Ed Balls: Repeat the bank bonus tax

Going for broke with a rapid deficit reduction plan – too far and too fast – was always a gamble for George Osborne. His reckless decision has choked off the British recovery, leaving us badly exposed if things now go wrong in the eurozone and the US. So we need an urgent change of course – a plan B on growth, jobs and leadership.

• Growth: with interest rates already very low, kickstarting the stalled recovery can only happen through a steadier pace of deficit reduction. Of course there needs to be tough decisions on tax and spending cuts. But to get the deficit down for the long term we need growth, jobs and confidence, which is why Osborne should temporarily reverse the VAT rise now.

• Jobs: the government should repeat last year's £3.5bn bank bonus tax and use the funds raised to get young people into work, build thousands of affordable homes and boost the regional growth fund.

• Leadership: with the rest of the world in turmoil, and our economy stalled, Osborne needs to show leadership before it is too late. Outside the euro, with long-term debt and low long-term interest rates, he does have the flexibility to set a more balanced and credible course. He should drop the politically convenient but economically absurd pretence that he has no room for manoeuvre because of the financial markets.

Of course the markets want a credible plan to get the deficit down. But a plan is only credible if it works – and it's increasingly clear this plan is not working. The cautious thing to do is to act now. But the more the chancellor talks tough and says any change of course would be disastrous, the more reckless he becomes.

In August 1992 Norman Lamont declared: "We are absolutely committed to the ERM … We will do whatever is necessary – and I hope there is no doubt about that at all." But the markets knew it wasn't working and three weeks later Black Wednesday happened. I hope this chancellor has learned that lesson.

• Ed Balls is the shadow chancellor

Ruth Lea: Regulations should be radically simplified

There is little doubt that GDP growth is falling behind the Office for Budget Responsibility's forecast. Overall growth may only be around 1.25% this year compared with the OBR's expectation of 1.7% forecast in March. Both the first and second-quarter figures have disappointed. The Office for National Statistics suggested that the second quarter may have been depressed by myriad "special factors" but, putting these aside, survey evidence supports the view that growth is weak. The economy could do with a fillip.

First, I'd encourage the Bank of England to keep interest rates low, as if it needs to be encouraged, despite the higher-than-target CPI inflation figures. Much of the upward pressure on prices comes from externally determined commodity prices and there is no sign of a vicious "wage-price spiral" emerging. Further quantitative easing should be considered if matters deteriorate.

Second, I would consider targeted tax cuts that are not too costly to the Treasury – for example cutting the 50% tax rate to 40% to incentivise entrepreneurial activity. But I would be very cautious about any significant fiscal easing. It is all too easy to forget that Britain risked losing its AAA rating on its sovereign debt last year, an event which would have brought higher borrowing costs throughout the economy. The fiscal retrenchment embodied in the emergency budget of June 2010 was a necessary step to preventing a downgrade. One may love or hate the financial markets, but when you're borrowing £1 in every £5 you're spending from them, you have to play by their rules.

Third, I'd aim to give business a much-needed boost to its competitiveness. Regulations, especially employment regulations, are particularly burdensome for small businesses and these should be radically simplified. And the government's high-cost energy policies, not least for electricity generation, are particularly damaging for large parts of manufacturing industry. I'd completely review current energy policies, which place far too much reliance on costly and unreliable wind power, with the objective of cutting energy costs.

• Ruth Lea is an economic advisor to the Arbuthnot Banking Group

Jonathan Portes: Stop comparing the UK to Greece

Jonathan Portes

First, I would slow the pace of the cuts. At a time of depressed demand, with ample spare capacity and with monetary policy reaching the limits of its effectiveness, sharp fiscal tightening is the last thing the economy needs. Slowing the pace of the cuts won't result in a sharp rise in interest rates: rates are low primarily because markets perceive that the UK economy is weak, not because of increased "confidence". I would also stop comparing the UK to Greece. Not only is this factually wrong (the UK has much lower debt, none of Greece's structural problems and, crucially, has its own central bank and hence the freedom to set its own monetary policy), but it is also economically damaging: part of the reason for the current depressed state of consumer and business confidence is this unnecessary scaremongering. I would target additional spending on areas where it will both boost demand and improve long-term growth prospects.

Second, I would help disadvantaged young people acquire skills and move into work. Restore the education maintenance allowance; extend the work programme so that it covers more than a small minority of the young unemployed; and consider a cut in national insurance contributions for young, low-paid workers.

