Darlings Spending Binge

Alastair Darling confirmed that he will bring forward public sector spending to try to combat the economic downturn and provide jobs and money to the UK economy at a time when it most needs it. He spoke about John Maynard Keynes when he said that he would switch spending priorities to areas that could make a difference, especially housing and energy related projects in an attempt to reflate the UK economy.

This move was welcomed by the chairman of the treasury select committee, John Mc Fall, who urged greater borrowing. He said “Public debt in the UK is the lowest in the G7 at 43%. Italy is 110%, Japan is 180%.” He said. “What Alistair has set out is a classic response to a downturn and now we must make sure that the spending looks after the most vulnerable in society”.

Lord Jones, a former director general of the CBI and a trade minister until this month’s reshuffle, welcomed the plans based on Keynesian economics. However, he was more cautious than Mc Fall. He warned that the plan wouldn’t work unless the money was spent on expanding productive capacity.

“If it’s spent on just employment, in other words loads more administrators in the public sector, of course it doesn’t work,” he told Radio 4. “But Alistair Darling’s ideas this morning of spending ourselves out of recession, in a limited, guarded way, does have legs.” The peer said public spending that did not enhance productivity would push up inflation. It was a risk that ought to be taken, but he warned: “It could destabilise the economy if we don’t really, really keep an eye on it.”

This makes sense. If the money is simply spent on jobs, it will have an inflationary effect and will damage the currency over the long term, which will ultimately make things much more difficult for UK consumers. The jury is still out until we see exactly what Darlings plans are.

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Tags: Alastair Darling, G7, John Mc Fall, Lord Jones, UK Economy