Conceptually, one can always think of this as raising extra government debt to finance whatever is bought, combined with conventional quantitative easing that offsets the extra debt issued. In addition to highlighting the potential interest of the Treasury in the first leg of the intervention, splitting it up in this way can also help to clarify analytical issues. For instance, one idea that has been floated involves sending households a voucher, which could then be spent in the shops and redeemed for cash by the retailer. This may sound like a good idea, as it seems to get the money quickly into action in stimulating demand. Now, such a policy in effect combines an increase in borrowing to finance a temporary increase in income tax allowances with some conventional quantitative easing in which gilts are exchanged for claims on the Bank of England3. But economic theory, as well as considerable empirical evidence, suggests that such a temporary increase in disposable income would be likely to be very largely saved4. Only households that wish to borrow, but presently cannot, would be likely to increase their spending materially. And making the voucher time-limited would do little to help, as households could always use the voucher instead of the cash they would have spent. In sum, this hardly seems the most effective way to add additional stimulus. Let me conclude by offering you a comment on what all this might mean for the housing market and the demand for mortgages.
2  BIS central bankers’ speeches  experience after previous recessions following banking crises suggests that it is likely to be highly persistent (see Chart 5, which shows the UK experience since the start of the recession, together with the range of analogous historical experiences). Initially, households and businesses were protected from the full impact of this downward shift in prospective incomes by the previous Government’s decision to let the budget deficit temporarily take the strain. But the necessary subsequent fiscal consolidation has led inevitably to a higher tax burden and lower public spending growth. As already noted, inflation reached 5.2 per cent in September. But much of that reflects the combined impact of higher VAT and prices for energy and other imports. A range of estimates of the impact of these factors is provided by the blue swathe in Chart 6. The remainder is attributable to domestically-generated inflation, estimates of which are provided by the green swathe in the same Chart. This appears to have been running well below the 2 per cent target, reflecting in large part the unusually low rate of pay growth, which is in turn symptomatic of the slack in the economy. As we go into next year, so last January’s increase in VAT will drop out of the calculation, knocking around one percentage point off inflation. And commodity prices have started to fall back as the pace of global expansion has eased (Chart 7).