THE British economy remains in the doldrums and needs a programme for recovery. Yet, when Chancellor Rachel Reeves sets out her Spending Review on June 11, it will be the third time in nine months that the new Labour government has announced further austerity. A complete change of policy is needed.

Public services are in such a crisis that the NHS, which is said to be the most protected of all government departments, has already begun shedding workers. At the same time, cuts to welfare payments have quite justifiably caused political uproar and may eventually cause one government U-turn after another.

The political consequences of these policies are hardly any less dire than the economic or social ones. The main beneficiary of the deepening economic crisis is Nigel Farage’s Reform UK, and it seems most current Labour councillors or MPs would struggle to get re-elected (two-thirds of them lost their seats in this May’s elections).

The present course is leading to economic, social and political disaster. Only a general and radical reorientation can reverse these trends.

The economy is not in recovery. The BBC embarrassed itself by hailing the latest quarterly GDP data, as did ministers who were crowing about Britain enjoying the strongest growth in the G7. The reality is more straightforward and more bleak.

The first quarter data showing 0.7 per cent GDP growth at the beginning of this year were flattered by comparison with the weak growth of 0.1 per cent at the end of 2024 (and zero in the quarter before that). Using comparisons with the same quarters a year ago eliminates very short-term fluctuations. On this basis, the economy grew by 1.3 per cent versus the first quarter in 2024. This is almost exactly the same weak growth rate as was recorded in each of the last four quarters.

The economy is weak and not far from outright stagnation. Any small shock, such as Donald Trump’s tariffs, could push it over the edge and into recession. At the same time, inflationary pressures remain high, depressing real incomes. The latest monthly reading for April shows consumer prices rising 3.5 per cent from a year ago.

A combination of weak growth and high inflation is a significant pointer to structural weakness in the economy. The most decisive aspect of this is dire business investment. Since the global financial crisis struck at the beginning of 2008, GDP growth has remained weak. But business investment has been even weaker, growing at less than two-thirds the pace of the economy as a whole. Over the same period since 2008, governments have exacerbated this weakness rather than trying to overcome it by cutting public investment.

This weakness of business investment is central to the economic crisis as a whole. Unless measures are taken to address it, no significantly better economic outcome can be expected.

Yet government policy is to hope that the private sector will spontaneously move into investment mode, when this policy has now failed for 15 years. The remedy of deregulation, which the government favours, has also been tried and failed over the same period by successive Tory-led governments.

In fact, the mantra of deregulation stretches back to the Thatcher period, so it can be said that everything from the sewage in our waterways, to the Grenfell fire, to the disaster of the Herald of Free Enterprise are all monuments to this policy.

Less dramatically, it is apparent that relying on the private sector alone to carry out the government’s flagship policy of ramping up homebuilding is already failing. In the first six months of this government, new homes started were just 68,000. This is little more than half the rate two years ago and just a fraction of the pace needed to meet government targets of 1.5 million new homes by 2029.

As with other sectors, the government’s reliance on the private sector to lead economic recovery is entirely misplaced. This is a central problem for the whole of government economic policy. Economic weakness is leading to cuts in welfare for some of the most vulnerable, the poor, the sick and disabled people. Weak growth in NHS spending will drive a deterioration in services, not improvement. Other departments will be even worse off, suffering outright cuts.

At the same time, government finances are deteriorating sharply. So, with the government’s framework, this leads to even further cuts. There are now daily leaks from ministers who are fighting off cuts to their budgets. But, as David Cameron and George Osborne demonstrated, cuts are not savings, and they do not lead to improvement in government finances either.

Therefore, a two-pronged approach is needed. The first must be a plan to lead the economy into recovery, and the second must be to change spending priorities to meet the interests of society.

To address the second point first; the government already wastes vast amounts of money on military spending that cannot be justified economically.

When there is investment in a computer, or a railway bridge, or a child’s education, this adds to the productive capacity of the economy (what used to be commonly known as the means of production). As a result, there is an economic return over the lifetime of the investment (which is why investment in major infrastructure and education has some of the biggest returns of all).

But spending on the military has no such benefit. The hardware produced can only destroy people and the means of production, if they are ever used at all. Military hardware destroys value, which is not outweighed by the outlay on employment in this sector. Far better would be to employ the same people developing and producing medical, transport or similar equipment.

A decisive part of opposing austerity in the current context is to oppose any increase in military spending.

The prospects for recovery also depend on public investment. But it must be productive investment. Almost any area of the economy and public services would benefit from increased public investment, including housing, transport, infrastructure, health, and so on.

Yet it is widely reported that the government plans to exempt military spending from austerity and to waste public investment on it. But this is an abuse of terminology, as military spending is not productive at all. It does not add to the productive capacity of the economy, so it is not investment.

We are told there is £113 billion available for investment. It should be invested to boost the economy, not wasted on the military.

Michael Burke’s economics column appears on the last weekend of the month.