‘Spend big! The public might not be as opposed as you think’

After Labour lost bitterly in the English Council, Welsh Senedd and Scottish Parliament elections in May, Keir Starmer sought to reinvigorate his government with a speech that promised major action, because “incremental change won’t cut it”. But the concrete actions announced sounded pretty meagre compared to the grand scope presented. Nationalising British Steel? Maybe, after a public interest test. Reconnecting with the EU? Well, at least in relation to increasing student exchanges.

These policies are far from unimportant, but they do not reset the dial. The continuation of a cautious approach that stands against big announcements has found German Chancellor Friedrich Merz equally backed against a wall with unprecedentedly low approval ratings. Having promised “an autumn of reforms” in 2025, much has been deferred to commissions or delayed due to internal government disagreements. While the government – a coalition between Christian and Social Democrats – created a big multi-year investment package, budgets on core activities affecting many people’s lives are cut extensively.

READ MORE: ‘It’s not either/or when it comes to economic growth and climate change’

Budget decisions are difficult. But leading politicians in Germany and the UK have created a system in which they chose to constrain themselves. Even before coming to power Starmer -and his Chancellor to be – Rachel Reeves, had accepted the Conservative Party approach to understanding the British government budget as analogous to that of a household. Justifying the decision to reduce green investment targets massively, Starmer claimed that the Sunak government had “max[ed] out the government’s credit card”. When running for office, Friedrich Merz similarly kept emphasising spending restraint, presenting decisions as a zero-sum-game, ignoring alternative ideas for state finances or considering how some spending might result in useful gains.

Once in power, this led to an irreconcilable tension for both: big promises to improve people’s lives were met with self-imposed restraint regarding activities that could really push economic growth and enhance material wellbeing rapidly. But for years, many politicians in both countries seemed to be convinced that they would be rewarded by their respective publics for a prudent approach to public finances. Christian Linder, Scholz’ finance minister, kept reiterating how people expected politicians to be less wasteful and reduce deficits, because “our children must not inherit mountains of debt”. 

That mantra-like repetition from politicians left and right of the centre about public concerns for state finances became commonplace in both countries’ election campaigns. But is it actually a solid enough assumption to build a political programme or messaging on? At first it might seem so. Simple polls typically reveal that the public do not like the idea of state debt. The problem with that: simple polls do not capture in sufficient detail what people actually think about how governments should or should not use debt. Overemphasising fiscal restraint over public investments is not just highly problematic economically, but also politically unwise in both the UK and Germany.

As I show in a new study published in the Cambridge Journal of Economics, the public actually have a much more differentiated view regarding state finances. Presented (before the election campaigns in both countries) with the proposition that ‘Reducing state debt should be a priority for the government. Otherwise, our children will be burdened with it for a long time’, a clear majority (just over 60%) agree. But that is only half the story. Shown a statement with the opposite story, namely that ‘It is better for the government to borrow money now to invest in the future than leave broken schools, roads and hospitals for the next generation’, 61% in both countries also agree. 

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Indeed, 38% of Germans and 42% of Brits agree with both statements. Only a fairly small minority (around one in ten) support debt reduction in principle and reject debt-financed investments. Conversely, just around 8% support debt-financed investments and reject state debt reduction generally.

So, are people just not getting the apparent contradiction here? No, that would be a misguided and patronising view of the public.

In-depth qualitative research has shown what is going on: people think quite differently about those two statements. While the one focused on debt reduction invokes a generally negative connotation towards debt, the second one focuses people’s attention on gaps in investment they wish were addressed. In other words: for many, debt feels negative in the abstract but is acceptable when it is meant to be used to finance something they consider important. Indeed, when asked to make a choice, people are more likely to prioritise funding of important services than fiscal consolidation.

But what about the popular line from politicians that fiscal consolidation is prudent because of the next generation? People who have grown up children who no longer live with them seem to have a distinct set of views: They are more likely to support both ideas (reducing debt generally and debt-financed investments) than just one or the other. In other words, they are not motivated by a reduction in debt per se, but instead by all propositions that emphasise how they might improve the next generation’s situation.

People are not obsessed with fiscal prudence. They deeply care about policies that solve deficiencies they perceive to exist. Politicians who boldly tackle real problems of underinvestment would likely find support for debt-financing, if the changes were strong, their purpose clearly communicated and the results felt. Politically, there may be more space to move beyond incrementalism than many leaders may think.

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