The Institute of Directors has called for a £50 billion programme of quantitative easing - an injection of capital into the financial system - as part of a ‘Plan B’ for reviving the struggling UK economy.
With “balance sheet reduction” - a euphemism for projected losses after a Greek default - likely in the UK banking sector, and with banks already forced to recapitalise due to new regulations, the central bank needs to take on a larger role in financing the recovery, the IoD said. This should take the form of £50 billion worth of gilt purchases by the Bank of England.
The BoE signalled in the minutes of the last meeting of its Monetary Policy Committee that more quantitative easing (QE) was a distinct possibility. Although only one member actually voted for a new stimulus, the committee indicated strongly that intervention was on the table, should the economy show further signs of stagnating.
The IoD also warned against early implementation of the tighter capital controls on banking proposed by the Vickers report, saying that while it supported the 2019 timeline, forcing through the changes ahead of schedule would risk further constrain growth in the country’s money supply.
Separately, the Confederation of British Industry and PwC released new figures on Monday showing that the pace of growth in the UK’s financial services sector had slowed in the third quarter of 2011, with firms expecting a further slowdown in the last three months of the year.
“After a torrid couple of months on global financial markets, the mood has clearly darkened. Uncertainty about future demand, worries about the global recovery and shifting regulatory sands are weighing on sentiment,” Ian McCafferty, the CBI’s chief economic adviser, said.
The IoD has also called for an end to the 50p tax rate for high earners, saying that it should revert to 40p. The higher rate would make the country “unattractive to the talented entrepreneurs and highly-skilled professionals who can create new job opportunities for everyone,” the IoD said.
Similarly, corporation tax should be reduced to 15 per cent, from its current 26 per cent, by 2020 in order to improve competitiveness, according to the IoD.
The Institute also wants the UK to opt-out of European Union employment laws, as part of its proposals for changes to workplace legislation. The IoD’s suggestions include “no-fault” dismissals, a raising of the bar for strike action and reform to tribunal processes.
“No aspect of economic policy is more important than returning Britain to a growth trajectory,” Simon Walker, the IoD’s new director said at the launch of the report.
“Without the belief that UK economic growth is expanding, confidence will wane, international investment will dwindle and British consumers and taxpayers will be left picking up the crumbs at the tables of faster growing competitors. The government’s deficit reduction programme is a step in the right direction – but it must go faster and further before the economy is on track and prosperity returns.”