Leading article: Imaginative solutions that can halt the economic slump

There are now more than 2.5 million people out of work and the worst is far from over


Even the Prime Minister has had to admit that the latest unemployment numbers are "disappointing". That is putting it mildly. According to yesterday's official figures, there are more than 2.5 million people out of work, a spike of 80,000 in just three months. But the worst is far from over. Given that the planned spending cuts have barely begun, but public sector job losses are already running at the highest rate since records began, the outlook is bleak and the pressure on the Government is rising.

David Cameron's assurances that ministers had "not an ounce of complacency" on the issue of unemployment dovetailed nicely with his deputy's speech on economic growth earlier in the day. Nick Clegg acknowledged that the prospects are dire. He also said the Coalition would stick to its cuts. So what followed was not a Plan B. But it was a Plan A-plus, stressing how much can be done to foster the growth so desperately needed to create jobs.

As far as he went, the Deputy Prime Minister was right. There are levers in the Government's hands, and it needs to start pulling them. Mr Clegg talked about the supply side – easing regulation and cutting corporation tax, for example. He also hinted that Vince Cable, the Business Secretary, was looking at ways to boost businesses' capital investment. With £60bn sitting on the balance sheets of companies too wary to spend, changes to investment taxes would have a real impact.

But the most interesting aspect of the Deputy Prime Minister's speech was his remarks about the Government's own capital investment plans. None of the projects was new – high-speed broadband, Crossrail and road upgrades were all in last year's National Infrastructure Plan. What was new was the emphasis: the 40 biggest projects are to be given "special priority status", while Danny Alexander at the Treasury is "shaking the Whitehall tree so no one is stockpiling capital that can be put to good use today".

Spoken like a good Keynesian. But there is still more the Government could do – while also dealing with Britain's looming housing crisis. There is a chronic lack of affordable housing, but in the current climate commercial construction companies will not build anywhere near fast enough. Even with the proposed planning reforms, the risks are too high. There is a clever role for the Government here. A public housing investment programme would not only ease the squeeze, it would also create jobs and spread skills, particularly among the 769,000 unemployed youngsters.

Such a scheme need not necessarily rub against the grain of fiscal austerity. Yesterday's grim unemployment numbers are just the latest in a drip-drip of gloomy economic data, raising the prospect of another round of quantitative easing (QE), whereby the Bank of England "prints money" to give the ailing economy a shot in the arm. Adam Posen, the long-time QE advocate on the Bank's policy-making committee, rightly made the case this week for a more creative approach, and it is one with considerable implications for public infrastructure investment. Rather than simply adding to the Bank's existing £200bn-worth of gilt purchases, Mr Posen suggests that the Government use the new money to set up a bank to lend specifically to start-ups and small businesses. Even better, the new money could be channelled into a housing programme.

Mr Posen's is no longer a lone voice. That Mr Cable is also looking into more imaginative applications of QE is a good sign. He would do well to consider the implications for public infrastructure investment. There is much that can be done to boost the economy. But as yesterday's unemployment numbers make abundantly clear, the Government needs to start coming up with some answers. And it needs to do it fast.

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