Neoliberalism – the set of economic ideas and policies that have dominated politics for the past 40 years – is rapidly losing legitimacy in the face of multiple crises: stagnant or falling living standards, sharply rising inequality of income and wealth, financial fragility and environmental breakdown. At this critical juncture, new ideas about the kind of society we want to live in, and the future we want to see, are needed more than ever.

‘New Thinking for the British Economy’ brings together leading thinkers to outline the broad pillars of a new economic agenda, and the type of policies that are needed to get us there. As well as more traditional policy areas such as trade, finance, housing and industrial policy, the book explores a range of areas that are not typically considered to be within the sphere of economic policy but which nonetheless play a critical role shaping our political economy – such as the media, our care systems, racial inequalities and our constitutional arrangements.

Contributors include Adam Ramsay, Andrew Cumbers, Ann Pettifor, Christine Berry, Craig Berry, Dan Hind, Johnna Montgomerie, Katherine Trebeck, Laurie Laybourn Langton, Laurie Macfarlane, Mathew Lawrence, Maya Goodfellow, Ruth Bergan, Susan Himmelweit, Thomas Hanna, Tom
Mills and Will Stronge.

Download the eBook for free – or purchase hard copies for events and reading groups

The eBook version of New Thinking for the British Economy can be downloaded for free here, or viewed in the embedded viewer below. Printed versions of each chapter are also available for £1 via Commonwealth Publishing and the Democracy Collaborative. If you would like to order physical copies, and inquire about organising author events, please contact Dan Hind or visit the Commonwealth Publishing website – www.commonwealth-publishing.com

New Thinking for the British Economy has been produced with generous support from the Friends Provident Foundation. All the authors have contributed to this volume in a personal capacity and do not necessarily endorse all the views expressed within it.

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The aim of openDemocracy’s ‘New Thinking for the British Economy’ project is to present a debate on how to build a more just, sustainable, and resilient economy. In the project so far we’ve debated policy areas ranging from trade policy and universal basic income, to childcare policy and housing .

But across Britain, hundreds of people are working tirelessly to build a new economy on a daily basis, putting new economic ideas into practice from the ground up. In a new video series, we will be showcasing some of the most exciting initiatives that are already working to replace different aspects of our failing systems with fairer and more resilient alternatives — from housing and finance to food and energy.

This week, Ed Wallis from Locality discusses the work the organisation is doing to help councils retain more wealth locally and drive economic resilience by harnessing the power of local community organisations.

Watch the full video below:

To find our more about Locality’s Keep it Local for Economic Resilience project, read Locality’s recent report ‘Powerful Communities, Strong Economies’. 

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Diane Coyle is Professor of Economics at Manchester University, and this year will become the inaugural Bennett Professor of Public Policy at the University of Cambridge. In 2017, Diane was awarded the prestigious Indigo Prize in economics .

In the first in a new series of interviews with leading economists, Diane speaks to openDemocracy about industrial strategy, universal basic infrastructure, moving beyond GDP, and how to build an economy that works for the 21st century. 

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The first ever Festival for New Economic Thinking is taking place in Edinburgh on 19-20 Oct 2017. It brings together people and organisations who are committed to advancing economic thought and inspiring change. Here Gustav Theile and Laurie Macfarlane make the case for transforming the way that economics is taught, studied, and practiced. 

The crises of our times are economic in nature. From climate change and migration to inequality and the rise of right-wing populism, these are challenges that cannot be separated from the economic system which breeds them. If the crises are economic in nature, then so must be the response. But when the crises are so profound they threaten the survival of humanity there is a need to rethink and, if necessary, reconfigure the very foundations of our economic model.

Where are we now? Policy is focused on generating economic growth, regardless of its source or character. The environment is seen as a peripheral issue, or as something to simply be bought and sold. High inequality is viewed as a price worth paying for a dynamic economy. Where do these doctrines come from, and how are they sustained?

