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5 things the Chancellor should do now

As the UK economy continues to nose dive down a deflationary spiral I thought I would help George Osborne out with some ideas on how to get the economy moving again.

1) Suspend the cuts programme at least until the global economic situation recovers

Despite falling economic demand the Coalition Government is hell bent on cutting public services. Trying to cut public spending when demand at home and abroad is falling will lead to economic stagnation and recession – this has been borne out by the latest figures. George Osborne should call a moratorium on all cuts to public services (at least for the foreseeable future) in order to not make the problem any worse.

2) A new round of Quantitative Easing (QE) to invest directly in a Green New Deal and cancel out PFI debt

The first two rounds of QE have helped inflate the economy somewhat but in the main this extra money hasn’t been channelled to useful economic investment or business lending. It has also benefited banks disproportionately as it has given them cheap money and a risk free route to generate profit.

A third round of QE should be released but this time the money should be invested directly into a Green New Deal. A Green New Deal would create a large number of different jobs from engineering to energy accountants and help decarbonise our economy at the same time.

This round of QE could also be spent on paying PFI debt once and for all. This would massively reduce the long term cost of PFI debt repayments.

3) Raise in-work and out-of-work benefits for the poorest families

Not only would this help those that need it most it would have a bigger ‘multiplier effect’ than a lot of other types of public spending because the poorest families will spend the extra cash. This extra cash (especially when spent locally) would boost businesses, encouraging job creation and so on.

4) Implement an FTT in conjunction with the Eurozone members who are willing to do so

A well designed FTT is a useful tool to discourage high frequency trading and this would make the financial sector less volatile. At the same time it would bring in money to the exchequer (circa £20bn a year).

This £20bn could then be used to stimulate the economy through direct spending or it could be used to finance a British Investment Bank to focus investment in low carbon, high employment sectors such as housing, transport and renewable energy.

5) Special measures for the under-25s

As we know young people are suffering disproportionately from high unemployment and the long term effects of youth unemployment are severe so special measures should be focused at this age group.

There should be a National Insurance Contribution holiday for under 25s to act as an incentive for employers to hire young people. This should be accompanied by an increase in the programme of Wage Subsidies. Finally a “youth guarantee” that every young person is offered a job, further education or work focused training within four months of leaving education or becoming unemployed should be introduced.

All these measures would get people back to work which would increase tax revenues and reduce the deficit.

This article first appeared on the Compass website.

2 Comments

  1. Brian Kelly says:

    This is a step in the right direction but does not really stack up. I would suggest the following amendments:
    1) the cuts programme is driven by a misunderstanding of how modern capitalist economies function and the role money plays. The cuts should be abandoned in favour of an ongoing audit of what is spent and how and on whom.

    2) QE directed at the real economy is a god idea but the means for distribution and allocation is not mentioned. The banks cannot do so therefore a special institution needs to be set up. Sure, pay off PFI but with a severe ‘haircut’ to reflect the original inflated costs and poor value.

    3) and 5) employers NI contributions are a poor tax and should be abandoned along with a sharp increase to the NMW to levels that do not need state subsidy for low pay. Benefits to be raised and a programme of skills development & genuine work placements made available.

    4) certainly a FTT alongside rigorous corporation and other taxes.

    This represents a more definite break with the current orthodoxy that the piece outlines.

  2. P SPENCE says:

    Not radical enough. How will a Labour government face down private corporate power responsible for maintaining the orthodoxies that dominate our society? At the apex the State is kept within strict parameters by the bond markets that keep policy firmly to the right.

    The social democratic Left has not grasped the scale of the crisis. To return to growth capitalism in the present circumstance must devalue assets of all sorts and take out excess capacity. That has hardly begun. Cameron was right: unwinding the overhang of debt will take until at least 2020. Labour need a deeper analysis and move to a radical break with corporate monopoly power. We are along way from that at present.

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