Spend to Save Jobs, Then Recover it From the Beneficiaries

Last Updated Apr 22, 2009 5:30 AM EDT

Today's budget review is a rare chance to make a real change to the UK economy. Instead of leaving our finances to founder on the rocks, decisive action by Alistair Darling might just steer them clear.

Given the rate at which recession is taking grip, any budget boost to the economy must be immediate and should concentrate on saving jobs before they are axed.

The £12bn Vat cut has barely stimulated demand and much of the money spent bailing out banks will never be recovered. Prudence has become yesterday's byword, but from now on, the limited cash must be spent more efficiently.

That doesn't mean soft loans or subsidies to companies that can't stand on their own feet. Nor does it mean capital allowances for UK firms to buy foreign machinery, never mind scrappage grants for motorists to purchase new cars made overseas. It's not xenophobic for a chancellor to look after his own economy rather than boost foreign finances.

But while income-tax cuts put pounds into British pockets, part of that boost would be saved or spent on imports. And they give money to everyone, deserving or not.

So the centre of my budget would be keeping people in work. Hand-outs should be used to stop employers laying-off staff. That's even more important than getting the unemployed into work.

Workers would retain real jobs, allowing them to buy other goods - some British - helping families keep their homes and thus supporting property prices to all owners' advantage. Every pound would work several times over.

But hand-outs have to be paid for and a responsible chancellor must say who will pay. The past year's monetary and fiscal stimuli already mean huge future tax rises. The budget should make clear that the bill will be paid by those who benefit, not by savers, the wealthy, business or any other easily taxed group.

Wage subsidies should thus eventually be recovered from the specific employees and employers that receive them. The bank rescues should be financed by a levy on the whole financial-services sector because it would not exist if some banks had collapsed. Homeowners should pay for having their values buoyed. The new byword should be "fairness", with the winners financing their own prizes.

These will be long-dated IOUs, of course. The debts cannot be called in, until the recovery that follows recession starts turning into the next boom. But the intention should be spelled out now for future governments. Darling probably has little more than a year in office: it will be his successors who reap the rewards of the budget and who also have to pay for it.