An economic stimulus for the UK: the chancellor's choices

Article

This briefing analyses the costs and relative benefits of several of the main options for a temporary economic stimulus open to George Osborne as the budget approaches, and also assesses the progressive credentials of each option by comparing their effects on the highest and lowest earners.

The UK's economic recovery remains fragile, despite recent improvements in retail sales and business confidence. As the chancellor prepares to deliver the 2012 budget, he should consider the arguments for a temporary economic stimulus through increased infrastructure spending or tax cuts to boost consumer spending. In the US, Barack Obama's payroll tax cut contributed to a 2.2 per cent increase in consumer spending last year - by contrast, consumer spending in the UK shrank by 0.8 per cent.

No single measure ticks all the boxes in terms of delivering a quick, temporary, effective and progressive stimulus to UK consumers and the economy: increasing infrastructure spending, for example, provides the best 'bang for buck' but is slow to implement; simply cutting the rate of income tax or national insurance is relatively easy to do (and to undo) but isn't a progressive option.

If the chancellor is persuaded that the UK economy requires a US-style emergency stimulus then he will have to carefully balance the potential consequences of each option, and it may be that a combination of measures delivers the best outcome for the UK economy.

Related items

  1. A wide shot of several large commercial vessels, including oil tankers and a survey boat, floating on turquoise water. In the background, an industrial shoreline with numerous smokestacks and refinery infrastructure is visible under a cloudy sky. Concept of global logistics, maritime industry, and international trade.

    Price caps and economic stability: How to manage the Iran war energy shock?

    The Iran war energy shock will impose significant costs on the UK economy, even if the government does not offer a universal support package.

  2. The political trust crisis: Why local democracy must start listening again

    A troubling reality hangs over May’s local elections: trust in politics has collapsed.
  3. Close Up Of Female Care Worker In Uniform Holding Hands Of Senior Man Sitting In Care Home Lounge

    Putting cardiovascular disease at the heart of policymaking: Learning from research in the devolved nations

    Deaths from heart attacks and strokes have halved since the 1960s and people living with these conditions have seen remarkable improvements in managing and treating them. But now progress is stalling.