Do anti-poverty programmes increase poverty?

 Sounds like a silly question until you dig a little deeper; there is some solid material here for evaluation points:

Still Failing to Learn the Lessons of Antipoverty Programs

Gary M. Galles 

– December 30, 2023

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One of the lesser-known realities of the War on Poverty was that while poverty rates were falling substantially before it began, that progress came to an abrupt halt, fantastically, with its implementation. Without understanding this, people can remain blind to the lesson about how “fighting” poverty can undermine progress against it. And that may be particularly important to grasp now as, decades later, similar effects seem to be spreading to a far-larger population.

Before we turn to its current implications, we would benefit from reviewing explanations for how the War on Poverty failed. To my mind, the most insightful explanation comes from James Gwartney and Thomas McCaleb, in Have Antipoverty Programs Increased Poverty?

Gwartney and McCaleb discussed four ways incentives were worsened by those programs: through increased real benefits, increased implicit tax rates, decreased incentives to acquire and retain skills, and decreased incentives to avoid adverse lifestyle choices. Of particular importance today is their analysis of why the effects of such programs will be more adverse, both the longer they last and the younger are those impacted.  

The first mechanism is that “increases in the real value of benefit payments make dependency on the government even more attractive compared with the alternative of self-support.” That effect will be greater for younger workers, whose earnings potential is lower than older, more educated, and experienced workers.

The second mechanism arises because means-tested poverty programs reduce benefits as households earn more, imposing the equivalent of an additional income tax on increased earnings. And when the reality of multiple programs is factored in, that implicit tax rate can be very high — far higher than the highest official tax rate on earned income, and in some circumstances, well over 100 percent. Consequently, “Such high implicit marginal tax rates pose a significant disincentive to work for those individuals whose potential earnings are relatively low.” 

The third mechanism reduces skills, because individuals who have not used their skills for extended periods experience erosion in those skills. Not only does this worsen the longer such incentives persist, the effect is greater for younger workers because, “As transfers make dependency more attractive relative to work experience, schooling, and other forms of human capital investment, youthful recipients fail to develop skills that have in the past enabled the young to escape from poverty.” That is, it is not just that existing skills erode with disuse, but when disincentives mean skills are unlikely to pay off economically, the incentive to acquire those skills in the first place is also diminished. 

The moral hazard effect arises because substantial increases in government assistance can enable some to choose “a lifestyle that increases the likelihood of poverty.” And that incentive is more damaging to one’s productive life the earlier it begins.

Gwartney and McCaleb noted that there were hardly any adverse incentive effects on low-income families whose members were retired, and smaller effects on those of working age, the older they were. The effects were much more severe for younger people, particularly those not yet in the labor force, who were (or should be) in the skill-acquisition stage.

To test whether the data corresponded to their analysis, Gwartney and McCaleb went one step further. Rather than just looking at overall poverty rates, they looked at poverty rates broken down by the ages of the householder, to compare the magnitude of the consequences of the disincentive effects on younger low-income households compared to older low-income households.

The effects they found were significant. After the substantial decreases in poverty for all age groups before the War on Poverty began, both official poverty rates and poverty rates adjusted for in-kind benefits (not officially counted as income) for the elderly (for whom the disincentive effects are minimal), continued to fall dramatically, from 15.9 percent in 1968 to 5.5 percent in 1982. For the 45-54 age bracket, adjusted poverty rates fell from 6.7 percent in 1968 to 5.8 percent in 1975, rising thereafter to 8 percent. For the 25-44 age bracket, adjusted poverty rates only fell from 8.6 percent to 8.5 percent at first, but rose substantially after, to 12.3 percent in 1982. Finally, for the youngest group studied, householders under 25, adjusted poverty rates rose from 1968 on, from 12.3 percent in 1968 to 24 percent in 1982.

So how is this “old news” important to current news? There were huge increases in such disincentives both during the Great Recession and during the course of COVID-19 recovery and its associated government policies.

The real (after adjusting for inflation) level of government benefits increased because the duration of benefits for unemployment was substantially extended (to 99 weeks at their peak). For a period in 2020, the federal government added $600 per week to state unemployment benefits (in many cases, making those benefits not only greater than they would otherwise be eligible for but more than they could earn). Eligibility for Medicaid (MediCal in California) was significantly expanded, subsidies for Obamacare policies grew, and there were even rental abeyance programs that allowed many to remain in their homes rent free.