The role of the classroom cannot be overlooked. Economics teaching continues to use models that present the economy as something that is detached from politics, ecology and human interaction. Economics curricula are centred around models where human decisions are portrayed as nothing more than a question of rationality and not complex than the behaviour of atoms. On a macro-level, government regulation is seen as intervention into a natural market order – even though governments and markets are institutions that are designed and shaped by humans. Rarely do discussions of gender, identity, narratives or culture feature, and neither do courses on the history of economic thought, philosophy of the social sciences or qualitative research. Never mind approaches that question the merits of economic growth as a goal, or present the economy as a part of a larger natural ecosystem.

Economic research has problems too, but for the most part it has moved beyond these narrows boundaries. There are papers on narrative and identity economics written by Nobel laureates. There are serious and enriching discussions on the use of models in economics, some wonderful game theorists compare them to fables or stories. Most economists have heard of climate change and don’t think it’s a hoax, and are on average more open to stronger government regulation and redistribution than the general public.

But this is not where economics exercises its influence. Where economics really has power is in the minds of the younger generations. Every new cohort is told that egoism is rational, that markets are natural, that government intervention is unnatural, that environmental sustainability is subject to profit maximisation functions. They are given the impression that the models that economists use are objectively true. Rarely are models presented as the ideas of people, developed in a specific historical setting, bound to time and space. They are usually presented as laws that return truth, as long as you know your algebra. The people with this training end up in powerful positions in businesses, banks, governments and newspapers. Most were never exposed to models that departed from the assumptions of ‘econ 101’.

This discrepancy between research and teaching makes the state of economics education all the more frustrating. Professors know that what they teach is simplistic and, as research shows, destroying the ethical compass of their students. Nonetheless, the reality is that the economic curriculum has not changed much over the past decades.

Economics education is ossified. The same textbooks are used all around the world which makes it very convenient to continue teaching the old, outdated models that are so destructive. They come with ready-made slides and mock exams. The incentives for good teaching are low and aspiring researchers try to spend as little time for teaching as possible. PhD students and post docs often end up teaching the repetitive tutorials that accompany many lectures, which typically involves scribbling the solutions on an overhead projector.

This is why students around the world came together to build the International Students Initiative for Pluralism in Economics (ISIPE) in 2014. They organised two general assemblies where 80 representatives from student groups in over 30 countries came together to discuss internal cooperation – and learned a lot about diplomacy. They conducted a study on economics teaching that compares the curricula in 12 countries worldwide. The most important factor of this initiative was that it gave them confidence. They realised that we were not alone.

Since then, the member groups have organised many conferences and summer schools which have included speakers from institutions such as the OECD, the Bank of England, the World Council of Churches, the Club of Rome and even the Austrian chancellor. The British group Rethinking Economics published a best-selling book ‘The Econocracy’, and more recently released a new handbook on Rethinking Economics. The German network has 30 member groups which organise roughly 300 events every year, and has established its own teaching website www.exploring-economics.org. It aims to break the textbook monopoly and make good economic education as accessible than the bad version is right now. The site recently won a prize for its content. Check it out, and you’ll agree that they should also get one for the design. Who said that knowledge has to be dry?

But still things are getting better. Rethinking Economics, Exploring Economics, the Young Scholars Initiative, The Minskys and the History of Economic Thought website have organised the Festival for New Economic Thinking which is taking place in Edinburgh between 18-20 October. They are bringing together hundreds of students, researchers, activists, and citizens together to think economics anew. 65 organisations, among them many of our student groups, but also institutes, newspapers and openDemocracy, are organising workshops and presenting their work in a carnival spirit.

Change doesn’t come easy. While the quality of arguments is important, the quality of organisation is just as critical. In short: thinking must be organised.

And while we are a diverse group of academically or politically motivated people, there is one thing we all agree on: the idea of academic pluralism. There’s not one theory, not one method that explains everything. Scholars need a variety of theoretical and methodological approaches to understand the world we live in. Theories in the social sciences are intellectual lenses through which the world can be understood. When people exchange goods for money, this could be analysed as rational actors seeking to maximise utility. But there are other possibilities too: they might be striving to comply with gender norms, or acting according to the values they have learned or the culture they grew up in. All of these are economic perspectives, because they deal with economic interaction.