Third, allow immigration policy to be driven by economic needs rather than arbitrary targets and ham-fisted regulation. The government's own published estimates show consistently that their new restrictions on skilled workers and students will reduce growth, productivity and exports, while there is no evidence at all they will help British workers. This is an anti-growth strategy. A more market-oriented and business-friendly approach not only would boost the UK's medium-term growth prospects, but would increase tax revenues and hence make fiscal consolidation less painful.

• Jonathan Portes is director of the National Institute of Economic and Social Research and former chief economist at the Cabinet Office

Digby Jones: Tax profits, not jobs

First, I would abolish national insurance contributions for employers. It is an invidious tax. It has no relationship with profits earned or even turnover generated. It is a tax on employment, pure and simple. Even loss-making businesses pay it! Incentivising the private sector (especially small businesses) to create employment is essential; instead, employers are discouraged from taking on extra employees by a tax on the employment, not the profit eventually generated by their employment. Employers being taxed for employing people! Fair? I think not.

Second, no one on the minimum wage should pay income tax. There should be a tapering provision to cater for those being paid just over the minimum wage. Not only would it encourage the low-paid to work rather than stay on the dole (their "take-home" pay would increase) but smaller businesses would be encouraged to take on another person at an affordable wage as the actual cash received by the employee would increase. Moreover, employees would spend their additional "take-home" and thus stimulate employment elsewhere as well.

As a third measure, I would pay for the two above by postponing the cut in corporation tax announced in the last budget. It must remain the goal of the government to create a headline business tax rate that is globally competitive. I would bring the top rate of income tax back to 40%, as the extra 10% will not raise any additional revenue (although it appeals to the anti-business revenge seekers). Making work pay, stimulating job creation in smaller businesses and putting more earned cash in the hands of spenders has to be the priority. Tax profits, not jobs. Direct the tax receipts from business to benefit the low-paid.

For the medium term, it must be made mandatory that, after 11 years of full-time, free, compulsory education no one leaves school being unable to read, write and count. Ensure they have a chance in a fiercely competitive globalised economy to get a job, and provide a pool of skilled labour to encourage companies to invest in the UK instead of taking their wealth-creation, their job-creation and their tax-generation to other countries.

• Digby Jones is a business ambassador at UK Trade & Investment and a former director-general of the CBI

Stephanie Blankenburg: Monitor tax avoidance and evasion

In a democracy, policy plans stand and fall by their ability to deliver promised results in a given period of time. George Osborne's plan A has failed the test of credibility: it is not delivering recovery, and promises that it will eventually do so smack of hollow faith fuelled by desperation rather than competence. Osborne's plan rested on one basic premise: that the private sector would respond vibrantly to a clear signal from the state that it would sort out its finances by paying off its debts (in part nationalised from private actors), reducing its expenditure (rather than increasing its tax revenue) and by generally leaving the business of organising economic and social welfare and production to private negotiation in the "big society".

Any plan B thus has to confront the failed premise of plan A: the private sector isn't responding as envisaged. Why not? Well, because private actors, operating in a decentralised market economy, need clear signals to go ahead. They need to be reasonably confident that what they have calculated as paper profits will turn into real profits. And they need to be reasonably confident that their future incomes will allow them to spend their current incomes rather than save these (by paying off debts, for example). The debate over whether to start with supply-side (investor) or demand-side (consumer) measures is a moot one, once confidence is at a low. You need to kickstart the economy from both ends. And this requires a clear signal to both parties – investors and consumers – that their spending now will bear fruit in the future.

So, let's send out a clear signal to the "financial markets", private real investors and consumers that "we are all in it" by doing the following:

• Set up a British investment bank that provides support for British entrepreneurship in an organised manner. Assess and fund innovative investment projects at the forefront of technology development to foster job creation and productivity growth.

• Set up a social housing programme that tackles squeezes on people's real wages through availability of housing at reasonable economic costs.

• Employ 50,000-100,000 people to monitor and recoup income from tax avoidance and evasion.

Every single of the above initiatives would be self-financing over a specified period of time, so long as the "financial markets" value a clear signal of an ordered approach to the current crisis. In my experience, they do. They only panic when such a signal is absent. It is currently absent with regard to US treasury bonds, which only strengthens the case for UK bonds. And, of course, it would require the UK engaging with the EU in regard of the future credibility of UK bonds in the European context.

• Stephanie Blankenburg is a lecturer in international political economy at the School of Oriental and African Studies in London