To the extent that assistance programs focus on lower-income families, those programs will add to what recipients’ cumulative marginal tax rate (as economists call it, although it is technically a cumulative marginal benefit reduction rate), and subtract more from what they get to keep in take-home pay from producing for others in markets. Phaseouts of Obamacare subsidies with income do the same thing. Even more striking are “eligibility cliffs” where substantial benefits (e.g., free Medicaid for a parent with small children, which is worth thousands of dollars) disappear entirely when a certain income level is reached. 

The incentive to let skills depreciate with disuse, and more importantly, not acquiring skills in the first place, proceeded primarily from restrictions and lockdown effects on employment opportunities and a host of educational policies under COVID, from ineffective online instruction to grade inflation that undermined potential employers’ ability to differentiate between students with particular skills and those without them. Efforts to leave traditional public schools and the disincentives they produced were also hamstrung by attacks on charter schools and voucher proposals.

Many COVID-induced changes taught students the wrong lifestyle-choice lessons, as well. Rules often lost all meaning. Cheating exploded, with virtually no enforcement against it. Students learned that absenteeism carried no penalty, in contrast to the serious penalties the “real world” can impose on its practice. They learned to expect a level of coddling that meant almost every failure to do one’s work was excused, and virtually nothing they could do would earn them a failing grade on anything, much less get them kicked out of school. 

In sum, it seems like our failure to recognize what Gwartney and McCaleb did almost four decades ago — just how seriously the adverse effects of our efforts to “help” people hurt them instead — has come back to haunt America with a vengeance. We have recently doubled down on more of the same types of policies, which means we will see even more of their adverse effects. 

That has certainly left us in a bad place in many ways. But that does not mean we should give up, acquiescing to an unacceptable status quo. We still have time to recognize that “better late than never” reforms give us a chance to move upward as we go forward from where we are. As Gwartney and McCaleb concluded:

The current system of income transfers confronts the poor with perverse incentives that discourage self-help efforts in the short run and induces recipients to make decisions that retard their ability to escape poverty in the long run…The problem of poverty continues to fester not because we are failing to do enough, but rather because we are doing so much that is counterproductive.

For those of you struggling to see the upside of capitalism

 

A thanksgiving for capitalism this Christmas

Capitalism puts the food on the table. Be grateful and don’t expect more than it can give, says Stuart Watkins

“Stealing things just makes everything very cheap,” says Jeremy, the wastrel flatmate of strait-laced bank worker Mark, in the 2000s cult sitcom Peep Show. The pair are being held in the backroom of a corner shop after Jeremy gets caught shoplifting a chocolate bar. “Plus, you know how I feel about capitalism.” “Yes!” replies Mark, exasperated. “Confused!” An amusing scene in a sitcom has, in the intervening 20-odd years, turned into something of a political pandemic. It seems everyone is confused about capitalism. 

On the left, what was once a perennial coming-of-age flirtation has turned into a permanent mental dysfunction. As Kristian Niemietz showed in a report for the Institute of Economic Affairs in 2021, socialist ideas have taken hold of millennials and increasingly Generation Z too, but instead of this being a phase that they shrug off once they get mugged by the reality of jobs, bills, taxes and home ownership, they have clung onto them. Socialist ideas remain as popular among people in their 40s as among those in their late teens. 

It’s not just lefties either. Explicitly anti-capitalist ideas are increasingly popular among those on the conservative right, who see free markets as a force that undermines traditional values and institutions, and even among centrists, who in the wake of the Covid pandemic, Ukraine war and tensions with China seek to shore up supply chains by “reshoring” industries and introducing protectionist industrial policies. And it’s a brave CEO who would these days find room in their woke missives for a word of praise for the system that brings them their profits and bumper salaries.  

DISPELLING THE CONFUSION

This matters because capitalism is what provides our daily bread – it is the source of our stability and prosperity. Thankfully, two books published this year will help to dispel the confusion. The first is In Defence of Capitalism: Debunking the Myths (2023, Management Books 2000, £24.95) by Rainer Zitelmann. He first defines what capitalism is – “an economic system based on private ownership and competition, in which companies themselves are free to determine what and how much they produce, aided in their decisions by the prices set by the market” – and then examines ten of the most common arguments made by anti-capitalists and subjects them to the test of what has actually happened in history.