This applies at the macro level too. While economic growth can be seen as something that contributes to lower unemployment, it may also cause harm to the environment that may ultimately outweigh any benefit. There are also political dimensions. Economic growth is fundamental to international relations because it determines the membership of alliances such as the G7 or the G20. One could ask what prevents countries from establishing alliances based on other metrics such as wellbeing, but that’s for a different day.

Changing economic thinking is not easy, and it requires a long-term approach. As the famous saying goes: science progresses one funeral at a time. Well, we better start young!

By working towards more balanced teaching of economics in universities, we hope to develop economic thinking that is less single-minded, and which opens up public discourse and moves beyond the simple dichotomy of market and state. This way, we can work towards a new economic paradigm that addresses the key challenges of the 21st century and enables humanity to thrive.

Margaret Thatcher famously said that “economics are the method: the object is to change the soul”. That was in 1981. But times have changed. In 2017, new economic thinking is the method: the object is to change the world.

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“The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all”

— John Maynard Keynes

On 20 July 1969 Neil Armstrong and Buzz Aldrin set foot on the moon. 48 years later, the lunar landing remains one of humanity’s greatest achievements. But the “giant leap for mankind” wasn’t merely a symbolic event – it had major repercussions for life back on earth.

When John F. Kennedy announced the goal of sending an American to the Moon in 1961, he kick-started a frenzy of innovation across the US economy. NASA’s pioneering work led to major technological advances in areas such electronics and computing, which generated spillovers across the economy. Without the research and development that went into the moon landings many of today’s top tech companies may not have been founded, and the world would likely be a very different place.

The moon landing is a successful example of ‘mission-orientated’ policy. Rather than focusing on particular sectors – as in traditional industrial policy – mission-oriented policy focuses on overcoming a specific societal challenge. It involves strategic thinking about the direction we want to move towards, and the kind of institutions and technologies we need to get there.

The importance of mission-orientated policy lies in the fact that innovation has both a rate and a direction. The direction can be left to the invisible hand of the market, or it can be actively steered by policymakers to shape new futures. Had the US government not set the goal of putting a man on the moon, the technology that took us there would likely never have been developed, and certainly not within the same time frame. Guided by the logic of profit maximisation, there was no incentive for the private sector to take up the task. The resources required, and the risks involved, were simply too great.

Economists typically hail private enterprise as the engine of innovation. But when it comes to the major technological breakthroughs of the past century, the reality is that most of the heavy lifting has been done by the state. As Mariana Mazzucato has highlighted, many of humanity’s boldest advances – from the internet and microchips to biotechnology and nanotechnology – were only made possible by early stage public sector investment. In each of these areas the private sector only entered much later, piggybacking on the technological advances made possible by long-term, high-risk public investment.

But for decades policy in Britain has been guided by an assumption that the market knows best. Not only has this resulted in a weak and unbalanced economy, but attempts at innovation have often focused on finding ever more sophisticated ways to extract value — not create it. While in the late 1960s the world’s brightest minds were inspired to work in space exploration, by the 2000s many had been seduced into the world of financial wizardry. A huge amount of brainpower was devoted to cooking up incredibly complex and “socially useless” financial instruments. These inventions – though undeniably innovative – fuelled a global financial crisis, and ultimately ended up destroying more value than they ever created. The “innovators” reaped huge rewards, while the taxpayer was left to pick up the tab. The lesson here is that the direction of innovation matters, and so we should steer our resources – both human and financial – towards activities that help solve real societal problems.

Today we face many challenges, but perhaps none are more urgent than climate change. The age of fossil fuels and mass production has generated an unprecedented amount of wealth, but rising levels of carbon dioxide in the atmosphere has led to a warming planet. If we allow the average temperature to rise over 2˚C above the pre-industrial level, then the result will be devastating and irreversible damage to our environment and ecosystems.

Unlike the moon landings, overcoming these challenges is not merely a matter of scientific curiosity or ideological supremacy – it is crucial for the survival of life as we know it. But like the moon landings, the challenge is a technological one. More than anything else, overcoming it means finding a way to delink our economy from fossil fuels without impairing living standards. Policy should therefore be orientated around a new mission —  to make a rapid transition to a zero carbon economy.

