Labour knew austerity was wrong. Now, at last, it also has a vision for growth

Many people want this election to be about whether Brexit will solve or exacerbate the problems the UK faces. But most of these problems were born inside the UK’s borders, and long predate the Brexit referendum.

This week’s growth figures showed a 0.3% rise in GDP in the last quarter, removing the immediate threat of a UK recession. Yet, a decade after the global financial crisis, the British economy remains weak and unbalanced. Economic growth remains highly dependent on consumption fuelled by private debt, rather than investment. The financial sector has largely retreated from funding the real economy, and today more than 80% of its revenue is channelled into the finance, insurance and real estate (“fire”) sectors.

The business sector has the lowest investment growth in the G7. Real wages have stagnated – in part due to the weak bargaining power of trade unions – and productivity growth has stalled.

Beyond this, a decade of austerity has eroded the social fabric of the country. The symptoms on the streets are clear to see, from a record-level number of homeless people to soaring knife crime. Local authorities have had their budgets cut by unprecedented amounts. After-school clubs, youth centres, public libraries, policing and mental health budgets have all been cut, affecting the most vulnerable people in society. And on top of all of this, the country, like the rest of the planet, faces a climate emergency that puts the entire economy at risk.

What is required to tackle these problems? The task for the next government is to identify policies that stimulate investment-led growth – which can be steered towards tackling the key challenges of our age – rather than private, debt-fuelled, consumption-led growth.

This means reforming finance to make it more useful to businesses that want to innovate; making bold state investments in new areas such as the green economy; and creating a taxation system that rewards businesses that invest in the long term rather than those that siphon value out of the economy.

It means investing in measures that improve work conditions, support training and promote wellbeing. This must include well‑funded education, mental health services and other social infrastructures.

All these changes should have a green direction across consumption, production and distribution: we need to move away from “shovel-ready” projects and think about “green transition” projects.

There is nothing about Brexit that will automatically help solve these problems. Given that leaving the EU will probably reduce the size of Britain’s economy, investment may indeed fall. The TUC has asked for assurances that a post-Brexit UK will not begin a race to the bottom on pay and conditions. But no real assurance has been received.

Refreshingly, the electoral debate this time is not about putting the country’s finances in order – something Keynes insisted only households should do, not governments. Both parties are laying out plans for spending and investment to get the UK out of the current mess. But whether this turns into a real transformation of the economy depends on whether the policies have coherence and provide a path towards greater public and private investment.

Labour has for a long time been arguing that austerity was wrong. Previously, however, the party did not have a strong enough narrative on what to invest in and how to drive growth. Now it has: the Green New Deal.

Inspired by the plans of US congresswoman Alexandria Ocasio-Cortez, Labour is presenting a plan for a greener economy, and a more inclusive one. The party’s proposals include investing £150bn over the next five years in a “social transformation fund” to pay for school upgrades, hospitals and social care facilities – and, alongside this, a £250bn “green transformation fund” over 10 years in projects to improve sustainability – such as energy and transport, and insulating existing homes.

The Conservatives say they too will invest – in schools, police, the “biggest programme of NHS investment in a generation”, and free ports. Even though this shopping list has little coherence, it represents a significant U-turn after a near-decade of austerity.

The Tories could learn from the way their former business secretary, Greg Clark, started to think about industrial renewal. He developed a strategy focused on key societal challenges: the future of mobility; clean growth; an ageing society; and the data economy. The aim was noble: to create an investment-led, innovation-driven green economy. It was a good start, and I am proud that at the UCL Institute for Innovation and Public Purpose we were able to help devise an industrial strategy designed to address these challenges.

Related: In 1989, capitalism won. Today its greatest ideological challenge is the planet | Larry Elliott

But, regardless of who wins the election, there is an urgent need to enhance capabilities within the public sector. In recent decades the state’s capacity has been drastically hollowed out, and key public functions have been outsourced to management consultants and parasitic companies. This has become all too clear with Brexit: without sufficient in-house expertise, the Department for Exiting the EU is now spending millions on private lawyers and consultants.

If we are to transform our economy on the scale that is required we must urgently rebuild public sector institutions, and increase their capacity to think and act big. The public sector has to be allowed to get its hands dirty again, instead of handing difficult tasks to consultancies.

The country will not prosper without a serious economic plan. A decade has been lost between cruel austerity and a misinformed debate about Brexit. The solution is clear: invest in innovation; invest in people; invest in communities; and make sure there is green economic growth in the UK. Brexit will make this harder, but even more necessary.

• Professor Mariana Mazzucato is the founding director of the UCL Institute for Innovation and Public Purpose