“AN AMUSING SCENE IN A SITCOM HAS IN THE INTERVENING 20-ODD YEARS TURNED INTO SOMETHING OF A POLITICAL PANDEMIC”

Take the charge that capitalism is responsible for hunger and poverty, for example. It is the exact opposite of the truth. Poverty requires no explanation: “Before capitalism emerged, most people in the world were living in extreme poverty,” says Zitelmann. In 1820, around 90% of the global population was living in absolute poverty. Today, the figure is less than 10%. In recent decades, following the end of communism in China, the decline in poverty “accelerated to a pace unmatched in any previous period of human history”. Hasn’t that, though, come at the cost of environmental destruction, and reckless and unsustainable consumption of the world’s limited resources? No. The Environmental Performance Index produced by researchers at Yale University ranks countries according to their environmental health and ecosystem vitality, measuring such things as air quality, sanitation and drinking water, waste management and pollution. Countries that score highly also tend to rank highly in the Heritage Foundation’s Index of Economic Freedom, which ranks countries according to how well they protect property rights and free markets. So the more capitalism the better, if greenery is your concern. 

As for inequality, anti-capitalists assume that there is some pre-existing lump of income or wealth that just exists somehow, and the problem is how to distribute it fairly, as economist Thomas Sowell has put it. But wealth does not just exist somehow – it is produced, and the distribution of wealth that follows from market exchanges is “the only ‘equitable’ distribution” in a society of private property. The quote used to make that last point was from none other than Karl Marx. Only “vulgar socialists” make a “fuss” about distribution without challenging the underlying structure of production, he said. History shows that what matters far more than levels of inequality, if what you care about is human flourishing and happiness, is growth – the size of the pie, rather than how it is divided up. As Marx agreed, capitalism is the best way to grow the pie.

AN ANSWER TO A QUESTION NOT ASKED

But doesn’t Covid, the war in Ukraine and rising geopolitical tensions show that global capitalism is fragile and vulnerable to shocks, and hence in need of a shake-up? Again, no, and here we turn to the second book, The Capitalist Manifesto: Why the Global Free Market Will Save the World (2023, Atlantic Books, £20) by Johan Norberg. It is not unusual historically, he says, “that a sense of an increasingly dangerous and unpredictable world results in calls for government control and protection”. But that doesn’t mean such actions would actually help, nor does it show that free trade is what failed us. In the early days of Covid, for example, it was widely thought we could not acquire the protective equipment we needed because we had offshored manufacturing capacity. “But in fact, it was trade that saved us.” Even countries with an abundance of manufacturing capacity needed outside supplies when demand shot up. China had to import two billion face masks and 400 million other forms of protective equipment to meet the first outbreak in Wuhan. “If not even China is self-sufficient, what kind of excess capacity do critics of offshoring want us to have?”

Other parts of the economy also adapted well, says Norberg. When government-mandated lockdowns shut large swathes of the world economy down, businesses suddenly lacked workers, intermediary goods and even trade routes. “But they managed to tweak production and rebuild supply chains in real time to keep food on our shelves and reduce the devastating shortages everyone expected.” And who adapted the quickest? Those with the most complex supply chains. “They have more options, are used to looking for alternatives and can always find suppliers from places that are not under lockdown at a particular moment.” The rush to “onshore” production and supply chains, protect industries and pursue active industrial policies risks undoing the progress we have made and “is an answer to a question that the world economy has not asked”.  

Readers of both Zitelmann’s and Norberg’s books will face a blizzard of similar facts and figures and graphs, and it’s very hard to walk through that storm and not conclude that the pro-capitalists have been right and their opponents wrong. Critics from both the left and right have a trump card yet to play, however. The pro-capitalists, they say, focus relentlessly on the material progress the world has experienced since the industrial revolution, and that such progress has been made is next to impossible to deny. Capitalism may well have made us freer and richer, created better jobs and opportunities, fed us and satisfied our material needs and desires, and helped us solve environmental problems too. But what of more spiritual matters? Man does not live by bread alone. And alongside the material progress has come spiritual decline. 

The Marxist left complains about alienation and the hollowing out or destruction of social and communal institutions that gave life meaning.  Soft leftists such as George Monbiot complain  about an epidemic of depression and loneliness  and social phobias. These complaints find their echo on the conservative right. Patrick Deneen, for example, author of Why Liberalism Failed, says capitalism makes us “increasingly separate, autonomous… replete with rights and defined by  our liberty, but insecure, powerless, afraid and  alone”. Capitalism, in short, whatever its materialist virtues, is making us unhappy. 

