We were joined by economist and University College London professor Mariana Mazzucato.

She’s signed an open letter warning further cuts would “damage the foundations of the British economy” and calling for a new attitude towards borrowing for investment.

Cathy Newman: That hint of a rise in capital spending and the talk of active government preparing to spend to entice private investment in. Did that reassure you or did you want to hear more?

Mariana Mazzucato: It’s definitely reassuring. And, you know, this is a new government. We shouldn’t just be there ready to criticise. I think the problem is that we need more than just patchy policies. It’s not just about not cutting, which would be, you know, austerity. We need a systemic, active strategic level of public investment in a country which frankly has had much lower than most OECD countries levels of both public investment and private sector investment. We are the lowest in the G7 for private sector investment. We’re 28th in the OECD for private sector investment. And had the public sector invested as much as the average of the OECD in the last two decades, we would have invested 500 billion more. So we’re talking about a massive shift that we need.

And it’s not just about helicopter money. This is in fact what should be done through these five missions, which Keir Starmer has set himself out on. The net zero one is absolutely essential. So are the ones on health and wellbeing or reducing the digital divide. There’s all sorts of challenges this country has which cannot be done on the back of a napkin. We really need proper public investment to crowd in the missing private sector investment.

Cathy Newman: The chancellor referenced you, they were talking about it in the interview you’ve just seen, but do you think she’s sort of signed up to this new approach to borrowing and investment? Can she convince the Treasury to have a sort of different approach to investment that would allow a little bit of give on those fiscal rules on borrowing?

Mariana Mazzucato: I think she has to. I mean, there’s no way that they can actually meet the ambitions that this government has set itself without doing that. And the key thing is to always remember that the cost of inaction by not acting now actually increases the cost later. So what might look like a saving by investing just a little bit or even cutting, ultimately if you’re actually reducing the social fabric of the country, but especially not becoming a lead innovator, increasing research and development spending on both the public and the private side, that will hurt us on competitiveness. It will hurt us on productivity. It will hurt us on growth. And ultimately, that’s the denominator of debt to GDP.

Cathy Newman: But that sounds like a lot more borrowing. And actually, she’s made the argument that we need stability in the economy because look what happened under Liz Truss.

Mariana Mazzucato: There’s many countries that are stable but that are not growing. So stability is absolutely essential. That’s a necessity. But that doesn’t make you grow. That doesn’t make you compete. It doesn’t make you actually produce the goods that the world wants to buy. So a proper industrial strategy I’ve argued for some time now, a mission-oriented industrial strategy. They’ve adopted it. I’m honoured. They’ve taken the ideas. But the key thing with missions is that you start with the challenge and globally, by the way, these are the sustainable development goals. There’s a meeting happening right now in New York City. It’s a climate week. It’s a SDG week for the United Nations.

We have all countries there, talking about the climate challenge, the health challenge and how all the sustainable development goals are related. That requires, first of all, a global strategy. But at the national level, none of these challenges, like be ready for the next health pandemic, means investing in our public services. And by the way, this country spent 2.5 billion on consultants. I just wrote a book about this, actually. So saving where we can save, trimming the fat, of course, that’s important. No one is asking to spend for spend sake, but we shouldn’t be saving on what’s actually required to strengthen the social fabric and the productive and innovative fabric.

Cathy Newman: She did say no return to austerity. Overall, government spending, she said, would go up. Obviously, no commitment on individual cuts to departments. So is there any fat left to cut in certain departments? Where would you cut if you were her?

Mariana Mazzucato: First of all, it’s very important she says this because not every government talks that way. And it’s very important to talk about an active state as she has. But what we need is a strategic state. And a strategic state knows that it needs to be investing within its public services. So one sure place to cut is something actually that the government said they would, which is on this overuse of consultants. Again, 2.5 billion in 2022. During Covid, you might remember, we were paying Deloitte 1.5 million a day to do test and trace. We need a capable strategic public service that will work with the government in order to actually tackle the biggest challenges the country has.