The Chancellor faces a difficult Budget.

There is little room to manoeuvre on tax or borrowing. Households and businesses are under enormous pressure. Long-term government borrowing costs have reached their highest level for decades. Yet Britain desperately needs investment.
In an attempt to reassure the markets, John Healey has earnestly pledged his allegiance to the fiscal rules. It’s a 30-year tradition. But, since 2008, Chancellors have increasingly struggled with the choices the rules produce.
We have seen the consequences.

Covid exposed an NHS with too little spare capacity. The energy crisis exposed our dependence on volatile oil markets. The hottest summer ever has demonstrated the threat that global warming poses to our infrastructure.

In an essay published yesterday by the New Economics Foundation, I argue that we need to change the question at the heart of every Budget from “What can we afford to borrow now?” to “What investment do we need to make to be better off tomorrow?”

It’s not an argument for borrowing more. It’s an argument for better spending.

While we must maintain debt discipline through strong rules, there are three fundamental problems with wider fiscal management that I believe we need to fix.

First, is the crude distinction between investment and day-to-day spending. Buying a tank is treated as investment. Training specialists to defend us from cyber attacks is not. We need to broaden how we define investment to recognise the value of people and skills.

Second, decisions are based on a five-year timeframe, encouraging governments to think too short term.
My local hospital, St Helier, is a perfect example. Parts of the estate are older than the NHS itself. Successive governments have delayed the investment needed to replace its ageing buildings, while maintenance costs have risen and the price of a new building has soared. What was a £250 million project in 2010 is now estimated to cost close to £2 billion.

Putting off investment may make the books look better today but it can leave us with a much bigger bill tomorrow. Alongside short-term forecasts, we need a ten-year assessment that forces governments to confront the long-term consequences of the decisions they make.

Third, governments need firmer guardrails to ensure our economy becomes more resilient. Preventing ill health, improving energy security or strengthening our defences against cyber attacks may cost money today, but could save vastly more when the next crisis hits.

At the heart of these reforms should be a simple test, does government spending make our economy more resilient?

This test is something the OBR could assess independently, forecasting the future risks to fiscal sustainability and scoring measures to mitigate against them. For instance, investment in flood defences offsetting the cost of future catastrophic costs.

I also argue in the essay that the way OBR makes its assessments should change. Instead of an absurd focus on a single “headroom” figure – basically an educated guess at where debt will be in years time – we should have a broader analysis of overall debt sustainability. The evaluation can be done by a Fiscal Policy Committee, much like the Monetary Policy Committee at the Bank of England, where diverse views on economic assumptions are argued out in public.

For too long, our debate has been reduced to simple choices. The market or the state. Tax cuts or spending. Liberals should reject these false choices.

Markets remain the greatest engine we have for innovation and growth but they do not exist in a vacuum. They rely on healthy and skilled workers, functioning infrastructure, secure energy and strong institutions.

The government’s role is not to dictate to the market, but to shape the conditions that allow people and businesses to thrive – generating good growth, less in need of correcting after the fact.

That is what economic liberalism should mean in the 21st century. An active, resilient state unleashing the potential of private sector innovation.

Resilience gives us greater control over our own destiny. It means an NHS prepared for the next pandemic, an energy system less exposed to volatile prices, and infrastructure capable of withstanding a changing climate. It also provides a more stable environment for business to thrive.

We cannot know what the next crisis will be. But we can choose how prepared we are when it arrives. Just as productivity is key to generating growth, resilience is key to protecting it.

Fiscal responsibility should not only mean balancing the books today. It should mean leaving the country stronger tomorrow.

* Bobby Dean was elected as the Liberal Democrat MP for Carshalton and Wallington in 2024.