The coalition government is preparing a “massive” increase in state-backed investment in housing and infrastructure, it has been reported.
The Financial Times reported on government plans for growth in an interview with deputy prime minister Nick Clegg.
It comes after the International Monetary Fund recommended a further cut in interest rates and an additional injection of quantitative easing to stimulate the economy.
Mr Clegg told the FT of an “absolute priority” to use the government’s strong balance sheet to inject credit into the economy.
The Treasury could now use its balance sheet to underwrite housing and infrastructure schemes and to tackle youth unemployment, it reports.
Mr Clegg said some were “neurotic” about using the state balance sheet to assume additional risks on housing, transport and other projects and hinted that officials in the Treasury were hesitant.
“From the top of government, a few weeks ago we decided this was the route we’re going to take. That’s the instruction we’ve issued to the Treasury,” he told the FT.
The direction raises questions about the role of private finance, including the future of PFI and the much-talked about use of pension funds for infrastructure investment.
The deputy PM’s comments come as the Association for Consultancy and Engineering publishes a report outlining five alternatives to the under-fire PFI model.
According to the FT, Mr Clegg said the coalition was looking at “massively amplifying the principle of what we did on credit easing”.
The Treasury has previously committed £20bn to small businesses through credit easing.