To succeed, there needs to be huge investment in research and development and a radical transformation of our energy, transport and economic systems. As before, the speed and scale of the task means that it must be state-led. But in Britain four decades of neoliberalism has hollowed out the public sector’s capacity. Steps should therefore be taken to rebuild existing public sector institutions, and increase their capacity to think and act big. But we also need to establish new ‘mission-focused’ research institutions to lead the technological transition. One of these could be tasked with accelerating the energy revolution, focusing research on renewable generation, storage and smart grids, while another could be given a broader remit to research new technologies which minimise material and energy use. Modelled on NASA, these bodies would be encouraged to experiment and take risks, and must be generously funded to ensure that they can attract top talent.

Incentives and partnerships should be established to ensure that the private sector plays a complimentary role in the commercialisation and deployment of new technologies, with rewards appropriately shared with state. Households should be subsidised to decarbonise homes within a certain timeframe via green retrofitting and new energy installations. The benefits of this wouldn’t only be environmental – a systemic decarbonising of the entire economy would create thousands of new high skill, high pay jobs across the country.

All of this will have a significant cost. Mission-orientated policy requires not just any type of finance but patient, long-term, committed finance. But where will the money come from, particularly when public budgets are squeezed and private finance is retreating from funding the real economy? Here there is much to learn from other countries.

In China, Germany and Brazil, mission-oriented public funding is increasingly coming from state investment banks. One example is green energy tech, where state investment banks are now the largest funders of the deployment and diffusion phase of renewable energy, outpacing investment from the private sector. In Germany, the KfW state investment bank has played a key role supporting the Energiewende policy to attain energy security and mitigate climate change through the greening and modernisation of German industries and infrastructures.

Learning from successful examples around the world, a new British Investment Bank would leverage public capital into a major source of long-term, patient finance. This would be channelled into public and private sector initiatives which help facilitate the transition.

Of course, Britain can’t tackle climate change alone. But there is no reason why we can’t lead the way. Two things stand in the way: an attachment to outdated economic dogma, and an aversion to courageous public policy. It’s time we overcame both.

Laurie Macfarlane is economics editor at openDemocracy, and an Associate Fellow at the Institute for Innovation and Public Purpose at University College London – a new institute which focuses on how public policy can be used to direct innovation to tackle societal and technological challenges.

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This election comes during a remarkable period in British economic history. Over the past ten years real wages have suffered a larger decline than in any other advanced country apart from Greece. Mark Carney, Governor of the Bank of England, recently said that Britain is experiencing its “first lost decade since the 1860s”.

Faced with an unprecedented squeeze on living standards, families across the country have resorted to desperate measures. The number of people using food banks in the UK reached 1.2 million in 2015-16 – up from just 26,000 in 2008-09. Unsecured household debt – credit cards, overdrafts and other forms of consumer borrowing such as payday loans – is set to reach record highs.

Years of austerity has pushed public services towards breaking point. A steep decline in funding relative to GDP has left the NHS facing a “humanitarian crisis”, while cuts to school budgets have forced head teachers to axe staff and raise class sizes. Decades of underinvestment has left the UK lagging far behind other advanced economies. British workers are now 22% less productive than workers in the US, 23% less than in France and 27% less than in Germany. Precarious jobs and zero-hours contracts have grown throughout the labour market.

Now, with Brexit on the horizon, things are likely to get worse before they get better. According to the Office for Budget Responsibility, a combination of stagnating wages and cuts to working-age benefits means that real earnings will be lower in 2020 than they were back in 2008. According to the Resolution Foundation, we are on course for the biggest increase in inequality since the days of Margaret Thatcher. Never before has the outlook for living standards been this bleak.

But this period of economic decline is not the result of “natural” forces. It is the result of a faltering political and economic order that has reigned supreme in Britain for four decades. A system which has put blind faith in market forces, and tipped the balance of power towards capital and away from labour. A system which has prioritised London’s status as a global hub for financial services, while leaving other regions to suffer at the hands of industrial decline. A system which has allowed wealth to flow upwards by rewarding value extraction more highly than value creation.

In 2008 this system came crashing down when the poster boy of deregulated market fundamentalism – the financial sector – failed catastrophically, taking the whole economy down with it. But without a clear alternative to take its place, the response was to double down on a broken model.

