Six budget 2014 announcements to make Britain's recovery more durable

The British economic recovery remains unbalanced – too driven by a credit and house price boomlet subsidised by the government's Help to Buy scheme. By raising prices of homes, especially in London and the south-east, Help to Buy defeats the purpose of extending access to housing. The six-point plan proposed here would result in a more durable recovery powered by much-needed investment in infrastructure and housing. It begins with two fundamental reforms: switching to a fiscal target that takes account not just of government debt but of assets, and setting up a national land bank, learning from international experience.

The ratio of government debt to national income matters: interest has to be paid on debt, and current national income is a rough proxy for the future national income that will generate the tax revenue to service the debt. But the current exclusive concern with debt is a big mistake: the government's asset position is just as important because assets help to generate the future income to service the debt or can be sold to pay down debt. For example, roads generate revenue directly, even without road pricing or toll roads, from taxes on petrol and licences, and indirectly from the economic activity they lubricate.

The real rate of return in Britain on such infrastructure investment – for example, upgrading the A1 in the north-east – greatly exceeds the current cost of funding. Further, much of government-owned land is obviously saleable and not hard to value. It makes no sense to include only financial assets in government net debt and exclude potentially saleable land.

The first announcement of the budget should therefore state that, in future, the government will target the growth of debt minus assets.

Increasing government debt would then not be a concern if it was matched by an increase in assets such as publicly owned productive infrastructure and land. This better target would also discourage the accounting practices of the Brown era, when expensive PFI contracts were used to fund public sector investment without recognising the underlying liabilities.

The second fundamental announcement in the budget, made possible by the first, should be the setting up of a national land bank. This acquires land cheaply and holds it for future release for housing and commercial development. In countries such as South Korea, Singapore, Taiwan and Hong Kong, national land banks have played major roles in urban development, supplying land for housing, generating planning gain to pay for infrastructure and in controlling real estate prices.

In Britain, with sometimes hundred-fold price differences between land with and without planning permission, a government land bank could buy land without residential or commercial planning permission but with potential for future development. In future, this would be a source of land release for housing and other development, capturing planning gain for the taxpayer. Such land purchases would initially have zero impact on correctly measured net debt, but future revaluation gains would bring down net debt, while the cashflow from sales would lower future government deficits.

This radical step, together with better incentives for local authorities to grant planning permissions, would transform the supply of housing in under-housed Britain. Currently, young people without wealthy and generous relatives have great difficulty getting onto the housing ladder. According to the census the fraction of owner occupiers among those aged 25 to 34 has declined from 58% in 2001 to 40% in 2011. The land bank proposal would allow house prices relative to income gradually to decline in coming decades, helping the "lost generation" of those born after 1979.

The next four decisions would complement these two fundamentals:

1. Substantially increase infrastructure spending.

2. Restrict Help to Buy to regions outside London and the south-east but retain Help to Build everywhere to encourage house building.

3. Announce a mansion tax in which the excess of current values above £3m is taxed at 1%.

Britain has the lowest property tax rates for the super-rich among advanced countries. The proposed tax rate would still be lower than in many other countries such as the US.

Measures 2 and 3 would take some of the heat out of housing markets in London and the south-east.

4. Take advantage of low borrowing costs in index-linked gilts to fund more than the current government deficit by issuing large amounts of index linked gilts. "Overfunding" of this kind was used in the 1980s. It would save the taxpayer money in the long run. It would also have the advantage of lifting current yields and so reducing the apparent deficits in defined-benefit pension schemes. This should boost company investment in the real economy.

These measures for balanced and sustained growth and a more equal society need a government capable of taking the long view currently lacking in Westminster.