Text of the letter:
Dear Nick, Danny and Vince
We write to you to express support for the more distinctive line Liberal Democrats have taken on economic policy in recent weeks, and to reiterate how important it is that the government does all it can to bring about sustainable growth, maintain full employment and make the economy fair for all.
There is now growing support within the party for a significant change of direction in economic policy, as demonstrated by a Liberal Democrat Voice survey in which well over half the members polled said that the government “should take advantage of low interest rates to increase borrowing for capital investment to boost growth in the UK.” As you know the Social Liberal Forum has recently proposed social liberal approaches to a fair, sustainable economy in our policy pamphlet “Plan C” (http://socialliberal.net/economic-plan-c/), and we believe that now would be a good time to implement many of these proposals as part of the sort of “strategic vision” and liberal industrial policy for which Vince has consistently called.
The call for a new approach to economic policy is well supported amongst academic economists as well as the electorate. Nick was right to call for a ‘gear shift’ with regards to the economy following the return to recession, and would have been so even if the GDP figures for the beginning of 2012 had been slightly less poor. The persistence of high unemployment, lack of investment and many other indicators suggest that the UK faces years of economic hardship, which risks creating a legacy of economic scars. As Liberals we should pull out all the stops to ensure that such a legacy is not passed on to the next generation.
George Osborne’s proposal to make over £100bn capital available to existing banks is an acknowledment that something should be done to avoid further stagnation. However, these banks are disconnected from the large infrastructure projects and small and medium-sized businesses that drive the economy. This extra liquidity at a time of low demand is therefore unlikely on its own to kickstart sustainable growth and create jobs. Radical reform of the financial services sector – including the creation of a National Investment Bank, local, publicly accountable banks, and support for novel forms of financial institutions – is needed to ensure that the liquidity already in the sector reaches productive ends.
Monetary policy in the form of Quantitative Easing and financial reform alone will not compensate for the underlying weaknesses in the UK economy. The failure of the previous government to deal with a series of fundamental problems – such as the paucity of skills, labour market insecurity, huge disparities in remuneration and the inadequate innovation ecosystem in the UK economy – contributed greatly to our current crisis. However it would be a good first step.
In Plan C, the Social Liberal Forum has proposed several principles upon which more fundamental economic reform could proceed to address these weaknesses. We invite you to consider these proposals and set out a distinctive Liberal Democrat agenda for how to bring about sustainable prosperity for all. At a time when firms and households face great uncertainty and fear about the months and years ahead, the national interest demands that we do so.
Dr Prateek Buch, Author, Plan C and Head of Research and Policy, Social Liberal Forum
Dr David Hall-Matthews, Chair, Social Liberal Forum