David Prosser: Why your country needs you to spend

 

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The Independent Online

Outlook: Margaret Thatcher famously used to compare the Government's stewardship of the public finances to a housewife's careful marshalling of the family budget. It was as daft a comparison then as it is today: the fact that governments have such good access to credit is hugely useful since it allows them to run deficits during tough times, providing the economy with a stabiliser (the corollary, of course, is that they need to run a surplus when the environment improves). Households, by contrast, get into difficulty quickly and often disastrously if they continue to rack up borrowing when their finances are squeezed.

Bizarrely, however, David Cameron and George Osborne now appear to want to turn economic common sense on its head. The Chancellor made it clear again on Monday that he is sticking to Plan A – that there will be no additional fiscal stimulus for the economy, despite the obvious faltering in the pace of recovery. Meanwhile, the Prime Minister and his aides were yesterday furiously back-pedalling on the early conference briefings that Mr Cameron wants everyone to pay off their credit card bills, which is the last thing the Treasury really wants just now.

This is an unusual economicpolicy to say the least. The Government is choosing austerity when it comes to the public finances, while hoping that indebted households will continue to provide theeconomic stimulus we normally expect from the state during a downturn. It is Keynesianism translated for the credit card age, you might say.

The hitch is that for people who are able to do so, following David Cameron's original advice to pay down debt has felt like the right thing to do this year – personally, that is, rather than for the sake of the economy. The Bank of England's statistics show that consumer credit is shrinking – not because of a lack of supply but because worried households are trying to hunker down. Very sensible too.

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