The proposals, put forward by EEF, the manufacturers’ organisation, include boosts in public spending programmes backed by cuts in the small company and headline rates of corporation tax, the starting rate of income tax, and vat and public spending programmes.
Commenting, EEF Chief Economist, Steve Radley, said:
"The daily drip of bad news on the economy is feeding deep anxiety that the recession could turn into rout. The poisonous mix of bad debts and the rising risk of deflation threaten the economy with a prolonged and painful downturn. Whilst interest rate cuts will help, their effectiveness will be blunted and the Bank of England is rapidly running out of ammunition.
"Given the speed with which the air is being sucked out of the economy, government needs to weigh in and pull all the policy levers it can. Temporary, timely and targeted measures aimed at helping increasingly cash-strapped households and businesses should be at the heart of any such proposals. With the right mix of tax cuts and public spending, government can restore confidence, boost consumer spending and sustain business cashflow."
Specific proposals: (all figures £bn)
Public Spending,: 5.0
2p cut in Small Companies' Rate 1.1
3p cut in Headline Rate 2.1
Annual Investment Allowance to £500K
& first year capital allowances of 50% 1.0
2p cut in VAT 10.0
2p cut in starting rate of income tax 9.6
With regard to public spending temporary increases should involve government bringing forward investment in education, health care and the transport infrastructure projects that are vital building blocks for long-term sustainable growth. In addition, this would include targeted business support programmes, similar to the £4 million small business loan package announced in the West Midlands. Backed by tax cuts, more loans and insurance coverage for supply chains would ease the cash-flow problems faced by small business.
However, EEF is only prepared to give its backing for such a stimulus on the basis that it is temporary so as not undermine the long-term health of the public finances. Furthermore, any stimulus on such a scale must be backed by a medium term strategy to reform the fiscal framework.
1. The maintenance and strengthening of the two current fiscal rules should be maintained and strengthened.
2. The inclusion in the sustainable investment rule of a wider range of government liabilities which require government to bring the ratio of public sector net debt to GDP down over time.
3. The golden rule as a forward-looking, symmetrical target that provides flexibility to respond to extraordinary economic events.
Just as important as reforming the rules, however, is improving the transparency of the institutional arrangements for monitoring them. EEF believes a new independent body should be tasked with forecasting the health of the public finances and judging whether current fiscal policy is compatible with the government’s long-term stability and sustainability goals.
Steve Radley added:
"However bleak the economic outlook, there is an equally urgent need to restore long-term confidence in the public finances. Any giveway now must be accompanied by reforms to bring borrowing down to sustainable levels if we are not to face a long period of austerity."
EEF, the manufacturers’ organisation is the representative voice of manufacturing in the UK together with ECIA, the Engineering Construction Industry Association and UK Steel. The EEF has a growing membership of almost 6,000 companies of all sizes, employing some 900,000 people from every sector of engineering, manufacturing, engineering construction and technology-based industries.