“THE DISTRIBUTION OF WEALTH THAT FOLLOWS FROM MARKET EXCHANGES IS THE ONLY EQUITABLE DISTRIBUTION”

Except it isn’t, says Norberg. Yet again, the plain facts are against the critics. Compare cross-country data on subjective feelings of loneliness and you’ll find that it is in fact lower in countries that score highly for personal and economic freedom. There is no evidence in the data that mental-health issues have got worse in recent years, being more or less stable since 1990. In a Gallup World Poll that asked people around the world whether they had friends and relatives they could rely on in times of trouble, the percentage answering “no” was higher in countries deemed to have deeper and more collectivist forms of community, such as in Africa and South America, for example, than in urbanised, individualised, materialist ones such as those in Europe, the US and Australia. It seems that the critics were relying not on the evidence for their claims, but rather a shallow reading of the liberal classics that equates a resistance to forced relationships with a resistance to relationships themselves, as Norberg puts it. 

DON’T ASK SANTA FOR THE MEANING OF LIFE

To give a seasonal twist to a metaphor of Norberg’s, it’s true that you cannot find the meaning to life on a Christmas list. It’s nice to have nice things, and capitalism provides them in abundance. Do we need something more than that? Do we need to find meaning beyond our material needs and desires, beyond our lonely, separate, individual lives?  Of course we do, but we are not more likely to find those things in collective political projects than we are on the Christmas list. Collectivists that seek to impose their vision of the good life on the rest of us in fact have “less of a sense of the beautiful richness and diversity of human nature than the alleged cold and robotic market liberals”, says Norberg. 

It’s as if the Grinch had made the opposite mistake and decided that the miseries and failings of the  Whos in Whoville were all caught up somehow in their “trimmings and trappings”, and, perhaps  proud of having a heart a few sizes too big, decided to snatch them away to make everyone happier. Like the Grinch we know, this shadow-Grinch would also find that Christmas comes all the same – and that a Roast Beast is nothing to be sniffed at and contributes hugely to festive cheer. Capitalism is a blessing to be thankful for. Merry Christmas.

MONEYWEEK

Is the SNP about to discover the limits to tax?

 

The Laffer Curve is about to blow up the SNP

Decision to introduce 48pc top tax rate is only going to bring in modest amounts

PATRICK MINFORD22 December 2023 • 6:00am

Nigel Lawson, the tax-cutting chancellor of the Eighties CREDIT: JOHN REDMAN /AP

Wisdom can be found in unexpected places, as is demonstrated by the recent forecast report of the Scottish Fiscal Commission on the SNP government’s finances and tax policies, which says that the rises in top Scottish tax rates just announced will bring in only modest amounts.

“Behavioural responses”, it outlines, will cause big reductions largely offsetting the gains calculated on “static” assumptions of no taxpayer response. The new 48pc top rate, it says, will bring in virtually nothing at all.

This use of “dynamic costing” is a most welcome contribution from Scotland’s equivalent of the Office for Budget Responsibility (OBR).

It reminds us of the debate on the Laffer Curve triggered by Nigel Lawson’s famous Budget of 1988, when he abolished the 60pc top rate of income tax.

The late chancellor argued that it actually reduced tax revenues, owing to its effects on the labour supply of those paying it; they reduced effort, switched activities to lower tax areas, left the country or otherwise found legal ways to evade the tax.

In later research on UK data, I found strong evidence of such Laffer effects, joining other international evidence.

If this analysis can happen north of the border, why not in the UK generally? 

It has been very largely ignored by both the Treasury and the OBR, which have failed to evaluate the supply-side effects on tax revenue of our top marginal tax rates, not simply the 45pc notional top rate but also the 60pc rate created by the withdrawal of the personal allowance at the 40pc threshold.

All hell broke loose over the proposal to abolish the 45pc rate in 2022’s Truss-Kwarteng mini-Budget, even though its abolition would probably have raised tax revenue.

But dynamic costing should not stop at these basic effects on revenue due to labour supply shifts. The effects go far further, to impacts on capital investment and productivity growth from both business taxes like corporation tax and the higher rates of income tax paid by entrepreneurs on their profits.

These do two key things: they reduce the return on capital, reducing investment and capital through substitution with labour. 

Also, more radically and with much bigger long-term growth consequences, they reduce the return to innovation, alias productivity growth. The rise in these, and allied disincentives, accounts for our dreadful growth performance in recent years.

