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.
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