How to help Britain's ailing economy

11.15.26am GMT Wed 13th Aug 2008

• [Aug 11] VINCENT Cable writes: My starting point would be to secure Gordon Brown's main achievement: the independence of the Bank of England's Monetary Policy Committee . .

It will be necessary to see off all kinds of arguments in the next few years to change (that is, increase) the inflation target or redraw the MPC's mandate to relegate inflation to a subordinate objective. There is more to be done to restore credibility to fiscal policy. The government's rules have been subject to repeated fiddling and will never be credible while it sets its own tests and marks them. They need to be reinforced by ensuring that the definition of the cycle and performance is assessed independently of government.

The most important challenge relates to the 'credit crunch' and the falling housing market. It is not the government's job to underpin house prices. Neither should it rescue banks themselves (as opposed to depositors), whose reckless lending helped to precipitate the crisis. It should therefore avoid proposals for state guarantees of new bank lending or stamp duty relief (as opposed to reform of the stamp duty 'slab' system).

I would like to see a much more ambitious programme, allowing social landlords and councils to acquire, at an appropriate discount, surplus private housing. Second, there must be intervention to stop the headlong rush towards large-scale home repossessions. There is an industry 'code of conduct' involving the provision of advice and alternative options for families in distress. This should be put on a statutory footing.

Beyond immediate rescue operations, we need to look to a reformed financial services sector, which cannot be allowed to return to its freewheeling ways, on the assumption that when the casino gets into trouble, the government will save it.

The squeeze on disposable incomes is provoking demands for government help with energy, food and other bills. It cannot afford to hold down petrol prices, nor should it. What it should do is demand more from energy utilities, which have benefited from the free allocation of valuable permits under the European carbon trading scheme. They should be required to introduce meaningful social tariffs for low-income consumers and ambitious energy conservation programmes. That apart, the best way to counter the squeeze on incomes is to ensure the tax burden is more fairly distributed. I would lift the burden on low- and middle-income families through cuts in income tax, paid for through a mixture of redistributive taxation on the wealthy, plus green taxes. [www.guardian.co.uk]