RAISING unemployment benefits would help kick-start the stagnating Scottish economy, a leading expert has claimed.

Brian Ashcroft, professor of economics at Strathclyde University and editor of the highly regarded Fraser of Allander Institute’s regular economic commentary, advocated the measure as a way of injecting money swiftly into the real economy through increased spending.

He believes the potential multi-billion-pound measure could be a key policy tool for the Coalition as it battles to stimulate growth, although it is at odds ideologically with a Coalition that is attempting to cut back on welfare benefits.

Professor Ashcroft, who believes the Coalition has made a “major policy error” in attempting to push through £113 billion per annum of public spending cuts and tax hikes by 2014/15, told The Herald: “They should try, through a mixture of increased spending and possibly tax reductions, to target those parts of the community that will take the largesse and spend it, and your way to do that would be to boost unemployment benefits because the unemployed spend everything they have got. I am a believer in raising unemployment benefits.”

He says there is a “moral”, as well as economic, justification for such a move -- one of several key measures that could be funded by putting back the target timescale for the fiscal tightening programme by about two years, freeing up tens of billions of pounds.

Citing high bankers’ bonuses, Mr Ashcroft said: “There is also a moral level here, is there not? We see significant bonuses going to bankers. We are in an economy where the level of unemployment is driven by the credit crunch and the excess of the banking sector. Maybe this is one way of helping those who have been hit to weather it better while helping the economy. There is a moral circle being squared.”

Sheffield Hallam University this week estimated that 115,000 Scots would lose incapacity benefits because of Westminster reforms of the welfare system.

Asked about the impact of this on the economy, Mr Ashcroft replied: “Whatever the rationale or justification, from an efficiency point of view, a justice point of view, if you are taking away from many, you are reducing spending, particularly when it is the poorer part of the society. When they are spending everything they have got coming in, it is a major hit.”

He is proposing a temporary rise in unemployment benefit, of perhaps one to two years’ duration, to ensure that additional public spending went into the economy immediately.

Asked about the “poverty trap” argument -- that benefits have to be structured in a way which provides people with an incentive to work -- Mr Ashcroft said: “There clearly is an issue for people coming off benefits and into a job. The argument would be that perhaps the higher levels of benefits make it, at the margin, less likely people on benefits would look for jobs. The point is there are so few jobs anyway.”

The professor added: “This is a different issue, about aggregate demand and spending.”

Fraser of Allander yesterday cut its forecast growth for this year from 0.8% to 0.4% and its projected expansion for 2012 from 1.5% to 0.9%.

Mr Ashcroft also suggested reducing the National Insurance burden on companies to “make it easier for them to hire workers”, and proposed a temporary cut in VAT, highlighting the economic benefits of capital spending.

He said: “It would have to take place within a credible fiscal framework. I am not advocating spend, spend, spend, because that would just be crazy.”

A Scotland Office spokesman said: “The economic forecast shows that Scotland is not immune from the problems of the global economy and the eurozone in particular.”

l Business confidence has collapsed, according to the ICAEW/Grant Thornton UK Business Confidence Monitor. It fell from 8.1 in the third quarter, to -9.7, the lowest level since 2009.