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In times of crisis..
#1
Where do you turn to for help?

Seven ways government could lift the economy's post-Brexit vote blues

Options range from tax cuts to helicopter money, but no initiative will be more important than negotiating new trade deals

Katie Allen
Friday 5 August 2016 17.07 BSTLast modified on Friday 5 August 201617.41 BST

When Mark Carney unveiled a broad package of measures to ward off a post-EU referendum recession on Thursday, he emphasised that the Bank of England had only limited power to shore up the economy. The government will have to play its part too, the Bank’s governor said.
All eyes are now on the Philip Hammond’s autumn statement due later this year. The new chancellor has already told Carney that the government will “take any necessary steps” [pdf] and come up with its own measures.
There are a number of things the government will be considering.

Tax cuts
There have been calls for a cut to the VAT rate from 20% to fire up consumer spending, which is the main driver of the UK’s economic growth. The government, however, will want to see more surveys and official data on how spending has held up since the referendum before it decides to take a hit to its already squeezed public coffers.

The former chancellor George Osborne has said cuts to business taxes are needed in response to the Brexit vote. Before he was replaced by Hammond, Osborne said the government should get on with cutting corporation tax to below 15% in a bid to encourage businesses to invest in Britain outside the EU.

His successor will be wary of cutting without more evidence that companies are shunning the UK, and given that the prime minister, Theresa May, has talked about reforming capitalism so the system works “for everyone, not just the privileged few”, a cut to business taxes is probably not be the message she wants her new chancellor to send.

More infrastructure spending
Businesses are urging the government to spend more on infrastructure such as roads and rail links. They argue that record low interest rates make this a good time for it to borrow money to invest. The spending would get money flowing through the economy, create jobs and the projects would yield long-term economic gains.

Delaying the planned apprenticeship levy

Disgruntled business lobby groups have already labelled Osborne’s plans to introduce a near-£3bn levy on bigger firms next April a “payroll tax”. Now that the vote to leave the EU has hit business sentiment and demand, there are calls for it to be delayed. Hammond could agree to this to appease business leaders and boost confidence.

Boosting productivity
If the new chancellor does delay the apprenticeship levy he will have to come up with other ways to tackle Britain’s skills shortages in areas such as construction and IT, and so help raise the country’s productivity out of the doldrums. The government has committed to boosting apprenticeship numbers and creating 3m new apprentices by 2020. If May is serious about tackling inequality she will have to show that her government can provide routes into decent careers beyond university degrees.

The UK lags behind other advanced economies on productivity, a measure of what is produced by employees per hour worked. Carney said boosting productivity was key to raising the UK’s economic prospects, but experts say it could be years before the UK sees the gains of any measures to boost productivity, such as investment in innovation, education and infrastructure.

Reduce planned rises to the national living wage
The “national living wage” of £7.20 for over-25s was introduced in April, and the government has committed to increasing it each year. With economic prospects looking bleaker after the Brexit vote, however, some employers say such rises will be less affordable. They want the low pay commission, the independent body that advises the government on minimum wages, to recommend only a small rise in April 2017.
Here again, May’s government will be cautious about being seen to penalise the low-paid, given her pledge to raise living standards. Anti-poverty campaigners also argue that low pay is a significant part of the UK’s productivity problem and that only higher pay thresholds will make firms improve management, training and overall efficiency.

Helicopter money
Carney has questioned the effectiveness of so-called “helicopter money” schemes, under which a central bank prints cash so that finance ministries canhand it out to citizens or spend it on big infrastructure projects. With the government under pressure to boost spending on infrastructure, however, and both Hammond and Carney vowing they have more tools to help the economy, some sort of unconventional scheme along these lines could still become a reality.

One option would be for the Treasury to issue new infrastructure bonds for public investment projects. The Bank would then buy the bonds using newly created money, so financing the projects.

Trade deals
The biggest task for May’s government will be negotiating new trade deals. Any action taken by the Bank of England or the Treasury will have only limited impact as long as the UK’s trading relationships with the EU and the rest of the world drift into an uncertain future.

© 2016 Guardian News and Media Limited or its affiliated companies. All rights reserved.
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#2
Here is Ben Bernanke former Fed chairman, when asked whether more could have been done for homeowners at the time of the financial crisis:


Quote:My perceptions of that effort, though, speaking from someone who was outside of that policy effort, was that there were two big sets of constraintsOne was that it’s just a lot harder than you think to, for example, to modify or restructure mortgages when the borrower is possibly unemployed, possibly not interested in talking to the bank or participating in a program. It was awfully difficult as a practical manner to manage the restructuring programs. 

But the other part was that, people don’t remember this necessarily, it was actually very politically unpopular to help troubled homeowners. And Congress put lots of restrictions on what could be done, and tried to make sure there wasn’t any significant subsidy, for example. So within the inherent logistical difficulties, which were substantial, and the political constraints from Congress, the Treasury was hampered, I think, in its efforts. It did make, I think, a good-faith effort, and it did help millions of people. 

Again, whether a bigger effort would’ve had more effect on the recovery, I’m not sure that it was a first-order issue. It certainly would’ve helped a lot of individual people, a lot of families. From the political point of view, it cuts both ways. The story is that the Tea Party was triggered not by anger necessarily at the financial players, but at the idea that the government would be helping people who had “overborrowed” or been irresponsible in taking out mortgages.
Ben Bernanke explains what Donald Trump gets wrong on the economy - Vox


Saving the financial system was required stuff, without it the US economy would have spiralled down into a 1930s style depression. But saving families met with the ideologues..
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