I am no economist, but as far as I can tell most people accept that Governments should attempt to smooth the economic cycle – spending more and / or taxing less when the economy shrinks, and spending less and / or taxing more when it grows unsustainably quickly. The expectation is that Alistair Darling is reaching the limit of what the market will bear in terms of lending to the Government, and therefore needs to announce policies which, while raising borrowing forecasts in the short term, will also show how the debt is to be brought under control further into the future.
A range of policies have been proposed which we may see included in the budget, from giving people paying top rate tax less money back in exchange for their pension contributions, to giving people money to buy a new car if they have an old one to scrap. Declaring an interest (I don’t currently have a car at all, I have a slightly used rail season ticket if Alistair would like to buy it off me, or the Bank of England want to swap it for gilts) I think that one’s a bit weird, costing the taxpayer money to create demand for cars today (many of which will be imported anyway) at risk of reducing it next year, and reducing the demand for mechanics, before the recession is over.
My hope is that Alistair Darling will announce a policy relating to the housing market which will stimulate the economy in the short-term, and generate revenue for the Government when the debt needs paying down. I am not talking about the latest scheme to encourage people to take out mortgages and keep house prices up, but rather a simple programme of public sector house-building. Not old-fashioned council tower blocks or monolithic council estates, but mixed developments in sites mostly already identified but stalled because of low demand from buyers, and the lack of finance for developers.
Local Councils are well placed to deliver or commission this work as housing authorities with knowledge of the local market and land availability, though it need not necessarily be done by us. With the construction industry at a low ebb, good prices could be secured for land and labour, delivering a combination of homes for allocation to people on the Council house waiting list according to need, homes for people wishing to rent at the market rate, and homes for either purpose which are to be sold into private ownership in the future to prevent the next increase in house prices from turning into a bubble.
Short-term expenditure by the Government in this way would do something far more important than the demand-stimulation of the VAT cut. It would guarantee a large number of people’s job security, and cost less than even the headline figure, since those people would be paying some of their wages back in tax, rather than claiming benefits while being unemployed. Further down the line, the public sector would have a valuable revenue stream from rent and sales income, which could be used to reduce debt and other taxes.
And it would mean we had more decent housing, which whatever is going on in the mortgage and housing markets, much of the country has too little of relative to the number of people who need it.