Supporting the recovery

Supporting the recovery

Last year the global economy shrank for the first time since the Second World War. In the face of this global recession, Labour pursued an active policy of supporting the economy. Working with other Governments through our leadership of the G20 Group of major economies, our action prevented this recession becoming a second great depression.

At home, policies like our temporary VAT cut and the car-scrappage scheme helped encourage spending and boosted confidence among consumers. Our decision to allow businesses to postpone taxes helped support over 160,000 businesses employing over 1.2 million people (see box for more details). Our extra investment sustained and created jobs. The Bank of England cut interest rates to record lows and we supported their action - enabling the introduction of ‘Quantitative Easing’ to
further support the economy.

The extent to which this active government intervention has made a difference is remarkable. It has made the downturn less painful than it otherwise would have been. Compared to the approach taken in the last recession, the impact is striking. In the 1990s, relative to the fall in GDP:

• around twice as many households were repossessed
• about two and half times more businesses became insolvent.
• almost four times as many people would no longer be employed if we had followed now the policies that were adopted then.

Continuing to Support the Economy

• While some specific recession measures are being phased out – like the one year VAT cut – we are maintaining the planned government spending in 2010/11 to help lock-in the recovery. We will increase spending from £675.7bn this year to £706.6 billion in 2010/11.
• It will continue to support the economy into recovery while growth and private sector demand is below trend. It also enable us to maintain key policies to support businesses and jobs such as the Strategic Investment Fund , Business Payment Support Scheme and the Future Jobs Fund into next year.
• In 2010/11, we have chosen to target investment on:

- getting people into work, with a billion pounds underpinning the guarantee of a job or training for young people out of work;

- building our green industries, with extra investment in the Boiler Scrappage scheme, Warmfront for insulating homes and the Strategic Investment fund for future jobs; and,

- helping families who are still facing tough times, with £70m additional funding being made available to keep people in their homes through Support for Mortgage Interest.

Time to Pay - the Business Payment Support Scheme

In the 2008 Pre Budget Report, the Chancellor introduced the BPSS as part of our effort to do everything we can to support people and businesses through this downturn. It allows businesses to delay and spread the payment of taxes owed to HMRC. It is giving thousands of businesses across the country more time to manage the pressures they’re facing, and helping to keep many people in work.

Since its launch, it has supported over 160,000 businesses, who collectively employ more than 1.2m people.

The total value of the tax postponements the Government has agreed is over £5bn.

The scheme has been a huge success with businesses. Stephen Alambritis of the Federation of Small Businesses, said that HMRC’s scheme was “one of the jewels in the crown” of the government support measures. “A lot of our members have said how surprised they were that requests were being accepted with not much in the way of bureaucracy and paperwork” (quoted in the Financial Times, 5 March 2010)

We have committed that, under Labour, this scheme remains available and will continue to be in place for as long as it is needed.