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Lib Dems target economic growth with housebuilding plan

Ministers consider penalising property firms who fail to build as they aim to take coalition lead on providing stimulus

Senior Liberal Democrat economic ministers desperate to inject a stimulus into Britain’s stalling economy are looking at boosting housebuilding by penalising property firms that fail to build on land that has long-term planning permission.

They also want the Bank of England to undertake further quantitative easing within weeks by buying the debt of small businesses. They say it is for the Bank to work through the scale and precise timing, but argue the need to act is growing ever more urgent, and a public debate is needed.

Ministers are aware that the Bank must retain its constitutional independence in setting interest rates, but believe the use of quantitative easing as a means of stimulating the economy has broken down the distinctions between it and government.

The ministers recognise that the government cannot be seen to be straying openly from the deficit reduction strategy, and if it did so it would only lead to a self-defeating reaction in the bond markets. “We cannot be seen to do anything dodgy or use bogus Labour schemes like the private finance initiative,” one said.

But they are starting to argue in private that it may be possible to bring forward capital spending from the timetable set out in the initial spending review in 2010, or that the overall level of capital spending could be increased by a couple of billion to keep the economy from sliding back into recession and unemployment rising.

Explaining the government’s dilemma, Vince Cable, the Lib Dem business secretary, said: “We have built up a lot of credibility in international markets. We don’t want to lose that position.

“There is flexibility built into our fiscal plans, we have that. There are other ways of maintaining stimulus to the economy. There is monetary policy and we can use imaginative infrastructure development to push the economy forward domestically.”

Accused by some of depressing confidence by sounding gloomy, Cable added that the IMF downgraded forecast was an “objective independent assessment” which sounded “broadly plausible”.

“It is very difficult to get our own economy growing again – financial markets, recession problems. Getting that going is difficult and is even more so when our main markets in Europe in North America are seizing up.”

Ministers have already set out proposals to speed up the process of gaining housebuilding planning permission, a move backed by both wings of the coalition, but they now say that land banks and hoarding by housebuilders need to be addressed. A housebuilding programme is seen as central.

The National Trust has estimated the total land bank with planning permission at around 330,000 plots. That figure is based on research by the Campaign to Protect Rural England (CPRE) which found that the biggest developers last year held land with planning permission for 281,993 homes. Companies have added tens of thousands more plots to their stocks over the course of this year.

Bovis, one of the biggest developers, said this month it had bought 1,571 “consented plots”, and was acquiring another 2,500. Ministers say England needs 230,000 extra homes a year to meet demand. They are looking at fining companies that hoard land with planning permission.

More broadly, Lib Dem strategists are pleased they have been seen to be taking the lead in a more activist fiscal and monetary stance, even if this was partly because their conference came first in the season of party gatherings. Lib Dems have been happy to juxtapose their stimulus stance with the deregulatory supply-side reforms pushed by Conservatives. Lib Dems do not oppose supply-side reforms, but say urgency requires action on the demand side.

In practice the differences between the two parties on economic policy has some substance, but is also one of tone. Liberal Democrat ministers believe the chancellor, George Osborne, is taking a pragmatic approach, and the positions are similar, although David Cameron is said to be more worried by anything that smacks of a stimulus.

Lib Dem ministers are nervous of institutional restructuring, and believe the £3bn Green Investment Bank can lever in a further £15bn of private investment over the parliament. They admit that locating shovel-ready infrastructure projects is painfully slow inside Whitehall.

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