Nearly ten years on, and the economic recovery has been the slowest on record. In fact, when measured properly, there has been no economic recovery – output per head of population still remains below the pre-crisis trend. Interest rates remain stuck at zero, while the Bank of England has relied on £435 billion of quantitative easing to keep the economy afloat. Despite the upbeat rhetoric from the government and right wing press, the reality is that Britain’s economy remains on life support.

It is within this context that the political upheaval of the past twelve months – both at home and abroad – must be viewed. If an economic model delivers stagnating living standards, rising inequality and growing insecurity, it should not be surprising when citizens revolt.

In different ways, both Theresa May and Jeremy Corbyn are symptoms of this faltering economic model. Despite backing Remain in the EU referendum, Theresa May’s reign as prime minister is a direct product of the Brexit vote. While the reasons for Brexit are complex, evidence shows that geographical distribution of living standards, industrial decline and exposure to austerity played a key role in determining how people voted.

Since becoming prime minister, Theresa May has made a concerted effort to appeal to Brexit voters. Rather than tackle the root cause of genuine fears – a failing economic model – she has played into a toxic narrative which attributes blame to immigrants. In both style and substance, Theresa May’s Conservative party is bearing an increasing resemblance to Nigel Farage’s UKIP: a party hell bent on pursuing a hard Brexit, obsessed with reducing immigration, and nostalgic for archaic remnants of a bygone era – from fox hunting to grammar schools.

But despite the rhetoric of “an economy that works for everyone”, the Conservatives’ manifesto offers nothing new in the way of economic policy. Instead, we are presented with more of the same: more cuts to welfare and public services, lower taxes for corporations and the well-off, slashing “poor and excessive government regulation” and Orwellian rhetoric around a “strong economy”.

Where new polices do appear, their effect is usually to make peoples’ lives worse, not better. The commitment to reduce net immigration to “tens of thousands” is not only steeped in xenophobia, but is an act of gross self-harm. Even the government’s own forecasters say that reducing immigration to the tens of thousands will seriously harm growth and increase government borrowing by up to £30 billion. Combined with scrapping of free school lunches, the means testing of winter fuel allowance and the now famous ‘dementia tax’, the direction of travel is a continuation of the status quo, but slightly worse.

Jeremy Corbyn’s Labour party, meanwhile, embodies the mood of discontent and a hunger for something different. After twenty years of politics dominated by spin, sound bites and triangulation, millions of people viewed Corbyn’s sincerity and honesty as a breath of fresh air. Initially written off by the political and media establishment, his resilience in the face of constant attack has gradually won over sceptics. But it is not personality or persona that is Labour’s secret weapon – it is policy.

Corbyn’s unashamedly social democratic manifesto represents a marked departure from the politics of recent decades, and contains many sensible policies. A new National Investment Bank would provide long-term patient finance to upgrade physical and social infrastructure across the country. Taxes would be increased on the wealthy to pay for struggling public services. Key utilities would be brought back into public ownership, student tuition fees scrapped, corporation tax increased and workers’ rights strengthened.

Unsurprisingly, the right wing press decried that the manifesto would “drag us back to the 1970s”. But none of Labour’s flagship policies are remotely controversial in Germany, which is the most productive and dynamic economy in Europe, or in the Scandinavian countries, which consistently sit at the top of global rankings on socio-economic development. The hysterical response from the media shows just how detached Britain has become from the mainstream of European economic thinking.

Labour’s proposal to double the size of the co-operative sector – supported by the introduction of a “right to own” policy – is a bold and ambitious way to reinvigorate enterprise and democratise ownership of capital. The proposal to break RBS up into a network of local public banks would create the kind of mid-tier banking system that is the lifeblood of Germany’s industrial power. The pledge to utilise the public sector’s £200 billion spending power in procurement to help create good local jobs, protect the environment and reduce inequality could be transformative. The promise to introduce a financial transaction tax would put a break on harmful financial speculation, and help return finance to its rightful place as the servant, not the master, of our economy.

