Unhealthy finances

This report from UK think tank Resolution Foundation looks at how to support the economy today and repair the public finances tomorrow.

This report provides analysis of the dual challenges faced by the government: ensuring that there is sufficient fiscal support through the crisis and recovery, and setting fiscal policy on a sustainable long-term path. Some argue it is unsustainable to provide the massive government support during the crisis, while others see little constraint on government borrowing in an era of low interest rates. Neither position is helpful for long-term economic outcomes. In the face of low interest rates, fiscal policy has to be the main tool for supporting the economy now and in the future, meaning bigger fiscal stimulus and in place for longer. But low interest rates do not mean that fiscal policy can be looser forever. A new approach to fiscal policy is needed; one which explicitly accounts for the need for government spending during future recessions and supports additional public sector investment. In practical terms, this means targeting stable public sector net worth across future economic cycles, requiring £40 billion of consolidation, starting sometime after 2023-24. This report also lays out a practical pathway to achieve this. There are real opportunities to improve the tax system post-crisis: moving towards equal treatment of earnings and investment incomes, facilitating the transition to ‘net zero’ carbon emissions, and recognising changes in the distribution of household wealth in Britain over the past few decades. But, ultimately, the government is likely to need to be more radical – we suggest the introduction of a Health and Social Care Levy to set the government finances on the right track and properly fund social care.

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