Chancellor George Osborne should unveil a “massive infrastructure investment programme” designed to pump growth back into the economy, one of Scotland’s leading economic think-tanks has said.
A report by the Fraser of Allander Institute at Strathclyde University downgraded its growth forecasts for Scotland for the coming two years, blaming the lack of demand in both the UK and abroad.
The institute said it was now incumbent on Mr Osborne to abandon his own austerity programme and kick-start growth with more borrowing.
Lead author Professor Brian Ashcroft dismissed warnings that markets could react by boosting the cost of Britain’s debt. In a direct call to the UK government ahead of the Budget later this month, his paper declared: “The rational policy approach would be for the Chancellor to slow the pace of fiscal consolidation and undertake a massive infrastructure investment programme while borrowing costs remain so low.”
Prof Ashcroft also said that Mr Osborne should reverse plans to slash welfare payments, saying the move would further depress demand by removing cash from the economy.
“He should do more to promote short-term growth and add to build capacity ideally with projects that are ready to commence,” he said.
The latest report by the institute, which is sponsored by professional services firm PricewaterhouseCoopers, concluded that growth in Scotland in 2013 would now be 0.9 per cent, rising to 1.7 per cent in 2014.
On the labour market, it estimates the “real” unemployment figure in Scotland is now some 80,000 higher than the current 200,000 figure, due to the fact many people are no longer bothering to look for work.
Senior Edinburgh office partner at PwC Paul Brewer said that the problem in the UK was the failure to “mobilise” infrastructure plans quickly enough.
Mr Osborne has said he intends to sweep aside planning issues and accelerate his plans, but Mr Brewer said that the UK was now “18 months to two years” behind the Scottish Government, where projects had been cleared more quickly.