Archive for August, 2012

UK Economy: why does a stimulus have to mean big infrastructure?

Posted in Politics with tags , , on August 22, 2012 by Tom Leatherbarrow

There is a fair amount of talk that the UK economy needs some sort of stimulus to get it moving again.

Come 3rd September the drumbeat will only become louder, particularly with the party conference season just around the corner.

What is puzzling however is that all the talk of a stimulus involves the government dipping its hand in its pocket to fund big infrastructure projects, which usually means roadbuilding, rail, tunnels and new airports.

I sense the hand of the construction lobby in a lot of this.  Fair enough, construction output is at worryingly low levels and if any sector needs a stimulus it is the builders, but the danger is that the government, in sanctioning big infrastructure projects like a new London Airport in the Thames Estuary (Boris Island as it is already being called), places all its chips on a bet which is unlikely to come in before 2020 at the earliest.

This is a bit like the old trickle-down economics theory – big infrastructure equals jobs and ultimately consumer expenditure, but we will have to wait for it while our grindingly slow planning system works through the detail.  And, of course, it doesn’t always trickle-down.  The banks have been given billions in QE but most have missed their Project Merlin targets.

What is missing is the sort of direct stimulus which worked brilliantly during the dark days of early 2009.  With boiler and car scrappage or “cash for clunkers” as it was called in the US, consumers were given a “deal”, a voucher that could be cashed in and had direct monetary value.  What’s more, these sorts of schemes are pretty much revenue neutral.

I’m not saying I’m against big infrastructure, but it needs to be balanced by a direct consumer stimulus as well.  Without it, the big infrastructure projects will grab headlines for a day or so but then go into abeyance for years.  Just think HS2.

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