The Truss-Kwarteng mini-Budget set out in 2022 likely would have raised tax revenue CREDIT: AARON CHOWN/PA

Again, much research supports these effects on growth, as does the most casual look around the world at successful cases of growth, whether Texas among US states, or Poland in recent decades, or China under Deng Xiaoping (versus today’s slowing under Xi Jinping’s interventionism). 

The best accessible review of the post-war evidence on how growth is damaged by tax is still the Institute of Economic Affairs’ Sharper axes, lower taxes, published in 2011 and edited by Prof Philip Booth.

Our Cardiff work based on the simplest of ideas, that a firm’s owner-managers will divert energy to innovation if its returns exceed the costs in tax, regulation and lost wage income, predicts that low marginal tax rates and light regulation spur growth. 

And richer entrepreneurs are less worried about the downside because they have a stronger balance sheet. 

One of the challenges for the tax-growth nexus is establishing causation and not just association, and opponents of the low-tax agenda exploit this problem. 

To overcome, it requires building causal models of growth and testing their ability to replicate the facts of economies’ behaviour.

With today’s powerful computers and recent advances in econometrics, we are able to do this by simulating these causal models and checking how well their simulations statistically match that behaviour, a roundabout procedure known as “indirect inference”.

In research carried out by me, my colleagues and our PhD students (some still unpublished) at Cardiff, we have found that this model can satisfyingly explain trends in growth and inequality in the UK both recently and over the last century and a half, as well as in the postwar US, and across Chinese regions.

The UK effects are clearly visible in our lived experience since the Thatcher reforms of the 1980s, largely retained during the 1990s but since then progressively reversed by ill-considered, mostly EU-led, regulation combined with rising marginal tax rates. 

On GDP per capita, we had overtaken France and Germany by 2000 as those reforms took effect, only to fall back relatively since then.

Yet for all the declinist talk of our parlous situation, we have the world’s eighth largest manufacturing sector, we are a leading world centre for business and financial services, and we rank second in Europe on the EY rankings for foreign investment attractiveness.

The growth prospect can be turned around if only this government would pay attention to the case for cutting down our high marginal tax rates on income and business.

This should go hand in hand with the generally agreed agenda for liberalising business regulation and development planning.

The trouble has been that the community of commentators has forgotten the supply-side lessons of Lawson and Thatcher, and drifted into thinking that productivity growth is unexplainable and “exogenous”,  nothing to do with government policy.

Hence the view that tax can be raised to pay for redistribution and public services at no cost to the economy’s performance.

This view is convenient for those on the political Left, who are strongly represented in that community, but both theory and evidence contradict it, as we are now discovering with a vengeance.

This Conservative government tells us it believes in low tax and good business incentives. Yet its record seems to reveal opposite beliefs, in line with its Labour rivals for power.

It is time for it to revert to its true principles and restore the economy’s health and dynamism. Much is at stake, with an election coming that could well see the emergence of a damaging Left-wing agenda concealed under an apparently conservative cloak designed to fool the voters. That could really drive a stake through our still-revivable business culture.

This government needs to find once more the courage of its real convictions. For the SNP, it is already too late.

---

Patrick Minford is a fellow of the Centre for Brexit Policy and professor of applied economics at Cardiff University

Analysis of attempts to increase investment in UK

 BRIEFING

HUNT IS TO BE CREDITED WITH A SERIOUS ATTEMPT TO TACKLE THE UK’S WOEFUL INVESTMENT RECORD

A boost for Britain’s business investment in the UK

The UK fell behind in the investment necessary for growth. That is about to change, says Simon Wilson

 

WHAT IS “BUSINESS INVESTMENT”?

It’s the money spent by corporations on the physical assets – equipment, machinery, buildings – and non-physical assets – software and other intellectual property – that are essential to producing goods or services. Higher levels of business investment (known by economists as private-sector “gross fixed capital formation”) are widely viewed as central to driving innovation and technological progress, fostering growth and economic stability, and creating high-quality, well-paying jobs over the long run. That’s a view shared by Rishi Sunak, who placed the need to increase business investment right at the centre of his economic agenda for the UK (in his Mais lecture at Bayes Business School, as chancellor in February 2022). The UK’s levels of investment are exceptionally low compared with similar countries. Here, business investment stands at around 10% of GDP, compared with an average of 14% for the rest of the G7 (America, Germany, Japan, France, Canada and Italy). Indeed, according to an analysis by the IPPR think tank, published in June, business investment is now lower in the UK than in any other country in the G7, and 27th out of 30 OECD countries, ahead of only Poland, Luxembourg and Greece.

