In letter to the Guardian , 35 economists state that providing money directly to households would be most effective policy

Direct cash handouts to households would be a better way of boosting Britain’s flagging economy than the interest-rate cuts expected from the Bank of England on Thursday, according to a group of progressive economists.

In a letter to the chancellor, 35 economists have urged Philip Hammond to ditch the approach that has been followed by the government since the recession of 2008-09 and give the Bank the right to try more radical options.



The letter, to be printed in Thursday’s Guardian, suggests that the Bank should be allowed to create money to fund key infrastructure projects. Alternatively, the group says the Bank could pay for tax cuts or direct payments to households.

The letter states: “A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.”

Threadneedle Street would need approval from the Treasury to adopt what the US economist Milton Friedman once described as “helicopter drops” of money on to the economy as a means of removing the threat of deflation.



The nine members of the Bank’s monetary policy committee (MPC) will announce at midday how they plan to respond to the economic shock caused by the decision to leave the EU in the 23 June referendum.

The MPC is thought to be considering a cut in interest rates from 0.5% and a resumption of quantitative easing (QE), the scheme whereby the Bank increases the money supply by buying bonds in the financial markets.

While “helicopter money” is not on the Bank’s agenda, one City economist said he could envisage public investment being financed by the Bank. David Owen, the managing director of Jefferies International, said: “November should see publication of the new chancellor’s autumn statement. The timing of this could be brought forwards, to broadly coincide with the BoE’s November inflation report (on the 3rd). What chance the government finances investment projects using infrastructure bonds which the Bank of England ultimately buys?”

The 35 UK and international economists – including the biographer of Keynes, Lord Robert Skidelsky, the ecological economist Herman Daly and the hedge fund manager Eric Lonergan – said that with interest rates already lower than they have ever been and doubts about the viability of more QE, “it is unclear that the Bank has necessary tools to meet the challenges ahead”.



The letter states that seven years of cheap money have not had the desired effect. Noting that before 2009 official interest rates had never before fallen below 2%, the economists warn that a further cut in borrowing costs will not benefit the economy.

“Similarly, a further expansion of the Bank of England’s £375bn QE programme is the wrong solution for today’s economic problems,” the letter states.

While accepting that QE might have been needed in 2009 to free the logjam in the City’s lending market, the letter adds: “The risks facing our economy have little to do with the availability of liquidity in the financial sector, and all to do with businesses and households cutting spending due to an increasingly uncertain economic outlook.



“As well as being of limited effectiveness, ultra-loose monetary policy has come with harmful side-effects. Just before she became prime minister, Theresa May became the latest high-profile politician to recognise that lower interest rates and QE have increased inequality by inflating asset prices. Indeed, the success of both of these policies is dependent on the private sector taking on even more debt.”

Hopes that the government might be receptive to new economic ideas have been encouraged by May’s arrival in Downing Street. The prime minister has hinted that she is in favour of higher spending on investment. Hammond said last month that he would “reset” tax and spending policy if necessary.

The letter by the economists continues: “As the new chancellor looks to ‘reset’ economic policy, new ways of conducting monetary policy should be considered. Instead of policies designed to fuel asset price bubbles and increase household debt, the Treasury and the Bank of England should cooperate to directly stimulate aggregate demand in the real economy.”