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There's a Hole Where Economic Leadership Should Be: Here's What to Do

01/07/2016 09:31 | Updated 01 July 2016
ANDREW YATES via Getty Images

Yesterday, Mark Carney made plain his view that last week's referendum result will cause significant damage to the British economy.

He was also clear that "there are limits to what the Bank of England can do". In other words, even a further rate cut or round of QE might not be enough to protect jobs, investment and growth from a downturn and possible recession.

While the Bank Governor's scope for action is limited, the Government's is not. Yet George Osborne said this week that it will be more two months before there is any substantive economic response from the Government. This is unforgivably feeble.

Labour faced some tough economic challenges and big decisions during my nine years in government, including five in the Treasury - none bigger than the global crash and economic downturn in 2008/9.

Gordon Brown rightly demanded a heavy-duty economic stimulus, the centrepiece of which was a housing programme.

Similar smart Government action is needed now, as then. But after six years in power, the Conservatives have left us more vulnerable to a post-Brexit shock. A record current account deficit means we are gravely exposed to the whims of foreign investors, while our economic foundations are eroded by public investment at little more than half the level it was when Labour left office and business investment lower as a share of GDP than before the crash.

Housing should again be at the heart of an economic rescue plan. Here's what we could do.

First, switch additional investment into housing. In 2009, our annual housing investment was nearly £3billion but I secured switch spending from other departments to help put an extra £1.5billion into new homes over two years - creating jobs and apprentices, and spurring on private investment. We could do the same again now - this time borrowing for investment at the lowest rates in British history.

Second, to keep finance flowing to builders, we could expand the range of government borrowing guarantees - using the power of the public balance sheet to keep credit affordable for public and private sector builders, especially the smaller firms.

Third, to help shore up buyer confidence in the short-term, we could increase the bonus new buyers receive through the Help to Buy ISA for a time-limited period, by frontloading funding allocated to the scheme later in the Parliament.

A three-point rescue plan to help stop the housing crisis getting worse as a result of a post-Brexit shock, prevent a sharp slowdown in growth and provide some economic certainty. The Bank of England alone can't protect jobs and homes. If the Conservatives politicians can't offer economic leadership, then Labour must.

John Healey is the Labour MP for Wentworth and Dearne

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