The Chancellor must consider radical action including spending on infrastructure and abolishing stamp duty to put Britain back on the path to growth, according to some of Britain’s leading economists.
A series of opinion pieces to feature in The Daily Telegraph this week from economists including Paul Johnson, director of the Institute for Fiscal Studies, and Andrew Sentance, former member of the Bank of England’s Monetary Policy Committee, add to the growing swell of opinion formers arguing for a policy rethink.
Mr Johnson said planning regimes needed to be reformed while he described stamp duty as “among the most inefficient taxes we have”.
Kicking off the series, Mr Sentance, senior economic adviser to PricewaterhouseCoopers, writes that a “bolder” course is needed without requiring the Chancellor to change the pace of deficit reduction .
“Instead, within the 45pc of GDP the Government is already spending, a higher priority should be given to programmes which will help business competitiveness such as investment in transport infrastructure. On the tax side, we need a much stronger emphasis on longer term reform cutting tax rates by spreading the tax base and simplifying the tax structure,” he writes.
The Chancellor is expected to get some marginally better news this week, with the Office for National Statistics likely to say the economy shrank by 0.5pc in the second quarter and not 0.7pc as previously estimated.
While that would suggest Britain’s recession is not as deep as originally feared, City economists said it would not alter the picture of a country in the economic doldrums.
“Only a massive revision would alter the big picture of a very weak recovery,” said Vicky Redwood, chief UK economist at Capital Economics.
Alistair Darling, former Chancellor, weighed into the debate , saying in an open letter to George Osborne that he and the Bank of England “seem to have given up on any plan for growth”.
“The damage that will do to our country is immeasurable,” Mr Darling continued, urging his successor to devise a “plan B”, including “major spending projects” such as investment in homes, power stations, railways and a third runway at Heathrow Airport.
Meanwhile, just three of 20 economists who wrote a crucial letter in 2010 backing the Conservatives’ deficit reduction plans are now prepared to stick by their original view.
Charles Goodhart, a former Bank of England rate-setter, and Bridget Rosewell of Volterra Consulting, told The Daily Telegraph they still believed there was no alternative to deficit reduction. Albert Marcet, research professor at the Barcelona Graduate School of Economics had already come out in favour.
The remaining 17 signatories earlier revealed they had either changed their minds or were unwilling to comment.
“November’s Autumn Statement could be crunch-time for the Coalition,” said Ms Redwood, referring to the Chancellor’s pre-Budget statement.
The slightly better second-quarter GDP figures are due to upward revisions to industrial production and construction output estimates. Given that the extra Jubilee bank holiday is thought to have wiped about 0.5pc off growth, a revision would suggest the underlying economy is improving following declines in the previous two quarters.
There are some glimmers of hope as unemployment continues to fall and inflation is expected to drop close to the Bank of England’s 2pc target by the end of the year from its current 2.6pc, easing the squeeze on consumers.