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Heseltine right on economic intervention but wrong on funding

Heseltine (‘No Stone Unturned’) unapologetically advocates an industrial strategy with an important role for the State – an unexceptional proposal anywhere else except in Cameron’s Britain. As this Tory ex-Deputy Prime Minister frankly acknowledges: “I know of no other government that does not drive its growth agenda in the interest of its own economy”.

Nothing illustrates more starkly than that just how far the Osbornites have dragged Britain to the Right and into interminable stagnation – why?   Purely and simply because of ideology, there is no other rational explanation. But whilst Heseltine is right to insist that the State has the prime role in driving the economy out of recession, he is certainly not right to suggest that the £58bn bidding pot he proposes for this purpose should be funded by raiding the budgets currently reserved for adult skills, apprenticeships, the work programme, affordable housing, the youth contract, flood defences, the broadband roll-out , as well as EU regional aid. Those are focused expenditures for particular objectives which should be retained.

But given the principle of a long-term growth strategy directed by a National Growth Council, there are far better ways of funding it than Heseltine’s gallimaufry of existing budgets. The most obvious one is quantitative easing (QE), the electronic printing of money that has generated £375bn which has been passed on to the banks but not lent on to the real economy as was intended to be done.

It is now proposed to add a further £50bn in QE for the banks. If instead just half of that money were used fund a major programme of housebuilding, infrastructure improvement and laying the foundations for a low-carbon green economy, it would generate over a million jobs and within a year turnaround the economy.

A second alternative would be to tax the super-rich. According to the Sunday Times, the richest 1,000 persons in the UK, just 0.003% of the employed population, increased their wealth by no less than £155bn in the 3 years 2009-10 to 2011-12. Simply charging those colossal gains to capital gains tax would yield £43bn , again sufficient to generate nearly 2m jobs and kickstart the economy via desperately needed public works which would provide the initial momentum to bring private investors back in force.

The third alternative is to take advantage of the lowest interest rates for over 300 years to borrow (say) £30bn at a cost, given base rate at 0.5%, of £150m, more than enough to provide the initial stimulus via the public sector which the private sector, flat on its back as it is, cannot do on its own. So far from being panicked by this (very modest) level of borrowing, the markets would be deeply relieved that at tiny cost there was finally a real likelihood that growth would at long last get off the ground.

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