Ministers 'must step in' to help ailing economy

Will ministers change their plan?
Will ministers change their plan?
Alex Stevenson By

The coalition needs to abandon its current approach and intervene to get Britain out of recession, an economist has warned.

Tony Dolphin, senior economist at the Institute for Public Policy Research thinktank, called for ministers to use the tax system to boost the economy in the short-term.

He backed the need to deal with the deficit in the medium-term, but argued that additional infrastructure spending, an active industrial policy and measures to keep the long-term unemployed in touch with the labour market are all vital if growth is to recover quickly.

This Wednesday sees the publication of Britain's GDP figures for the second quarter. A third successive contraction of around 0.3% is expected by analysts as the double-dip recession continues to bite.

"The debate about the role of government policy in the UK's return to recession and about Plan A or Plan A+ or Plan B has become a sterile one, focused too narrowly on the coalition's fiscal plans," Dolphin wrote.

"A path back to growth will require a change in fiscal policy, but on its own this will be insufficient. To be effective, policymakers need to make a number of complementary shifts in policy."

Yesterday London mayor Boris Johnson offered his own rebuke to the Treasury, calling for a 'plan B' which sees more public money spent on major infrastructure projects.

"What I worry about is that people are losing confidence, losing energy, losing enthusiasm, and there's a real opportunity to get them into work," he told BBC1's The Andrew Marr Show.

"I'd like to see a bit more supply-side stuff; I'm sure the government would love to do it, to get on with allowing businesses to take on staff more easily.

"But I would like to see it, no doubt about it. I would like to see a very aggressive campaign for more investment in infrastructure."

Last week the coalition made £45 billion of finance available for 'shovel ready' infrastructure projects. The lending will not appear on the government's balance sheet, however, as the Treasury is only guaranteeing the projects.

Tensions over the government's attitude to growth are not going away. Yesterday the British Chambers of Commerce hit out at ministers for not doing more to ensure airport expansion in the south-east of England.

Director-general John Longworth complained: "Without sustained, long-term action from government to create a stable business environment here at home, the risk appetite among many businesspeople will remain muted."


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