IS THIS A NEW PROBLEM?

Things got worse following the financial crisis, and got much worse after the 2016 Brexit vote. According to an International Monetary Fund paper published in July (“Enhancing Business Investment in the United Kingdom”), trends in business investment levels have been a key driver of UK growth – and now stagnation – since 1990. In the years before the financial crisis, investment was robust, helping drive the UK’s relatively strong economic performance compared with other G7 nations. But it collapsed in 2008-2010, and has never fully recovered. The level of investment did rise between 2010 and 2016, but the rise was sluggish, falling behind other advanced economies, and it levelled off following the Brexit vote, which led to a sustained period of uncertainty for businesses and unusual political turbulence. Then, during Covid, business investment in the UK again failed to keep pace with its peers and (on IMF figures) settled at a slightly lower level in 2022 than in 2016. By comparison, other G7 economies saw a 14% increase on average during this period.

WHAT’S THE ECONOMIC IMPACT?

Lower productivity and lower growth. According to Jonathan Haskel, an academic economist and external member of the Bank of England’s rate-setting monetary policy committee, the hit to business investment as a result of Britain’s decision to leave the EU is around £29bn. That’s about 1.3% of GDP. But although the UK’s investment problem has worsened since 2016, it predates the Brexit-era instability. According to analysis in a recent London School of Economics report (by Paul Brandily and others), if UK business investment had kept up with the average of France, Germany and the US since 2008 – implying just over 2% of GDP additional investment each year – our GDP would be nearly 4% higher today, enough to raise average wages by around £1,250 a year. And the IPPR, in its report, calculated that if the UK had maintained its position in 2005 – around the average of the G7 – the private sector would have invested an extra £354bn in real terms since then. 

WHAT CAN THE GOVERNMENT DO?

There are many factors that underpin investment decisions – and which help to explain the UK’s lagging performance – ranging from macro-economic and political uncertainty, to borrowing costs, access to finance, and firms’ and investors’ expectations of future profitability. In Jeremy Hunt’s Autumn Statement last month, the government deserves some credit for at last putting forward a “serious attempt” to tackle the UK’s lacklustre investment record, says Helen Thomas in the Financial Times. Crucially, Hunt made permanent the “full expensing” tax break, which allows businesses to deduct 100% of plant and machinery costs upfront from their taxable profits. The move aligns government policy with the long-term planning of companies, and at a stroke “catapults the UK towards the head of the pack in terms of OECD capital allowances”. But what’s still missing is a whole-hearted recognition that “industrial policy is back”.

WHAT DOES THAT MEAN?

The UK has historically been averse to “picking winners” – the notion that industrial strategy involves “anointing” companies as national champions worthy of government largesses, says Thomas. In the UK, there have been 11 different industrial strategies or growth plans since 2010, and a succession of Conservative governments with wildly different ideas on their value. This “hodge podge” of plans, or the lack of them, has resulted in “failing to pick anything at all” – a situation that’s increasingly out of step with the US and  EU. In recent decades, the UK has been in thrall to the idea that public investment will crowd out business investment. In fact, according to the IPPR’s paper (“Now is  the time to confront UK’s investment-phobia”), there is strong evidence that “higher public investment is a core component of enabling private investment, and raising GDP. Public investment can ‘crowd in’ private if it fosters expectations of areas of future growth and profit for firms”.

WHAT POLICIES SHOULD WE PURSUE?

Calmer relations with the EU (following the Windsor Framework on Northern Ireland) will help reduce Brexit-related uncertainty, and should be built on further to increase confidence in the UK, argues the IMF’s business investment paper. Second, the acceleration of well-targeted public investments (for example in the green transition, and healthcare infrastructures) would help lower costs of businesses and “crowd in” private investment. Third, the government could work on ways to unlock pensions and insurance savings, giving firms access to external finance, ideally in the form of equity capital. Government (ONS) data from 2022 put the financial assets of UK pension funds and insurance firms at about £5trn, or around twice the country’s annual GDP. Fourth, the government should improve incentives to invest in research and development, along with improved capital investment allowances and measures to alleviate skills shortages, in order to “address market failures and fuel expansion in new industries and technologies”. Boosting business investment might not be sufficient to arrest the UK’s economic decline. But it will certainly be necessary.