Letter: Wartime measures to help the economy

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The Independent Online
Sir, Sir Bryan Hopkin and Christopher Dow (letter, 16 February) suggest that one of the ways of assisting the financing of next year's Public Sector Borrowing Requirement should be procuring the investment of part of the financial surplus of households into public funding.

Here is a suggestion as to how this might be done, in a way that assumes that any recovery must be investment-led but does not weaken consumer demand (which would be the effect of a straight increase in tax).

The Government should, for the next year or two, add to the amount it raises in income tax an additional amount that is raised by the taxation process and against which gilt-edged stock is issued.

To avoid the fraud of undated War Loan, the stock should be index-linked, perhaps with a small premium (say 1 per cent), and should be repayable as to principal, say by three equal annual instalments commencing three years after its issue.

Because this stock would be marketable, it would not depress the spending power of those to whom it was issued, because they could sell it if they chose. It would, however, provide a significant short-term boost to public investment, without being inflationary on either a short- or long-term


As a rough guide to yield, increasing the higher rate of income tax on this basis from 40 per cent to 50 per cent would produce almost pounds 2bn, as would 1p on the basic rate.

Of course, there would have to be some detailed provisions to minimise administration costs by ensuring that stock was not issued to any individual below a certain minimum amount, but nothing that a good computer link between the Inland Revenue and the National Savings Register for gilt- edged stocks could not achieve.

It may be said that this is an extraordinary proposal which should only be contemplated in wartime. The answer is that the state of the British economy is such that wartime measures are needed.

Yours faithfully,



Woking Liberal Democrats

Woking, Surrey

17 February