The Chancellor’s measures are not exceptional enough

The Chancellor’s measures are not exceptional enough

I can but agree with the Chancellor that these are exceptional times and they require exceptional measures.

My complaint, as I have said before, is that it took rather too long for the bulk of the political establishment to accept the severity of the economic turmoil we faced.

And sadly I do suspect that the measures he announced with the Pre-budget Report were rather less exceptional than are needed.

Naturally I can see the attractiveness of going for tax cuts and the advantage of the VAT rate cut is that it is a tax impetus on spending.

I fear, however, that the problem with putting money in people’s pockets is that many will choose to save the benefits and not spend.

Where this eases unbearable personal debt and reduces the likelihood of homes being repossessed, this is a good thing.

But I fear that the overall impact of his VAT cut will be more muted than the Chancellor hopes.

Certainly I suspect that the fiscal stimulus overall will, as a result, not be as effective as the £20 billion tag put on it suggests.

Naturally within the package I welcome the bringing forward of capital spending, although I do think that the spending needs to be carefully targeted, as I have mentioned before.

But overall I would have liked to have seen significantly more money pushed into the construction industry, particularly house building, as I do not believe the Treasury fully appreciates the scale of the impact from a collapsing house building industry.

I would also have wished to see a much more ambitious programme of improving the energy efficiency of the nation’s homes.

Far from being a burden to taxpayers in the future, there is a good case to suggest that building now will relieve burden from the taxpayer in the future.

There is a strong case for building more homes and investing far more heavily in improving home energy efficiency.

This is not a case of special pleading. It is one of targeting to mend that which is failing most. And, currently, that is house building.

The Chancellor expects that gross domestic product will fall by between 0.75% and 1.25 % next year.

I have long felt that the Treasury doesn’t really get the scale of the problem in the house building market. So it may be instructive for the Chancellor to recognise that activity in the house building industry is now widely expected to fall to about a half of its 2007 level.

The net result is a reduction of more than £12 billion in construction output. That alone represents roughly 1% of GDP and there is a swathe of other economic activity associated with the new homes business.

To my mind, exceptional measures to meet exceptional times would have had us rally behind a Churchillian call to build homes fit for future generations of Britons and to wipe away the stain on this nation of homes not fit for the Briton’s of today.

Or is that just a bit too post-War for the cynical world in which we live today.

Either way I think the Chancellor has missed a trick. More of that later…

One thought on “The Chancellor’s measures are not exceptional enough

  1. Would agree on the VAT impact. Relatively little effect now that job insecurity has already impacted upon people’s sentiment and it is doubtful that there will be a considerable increase in consumer spending (or a lessened decrease).
    As for the spending plans, I welcome the bringing forward of £3bn spending but there was too little mentioned on which parts of transport, housing and schools this will go into.
    I do worry about the overall borrowing figures, quite staggering (£118bn?). I think the goverment is too optimistic regarding growth next year and this will impact upon govt revenue.
    Noble Francis
    Economics Director
    Construction Products Association

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