The announcement by George Osborne that the government will underwrite £50bn of infrastructure investment is a belated admission that, in times of recession, the state must intervene to stimulate growth. The delusion that the coalition’s spending cuts would increase consumer confidence and produce a self-sustaining private-sector-led recovery has been abandoned after Osborne’s “expansionary fiscal contraction” turned out to be, well, contractionary. Whisper it, but Keynesianism is back.
Since the decision to guarantee loans will not, in theory at least, require the government to spend a penny more, Osborne will insist that this is not “plan B” or anything like it. As his sidekick, Danny Alexander, puts it, “This is not a direct call on the taxpayer. That would only happen if something went wrong with a project.” And after the private sector’s sterling performance over the last month, why should we doubt him?
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