Many commentators have been quick to judge party manifestos on the basis of whether each individual policy measure has been “fully costed”. Journalists get excited about the prospect of tripping up politicians with questions about “where the money will come from”. Unlike the Conservatives, Labour made a noble attempt to the cost their manifesto. But as many economists have already pointed out, obsessing over specific policy “costings” may be good journalism, but it is bad economics. It makes little sense to obsess over whether each item of addition spending is matched to a measure to raise additional revenue, because this is not how government spending actually works.

Moreover, assessing individual policies in isolation overlooks the dynamic interactions which determine the health of the economy. Taken as a whole, Labour’s manifesto would reboot the economy by kick starting the positive feedback loop between investment, productivity, wages and tax revenues. It would also help to rebalance the economy away from London and towards other parts of the UK.

But while Labour’s offering is a welcome step in the right direction, it is no panacea. There are many areas for improvement. Addressing the housing affordability crisis means not only building more homes, but fixing our broken land market. An ageing population and growing intergenerational needs a bolder approach to social care and inheritance. Moving towards a low carbon economy requires a systematic greening of the economy, not just targeted investment. Automation, big data and the changing nature of work demands a more radical rethink of welfare policy, and a more sophisticated debate about ownership in our economy.

The media has failed to engage in this debate, or even acknowledge the scale of the challenges we face. That’s why at openDemocracy we are bringing people together to get to grips with the long running economic crisis unfolding in Britain, and figure out a new economic programme.

Join the conversation, and help us build an economy to meet the challenges of the coming century.

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Few aspects of our economy are as poorly understood among politicians and the general public as our monetary system. This becomes particularly obvious – and dangerous – during general election campaigns.

Last night Theresa May responded to a nurse’s concerns over pay in the NHS by saying “there is no magic money tree” to provide “everything that people want”. Other Conservative politicians have used the same line to attack Labour’s plans to increase public spending.

It’s an old trope. The argument goes like this: the UK has lived beyond its means for too long. The national debt now stands at an eye watering £1.7 trillion, meaning that we have saddled future generations with unsustainable debt and interest payments. We simply can’t go on spending money that we don’t have. Money doesn’t grow on trees – duh!

The only responsible course of action, the story goes, is to rein in spending and make “difficult choices”. Free school meals? Not anymore. Those new homes that we were promised? Forget about them. Investing in the technologies of the future? Don’t be so irresponsible. Upgrading creaking infrastructure? Come off it.

This narrative is incredibly powerful, as it chimes with peoples’ experience of managing a household budget. But in the context of a national government, it is almost entirely wrong.

It is true that the national debt stands at £1.7 trillion, or around 87% of GDP. But this is not particularly high by historical standards – after the Second World War the national debt stood at 243%. Imagine if Clement Attlee had listened to those who insisted that this meant Britain had to cut back public services. There would be no NHS, and no welfare state. Britain would be a very different place.

But despite its ominous reputation, the national debt is not all that it seems. The national debt is simply the sum total of all the government’s IOUs – the promises it has made to pay money back in future, plus an agreed amount of interest. Unlike a household, the UK government has its own central bank and its own sovereign currency. This means that the government borrows and spends in a currency that it controls. Here’s where things get interesting.

Since 2009 the Bank of England has purchased £453 billion of government debt from the private sector through a process called ‘quantitative easing’ (QE). Put simply, QE is the technical name for what happens when a central bank creates new electronic money and uses it to purchase assets from financial institutions.

Yes, that’s right – newly created money. Alas, the magic money tree does exist!

As a result, over a quarter of the total national debt is now owed to the Bank of England. But hold on, who owns the Bank of England? Well, the UK government does.

To put it another way, the UK government owes £453 billion to itself. This raises the obvious question of whether it really exists at all. As Jim Leaviss, a bond investor for M&G Investments recently remarked to the Financial Times: “Is there any difference in it being in a musty old drawer in the Bank of England, or saying it doesn’t really exist?”

Confused? Bear with me – things get a little more confusing yet. When a government borrows money it has to repay the principal amount that it borrowed plus interest. In the UK, around £50 billion of the annual government budget currently goes towards interest payments. Because of QE, the government has to pay interest to the Bank of England on the £453 billion of government bonds that it holds.

