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Falling investment poses another problem for Osborne Falling investment poses another problem for Osborne
(4 months later)
Ed Balls and Chuka Umunna chose their moment well. On the day that official figures showed that capital spending fell by 0.8% in the first three months of 2013, Labour released figures showing that Britain devotes a smaller share of national income to investment than any other G8 country. What's more, only Italy has seen a bigger fall in the investment share of GDP since 2010.Ed Balls and Chuka Umunna chose their moment well. On the day that official figures showed that capital spending fell by 0.8% in the first three months of 2013, Labour released figures showing that Britain devotes a smaller share of national income to investment than any other G8 country. What's more, only Italy has seen a bigger fall in the investment share of GDP since 2010.
George Osborne will think this is a bit rich given Labour's own poor record on investment during its 13 years in power, which is undoubtedly true. Business investment was just under 10% of GDP when Tony Blair entered Downing Street in 1997, only 8.5% when Gordon Brown left office in 2010. The economy under Labour was far too reliant on the City, housing and the public sector - which is one reason why the recovery from the financial crisis has been so slow.George Osborne will think this is a bit rich given Labour's own poor record on investment during its 13 years in power, which is undoubtedly true. Business investment was just under 10% of GDP when Tony Blair entered Downing Street in 1997, only 8.5% when Gordon Brown left office in 2010. The economy under Labour was far too reliant on the City, housing and the public sector - which is one reason why the recovery from the financial crisis has been so slow.
That said, there is clearly a problem. The UK economy does need to rebalance towards investment, manufacturing and exports; thus far there is precious little sign of it happening. Scratch beneath the surface of the 0.3% increase in growth recorded in the first three months of the year and the performance still looks worryingly weak; the expansion was entirely the result of a build up in inventories.That said, there is clearly a problem. The UK economy does need to rebalance towards investment, manufacturing and exports; thus far there is precious little sign of it happening. Scratch beneath the surface of the 0.3% increase in growth recorded in the first three months of the year and the performance still looks worryingly weak; the expansion was entirely the result of a build up in inventories.
Short term and long term issues need to be addressed. The short-term question is how to get the private sector to part with the cash it is hoarding. Higher consumer spending would normally trigger investment, but if this doesn't happen the government will need to "prime the pump" itself.Short term and long term issues need to be addressed. The short-term question is how to get the private sector to part with the cash it is hoarding. Higher consumer spending would normally trigger investment, but if this doesn't happen the government will need to "prime the pump" itself.
The longer term question is how to sustain higher investment over a prolonged period. That will take fundamental reforms of tax, the City and procurement. A national investment bank would be a good place to start.The longer term question is how to sustain higher investment over a prolonged period. That will take fundamental reforms of tax, the City and procurement. A national investment bank would be a good place to start.
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