Chancellor could have gone further with capital spending investment says EY ITEM Club

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  • A very encouraging decision that is likely to have a positive impact on short-term growth
  • Capital spending of £5bn to build schools ticks all the right boxes
  • But Chancellor has the scope to go even further than this

Carl Astorri, senior economic adviser to the EY ITEM Club, commenting on today’s announcement from the Chancellor to invest £5bn in capital spending, says:

“This is a very encouraging decision and certainly a step in the right direction. Amid a weak growth outlook and with fiscal policy being tightened, we believe that some stimulus in the form of higher capital spending is the most effective way to boost growth in the UK.
“The Chancellor’s decision to release £5bn to build schools ticks all the right boxes. It doesn’t require extensive logistical work or planning, so it’s likely to be successful in encouraging growth in the short-term. And since capital spending is excluded from the measure of borrowing covered by the fiscal mandate, it will not have any impact on the main fiscal rule.
“But the Chancellor has the scope to go even further than this. Not only were we in favour of increasing capital spending by £7bn for both this fiscal year and next; contrary to the Chancellor’s decision we think that this can be authorised in the absence of tightening elsewhere.”

On Monday (3 December) EY ITEM Club issued an Autumn Statement preview, in which it called for the Treasury to sign £14bn cheque for a two-year investment in shovel ready infrastructure projects. The full report is available here