But in late 2012 George Osborne announced that the interest payments that the Bank of England receives from the government will be remitted back to HM Treasury to help pay off the national debt. Since then the Bank of England has transferred £62 billion – money that it received as interest on bonds purchased with newly created money – back to the government. So thanks to QE, the government isn’t paying any interest at all on over a quarter of the national debt. Talk about funny money!

The result is that today the government spends less on interest payments than at any point in history. The national debt has never been so affordable.

You may have noticed that issues of “affordability” never arise when the proposed spending relates to activities like going to war or bailing out the banks. That’s because for a country like the UK which has its own central bank and borrows in its own currency, financing government spending is never a problem. The “magic money tree” attack is simply a convenient way to mask an ideological crusade to shrink the state.

This does not mean that governments can spend without limit, or that governments should spend money unwisely. Government spending has consequences for inflation, employment, capital formation and many other things. Sustained over-spending can have serious consequences.

But right now the UK economy is crying out for public investment. From addressing climate and demographic change, to tackling inequality and the housing crisis, the UK’s long-term prosperity depends on having a government that is willing to direct investment into the areas of the economy most in need.

Don’t let politicians tell you otherwise.

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The Chancellor painted a rosy picture of a robust UK economy enjoying strong economic growth and low unemployment. He also talked about how the government is helping ordinary working families and building an economy that works for everyone.

That’s far from the reality facing most people this morning. Here are five things he forgot to mention:

• We are facing an unprecedented lost decade in living standards

Since 2007 real wages – income from work adjusted for inflation – have fallen by 10%. Wages in Britain have fallen further than in any other advanced country apart from Greece. This represents the longest sustained decline in British living standards since records began.

According to the Office for Budget Responsibility’s (OBR) forecasts which were published alongside the budget, we face another year of wage stagnation in 2017. The OBR expects that the weaker pound caused by Brexit will push up inflation, eroding the purchasing power of any wage increases.

While the OBR does expect moderate earnings growth beyond 2017, this will not be sufficient to make up the loss ground. In fact, the OBR expects that in 2020 real earnings will still be lower than they were back in 2008. The implications of this are stark: we are facing an unprecedented lost decade in living standards.

But these aggregate figures mask varying fortunes across the income distribution. The problem of low wage growth is further compounded by the government’s cuts to working-age benefits which will hurt the incomes of those at the bottom of the income distribution.

In a report published last week, the Institute for Fiscal Studies projected that while most households can expect moderate income growth over the next five years, the incomes of the poorest 15% of households will fall (after adjusting for housing costs and inflation). As a result, income inequality looks set to increase.

• Private debt is ballooning, putting our economy at huge risk

Mr Hammond said that yesterday’s Budget was about continuing the task of “getting Britain back to living within its means”. He also said he will “not saddle our children with ever-increasing debts”.

He was of course referring to reducing government spending. Yet when we look at the consequences of the Chancellor’s Budget on private households, the government’s own figures show no signs of progress towards any conception of a society that is living within its means.

The below graph is taken from the OBR’s latest set of forecasts which were published alongside the Budget. It shows what has happened to household debt relative to income over the last decade or so, and what they expect to happen over the next five years:

So, the government’s own forecasters think household debt relative to income will increase dramatically in the next five years.

What’s going on here? Firstly, the OBR is forecasting that mortgage debt will continue to rise as house prices grow more quickly than incomes. With UK house prices already nine times average incomes – a consequence of financial deregulation and ill-thought out housing policy – this is a worrying sign.

Secondly, in recent years the UK economy has become increasingly reliant on household consumption spending. With wages failing to keep up, households have only been able to increase consumption by borrowing more or drawing down on savings. And with a government determined to curb spending, a trade deficit that is a drag on economic activity and sluggish business investment, the only way that growth can plausibly be achieved is through debt-fuelled consumption. This is not sustainable – eventually, an economy which relies on households spending beyond their means will crumble.

• The NHS isn’t getting the funding it needs

In his Budget speech Mr Hammond declared that “we are the government of the NHS”. This comes amid reports of a “humanitarian crisis” in hospitals, while doctors have warned that mounting pressures on the NHS are putting lives at risk.

The Chancellor said that he is committed to making more funding available, but by simply reeling off big numbers – “an extra £10 billion” – he obscures the underlying reality.

