Deputy prime minister talks of plans for state-backed infrastructure investment, but says it is no ‘plan B’
Nick Clegg has signalled that the coalition has plans for a “massive” increase in state-backed infrastructure investment but denied that the fresh emphasis on growth represented a “plan B”.
The deputy prime minister said instructions had been issued to the Treasury setting out the government’s plan to use its balance sheet to inject credit into the economy, with a “massive” increase in housing and infrastructure and schemes to reduce youth unemployment in a new emphasis on growth.
The Lib Dem’s comments seemed to chime with a call from the International Monetary Fund to the UK to look at fuelling infrastructure funding or cutting VAT or national insurance if the economic situation worsened.
Expressing concern about weak growth and high levels of youth unemployment, the IMF said the UK needed swift action from the Bank of England governor, Sir Mervyn King, but that the chancellor should be ready with a plan B for the economy. Speaking with George Osborne at a news conference in London on Tuesday, Christine Lagarde, the IMF’s managing director, said: “Growth is too slow and unemployment, including youth unemployment, is too high. Policies to bolster demand before low growth becomes entrenched are needed.”
The IMF recommended an immediate cut in interest rates from the 0.5% level and an acceleration of the £325bn programme of printing electronic money, known as quantitative easing. The shadow chancellor, Ed Balls, said the IMF’s report amounted to an endorsement of Labour calls for a “plan B” to boost jobs and growth.
In an interview with the Financial Times, Clegg said the government’s “absolute priority” was to use its balance sheet to inject credit into the economy.
He denied that the plans in the pipeline signified a “plan B”, stressing that the government’s deficit-reduction plan had earned Britain market credibility.
Though he insisted the coalition initially had no choice but to set out “in very lurid terms the state of the emergency we were facing”, he went on to concede that “that kind of language over a prolonged period of time can have a dampening effect on mood, which is very important in an economy”.
Clegg admitted the use of state balance sheets to assume additional risks on major schemes was not popular with all Treasury officials.
“From the top of government, a few weeks ago we decided this was the route we’re going to take,” he added. “That’s the instruction we’ve issued to the Treasury.”
Downing Street said Clegg’s comments reflected what David Cameron set out last week in a speech on the economy. The government was able to do this thanks to the “credible fiscal policies” that allowed it to use the balance sheet to help the economy grow and support investment, said a Downing Street spokesman.
“The prime minister set out in his speech last week this issue about what the government can do and how it can use its balance sheet to support investment,” said the spokesman. “And, as he said in that speech, he has asked the Treasury to examine what more we can do in that area and that work is now under way.”
On the eurozone crisis, Clegg called for “simple will and leadership” to resolve it, and for all 27 EU member states, including Britain, to be involved in finding a solution.
It would be of “absolutely no benefit” to anyone to see Greece “tumble out of the euro”, he said, and warned that such a move could inflict a “direct hit on Britain of potentially massive proportions”.
Clegg also used his interview to say he welcomed the election of François Hollande as France’s new president. “I personally massively welcome the arrival of Hollande on to the scene,” he said.