Jim O’Neill, the former Conservative minister and Goldman Sachs chief economist, said the UK government’s fiscal rules are holding back vital investments needed to boost growth.
(Bloomberg) — Jim O’Neill, the former Conservative minister and Goldman Sachs chief economist, said the UK government’s fiscal rules are holding back vital investments needed to boost growth.
O’Neill, who served as Treasury minister in David Cameron and Theresa May’s governments, said that while there were now “adults in the room” after Liz Truss’s administration collapsed last autumn, the Conservatives still had the wrong approach to stimulating the economy.
He cited delays to the UK’s flagship high-speed rail project linking London to the north.
“Take for example this ridiculous nonsense with yet another little twist on HS2 in the last couple of weeks,” he said during a phone interview following the government’s 2023 budget announcement.
“If you want to really embark on big investment projects, you’ve got to do them and just forget some of the things along the journey and just stick to the plan.”
Read More: UK’s High Speed Rail Project Set for More Delays as Costs Spiral
The government is delaying the construction of parts of the HS2 rail line along with several road projects, likely influenced by a capital-budget shortfall of £5 billion ($6 billion) by 2027-28. Chancellor of the Exchequer Jeremy Hunt has committed only to maintaining capital spending “in cash terms” after 2025, resulting in a real-terms cut.
Fiscal Rules
The government has also adopted fiscal rules including limits on public sector borrowing and a target that debt, as a proportion of GDP, should be falling over a five-year horizon.
“I remain somewhat disappointed by the framework the government has imposed on itself for its own investment spending, and the fiscal rules,” said O’Neill, who is due to address the House of Lords
Read More: UK Budget Hits Infrastructure Plans as Costs Mount, Finance Lags
The cross-bench peer said that Hunt and Prime Minister Rishi Sunak “recognized very openly, to their credit, that the UK’s problem is weak investment spending” when they took over from former Chancellor Kwasi Kwarteng and former Prime Minister Truss, whose calamitous mini-budget in September tanked the pound and led to a Bank of England intervention.
However, he said private sector investment on its own was insufficient.
Hunt announced new tax incentives in Wednesday’s budget to offset an increase in corporation tax, and confirmed plans for a dozen investment zones focused around university research hubs.
O’Neill said the plan was an improvement on the Truss government’s idea for unlimited low-tax zones which would have simply “spread jam all over the place.”
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