Balance and Recovery

While the Bank of England’s recent caution in respect of a further expansion of ‘quantitative easing’ is understandable - indeed welcome - this does not mean that all sensible options are closed.
Much more needs to be done to secure economic recovery in the context of the global financial crisis that is corroding the real economy and which, along with the state of the public finances, remains in very poor shape. This is partly, of course, as a result of dismal, depressing and continuing ill-advised government policies. The Government’s likely juggling with the apparent proceeds from earlier quantitative easing will not disguise the underlying harsh realities.
But even within the timid and self-deluding mindset of the austerity brigade there are things that could be done. If I can return to my Keynesian position I would draw attention once more to the concept of a balanced budget multiplier. This is where in a broadly neutral budget, spending power is moved towards those with a higher propensity to consume. In other words smaller deductions from the pay packets of lower income earners and somewhat higher taxes for the rich - and I mean rich, not the middle classes picking up the bills again.
One way to achieve this would be to smooth out individual National Insurance contributions, making them a flat percentage of earnings with no limit on the range so that the rich contribute more and the less well off have lower reductions. Also, to balance over a longer period, the top rate of tax should go back up to 50% from the entirely unjustified and partisan proposed 45% due next year. Alongside this, the rashly abolished 10p rate should be reinstated.
If the flat rate of National Insurance contributions were set at a level that brought in a greater total sum this would free resources for increased support for manufacturing industry and public works projects. In the latter respect there will not be a Local Authority in the country that does not have ready to go engineering schemes that have been thwarted by budget cuts and the ever-increasing demands on the social care front.
Speed of action is important too; with the glacial progress of assistance to manufacturers and the essential root and branch reform of banking as dismal examples of the dilatory implementation of official policy – such as it is. And action needs to be taken to deal with massive corporate tax avoidance. There’s a double whammy here since many of the rich recipients of the untaxed profits will be tax dodgers too. It’s not just the economy that needs to be re-balanced but the taxation system too.
And there are other fiscally neutral measures that can be taken both at local and national level. Here I refer to procurement of goods and services. The Government must ensure that as much of its purchasing goes to domestic producers - from major defence or construction projects right down to the cars provided for ministers. There are ways of framing conditions for bids that do not contravene Euro legislation that can help domestic producers. You can be sure that certain other European countries already do this - and much besides.
The same goes for contracts from Local Authorities. There is a multiplier of around four so that when a contract for say £500k is awarded to a business there is a total benefit of no less than £2m to the area (as that firm and its employees spend and the beneficiaries of that spend also spend too.)
So there is considerable policy latitude remaining even if the Government is afraid to take radical action. Perhaps it is a forlorn hope, but maybe an element or two of this kind of traditional Keynesian thinking will filter through – in the fullness of time of course.