This paper calls for a pro-growth economic strategy as the best way to address Britain’s fiscal position.

Fiscal principles for the future is co-authored by Gerard Lyons, Graham Gudgin, Warwick Lightfoot and Jan Zeber.

Dr Gerard Lyons, Senior Fellow at Policy Exchange, said: “It is right to use fiscal policy as a shock absorber, to avoid premature tightening and to direct spending towards capital investment and public services. The main focus has to be on a pro-growth agenda, that reduces unemployment and allows the economy to recover.”

This paper focuses on how central banks have responded since March to the Covid crisis, explores the discrete episodes such as the liquidity crisis in the Spring and the evidence of companies borrowing to accumulate cash and the equity price boom that has followed the huge injections of liquidity into the international financial system. It offers an impression of where policy makers are and the limits that central banks confront in a low interest rate environment where monetary policy has no more space left and is not effective.

The Government should give anyone without a job who wants to start a new business £100 a week for a year, says a new report from Policy Exchange – published a day after unemployment surged to the highest level in over three years.

A labour market that works argues for a new 2020 Enterprise Allowance, based on a successful scheme launched in the 1980s.

It is backed by Rt Hon Sajid Javid MP, former Chancellor of the Exchequer, and Rt Hon Lord Young of Graffham, architect of the original idea during the unemployment crisis of the 1980s, who warns: “it is highly probable that we shall shortly face the highest increase in unemployment ever known.”

This paper argues that the Government should spend more on capital investment. The case was already strong before the Covid-19 crisis and has been strengthened since, as its financing has become more affordable. The paper highlights the importance of taking advantage of the present macro-economic environment afforded by low borrowing costs to provide stable – and sizeable – funding for new infrastructure through an increase in capital spending by the public sector. Additional capital spending, in excess of the fiscal rules, would be sustainable and affordable

The UK is enduring a health and economic crisis. Despite near-term uncertainties, we believe that a new macro-economic framework can help the UK achieve stronger future growth.

A new macro-economic policy framework is needed, as outlined here, based on the three arrows: of credible fiscal activism; monetary and financial stability based on a new remit for the Bank of England; and a supply-side agenda.

Low borrowing costs create a likely lengthy window of opportunity to emerge from this crisis without being panicked into policy measures such as austerity, but it is possible that inflation and yields could rise, so it is not a risk-free option. Success depends upon a clear and credible policy approach.

Both Wall Street and the City of London are speculating whether the next innovation in monetary policy will be the use of negative interest rates as a deliberate tool. The new Governor of the Bank of England, Andrew Bailey, has changed the Bank’s position from that of the previous Governor, Mark Carney, who made clear that negative interest rates were not a proposition he was seriously considering. The central bank’s Chief Economist, Andrew Haldane, and one member of the Monetary Policy Committee (MPC), Silvana Tenreyro, have canvassed the idea.