, and we must continue to rein it in. It would be irresponsible not to.
Kallum Pickering, senior UK economist at Berenberg, says No.
Temporarily, and for the purpose of stabilising demand until the Brexit-shock fades, no! When the UK government can borrow at record low rates – in its own currency – the irresponsible thing to do would be to shirk from the need and opportunity to act. Demand for government debt is high despite the Brexit vote. Pay attention to what happened to the government’s borrowing costs after 23 June. Gilt yields fell as markets priced in weaker growth and easier monetary policy, despite downgrades by credit rating agencies. The downgrading of the UK has happened on the currency rather than the bond or equity markets. Eventually the fiscal deficit must be reduced to a more sustainable level. But the current fiscal position does not create significant risks to the economy or its creditors. Borrowing to fund a targeted capital spending programme to compensate for the Brexit-induced fall in private investment would raise expectations for growth and be viewed positively.