The growing calls for stimulus
After this week’s disastrous GDP figures there have been more calls for the Chancellor to change course and start to stimulate the economy. That’s maybe not a surprise; many of us have been making this call for the past two years. More interesting is the source of today’s interventions.
Richard Lambert, former head of the CBI, former member of the monetary policy committee and former editor of the FT, writes today that (behind FT paywall):
One sensible suggestion from the IMF was for temporary tax cuts targeted at lower income households, who would be likely to spend rather than save the benefits. Also sensible would be measures to support the construction sector, housing above all, which is one of the main drags on output and where investment for the future is so badly needed.
Meanwhile an editorial from Bloomberg argues that:
Cameron needs to delay fiscal consolidation and make it plain that’s what he’s doing.
Then, he’ll have an instrument that’s ideally suited to delivering reversible fiscal stimulus, the value-added tax. A one-year VAT cut would lower retail prices and encourage consumers to bring purchases forward, giving a temporary boost to demand. He should supplement this with a new program of spending on infrastructure. This is investment that the U.K. badly needs in any case, and whose financing cost in inflation- adjusted terms is less than nothing at today’s interest rates.
There is now a widespread consensus building on the need for an immediate demand stimulus focussed on tax cuts for the low paid and infrastructure and housing spending.
I very much doubt that Richard Lambert, Bloomberg, the TUC and the IMF agree on all the issues but it’s becoming painfully clear what needs to happen to in the short term, a fiscal stimulus to end the long slump and get the economy moving. It’s time the Chancellor listened.