The most effective way to evaluate trends in health spending is by comparing it to the size of the economy. There are good reasons why health spending should increase relative to the size of the economy over time. An ageing population means that demands on health services rise since older individuals on average consume more, and more expensive, healthcare. Demand will also increase over time as a result of the rising prevalence of some chronic conditions, improvements in access to care, and improvements in technology.

Over recent decades spending on the NHS has indeed increased: in 1970 total UK health spending was 4% of GDP, rising to between 5% and 6% through the mid-1990s. From 1997 until the financial crisis in 2008 there was a steady increase, reaching nearly 8% in 2010.
Since 2010 however, this trend has reversed. As the Kings Fund has reported, we are now experiencing the largest sustained fall in NHS spending as a share of GDP in any period since 1951.

The extra money announced for social care in the Budget may help to alleviate pressure on the NHS by freeing up some beds. But the inescapable reality is that the NHS needs much more funding. Where this money should come from is an important question.

According to the Institute of Fiscal Studies, the corporation tax cuts since 2010 have cost the government £10.8 billion a year in tax revenue. In the Budget the Chancellor confirmed that he plans to reduce corporation tax even further to 17% by 2020. This is money that could go a long way to fixing the problems in the NHS.

At a time when the NHS is in crisis caused by lack of funding, slashing corporation tax further seems grossly irresponsible.

• What about the housing crisis?

The Chancellor failed to mention housing even once, despite the fact that we are in the grip of a serious and escalating housing crisis. One of the things fuelling that crisis is the fact that the government is insisting on selling off public land rather than using it to help deliver more genuinely affordable housing.

At the current rate, the new homes target on sold-off public land will not be met until 2032, 12 years later than promised. And the majority of homes being built on the land sold are out of reach for most people — only one in five will be classified as ‘affordable’. Even this figure is optimistic as it uses the government’s own widely criticised definition of affordability. If the government ended the public land fire sale they could use that land to partner with local authorities, small developers and communities themselves to deliver the more affordable homes people need.

According to the latest Nationwide House Price statistics, as most people cannot afford to buy now even with a mortgage, cash buyers such as second homeowners and buy to let landlords are propping up the market. Things are getting worse for people left at the mercy of this failing market. The Chancellor could have put a stop to the fire sale of public land yesterday, but instead he acted as if there were no housing crisis all.

• The Chancellor quietly ducked acting on the environment

With the nation’s cities gasping for clean air and ever-louder calls for politicians to act on dirty transport, the Chancellor had been widely expected to announce a new scrappage scheme for diesel cars – but he didn’t.

Pollution from traffic is the biggest factor in the 40,000 early deaths in the UK every year from dirty air, of which diesel vehicles are the biggest culprit.  New research shows that a scheme to incentivise trading in dirty diesel cars for cleaner new models would be popular and successful, as well has helping support the Government’s broader industrial push to be a global hub for making low-emission cars.  But the Budget documents deferred the decision on the scheme until later in the year, and Mr Hammond made no mention of the country’s air pollution crisis at all.

This Budget had little time for anything environmental. Previous promises that it would see an announcement of post-Brexit subsidy plans for renewable energy were also ducked. Yet there was the usual succour for the country’s fossil fuel producers, already basking in the “unprecedented support” of successive Budgets. This time, they will help design a tax change that will encourage smaller companies to wring every last drop of oil from the UK’s declining North Sea – despite the Government admitting most of the world’s fossil fuels will need to be left in the ground.

Today the Chancellor faces a growing backlash over National Insurance rises and whether it constitutes a breach of the Conservative’s 2015 manifesto. But yesterday’s Budget represents a wider failure.

This was a moment to take the first steps towards an economy that really puts people in control and to prepare Britain for life outside the EU. Instead, the Chancellor ducked the big issues and dodged difficult choices.

This piece first appeared on the New Economics Foundation blog.

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Toby Lloyd from Shelter, and Josh Ryan-Collins and Laurie Macfarlane from the New Economics Foundation have a new book out helping us get to grips with what’s gone wrong and how to fix it. I had a chat with Laurie in the NEF offices to find out more – enjoy.

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