Posen's poser

2 December 2009 By Peter Thal Larsen Follow @Peter_TL

A Bank of England interestrate setter wants to tax housing to stop future booms. Adam Posen is right that monetary policy alone won’t work. But it is naïve to expect politicians to cede control of taxes. Regulators should instead focus on reining in mortgage lending.

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A member of the Bank of England's Monetary Policy Committee has called for housing taxes to be used in limiting future real estate bubbles.

In a speech on Tuesday Adam Posen, a U.S. economist, said the central banks could not simply rely on monetary policy to rein in booms such as the property bubble that helped trigger the financial crisis.

Posen called for existing taxes, such as stamp duty in the UK, to be adapted to act as an "automatic stabiliser" that would help to curb house price inflation. He said this would be more effective than adjusting banks' capital ratios to rein in lending. "We should go after the problem directly, beyond the banking system itself," he said.

Posen's recommendation comes just a few weeks after the Bank of England published a discussion paper on macroprudential regulation in an effort to kickstart the debate about how best to rein in future bubbles.

In his speech, Posen stressed that he was not talking about the budget or future tax plans of any country, and was not advocating the use of the tax system to redistribute wealth.

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