From the TUC

The growing calls for stimulus

27 Jul 2012, by Guest in Economics

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.

Both of these calls chime with the view of the IMF.

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.

The Government’s tentative steps towards more infrastructure spending are of course welcome, but are unlikely to get up and running until mid 2013. That may well be too late.

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.

2 Responses to The growing calls for stimulus

  1. Heather Wakefield
    Jul 28th 2012, 9:29 am

    An interesting and welcome coincidence Duncan. Obviously we need social housing and infrastructure renewal, but need to think about who and what have suffered most in the recession and update our Keynesian responses appropriately. Women have been the big employment losers – especially from the public sector, as have crucial public servioes. A programme of infrastructure development will not provide jobs for those women, neither will it provide the investment in adult social care or childcare we desperately need. There needs to be a ‘discussion’ about this on the left.

  2. Japan, Fiscal Policy & Lost Lessons | ToUChstone blog: A public policy blog from the TUC
    Aug 6th 2012, 3:46 pm

    […] to grasp here is that NIESR did not test for a macroeconomic stimulus, as supported by the TUC and a growing list of others, merely a delay in the cuts and tax […]