Public spending in the wake of the pandemic should prioritise recovery, resilience and levelling up

7 December 2020

By Rosie Stock Jones

5 minute read

Rosie Stock Jones writes for PSE magazine on public spending in the wake of the pandemic.

Fiscal stimulus is key to our Covid-19 recovery, but the Government must spend wisely. Investment in the levelling up agenda has high potential productivity returns and should be the focus of public spending, alongside building the resilience of places and a coherent industrial strategy. Targeting spending in this way will ensure that the UK emerges from this crisis stronger than before.

Coronavirus has made Government spending a mainstream news item again, with the biggest newspapers in the country asking when the nation will start paying back the ‘ballooning debt’ that has been used to fund emergency measures. The National Audit Office have estimated that the Government’s initial response cost around £120bn and in September, public sector net debt reached over 100% of GDP - a level not seen since the 1960’s. This has started a discussion about the sustainability of spending, yet this conversation is premature. Polling suggests widespread acceptance among the public that spending will need to rise after the pandemic compared to pre-crisis levels and economists are largely in agreement that fiscal policy has a key role to play in the economy’s recovery in the coming years.

However, the backdrop of record high debt creates a strong incentive for the Government to spend public money wisely, so how should they prioritise? Key objectives for any spending programme must include recovery from the current health and economic crisis, building our resilience to future shocks and unwinding the systemic inequalities that have galvanised calls to level up the UK. These objectives are a fiscal imperative; the Centre for Progressive Policy (CPP) finds there is a possible £242bn annual productivity windfall if the levelling up agenda is delivered. The UK’s poor performance during Covid-19 compared to its European peers also underlines the need to strengthen our resilience to the pandemics, recessions and environmental disasters of the future, reducing the impact that these will have on businesses and public finances, as well as on households.

In order to achieve the objectives of recovery, resilience and levelling up, public spending must first be directed into a plan for jobs as part of a place-based industrial strategy. Vacancies remain low and will not be able to absorb existing unemployment, which is set to rise further in 2021. The 250,000 green jobs promised by the Prime Minister in his 10 point plan for the country to reach net zero are a good start. However, there are unanswered questions about when and how these will be created and if they will be accessible to those that need them the most. Places like Merseyside were name-checked in the plan but not involved in its design and that needs to change if a post-Covid industrial strategy is to be successful growing local economies. Spending on jobs will also need to address the imbalances exposed and exacerbated by the pandemic and include better deal for the key workers who have kept the country running and yet are more likely to face low pay and insecurity.

To set the foundations for the future, the Government must invest not only in retrofitting and rail but in the resilience of places, by building up local community services, population health and skills. Spending must tackle the entrenched inequalities holding people and communities back in order to generate long-term fiscal sustainability. CPP finds that former red wall areas underperform the rest of England on seven out of eight training and skills indicators, highlighting the importance of place-based investment strategy for levelling up opportunity in the UK.

The return on such investments is high – existing evidence suggests that vocational education programmes deliver over of £5 of benefit for every £1 spent while the national return on public health interventions is as high as 27 to one. For these benefits to have a system-wide impact, they must not be piecemeal, delivered through a multitude of competitive funds that pit places against each other, but be delivered through pooled resources that are under local control with local accountability.

For public spending to achieve a resilient recovery from the pandemic and create opportunity across all parts of the UK, it must be part of a coherent place-based strategy that invests in communities and local economies to tackle longstanding social and economic issues. This investment may not deliver cashable benefits by the end of the current political cycle but should be protected as pressure to consolidate finances grows, to ensure that we remain on a course for recovery, rather than a generation of structural unemployment and dislocation.