As economic news worsens and the housing market collapses, the Government has announced a scheme to help homeowners defer mortgage payments if they lose their jobs. The measure is intended to reduce the risk that people who suffer an unexpected loss of income, and who may have negative equity in their homes, will be evicted. Details are scanty and the impact will be limited. But the measure is of at least symbolic value in an economic climate where symbols may help in restoring confidence.

Data from the housing market indicate nothing but pain, notwithstanding a further cut in the interest rate. House prices fell by 2.6 per cent in November, and the rate of decline is accelerating. The Council of Mortgage Lenders states that new lending may turn negative in 2009 (that is, the amount of new lending will be lower than the mortgage debt repaid). The market appears to be in a spiral where mortgage loans are not being advanced, which puts further pressure on sales, which further depresses prices.

Lower house prices have economic benefits. But the scale and speed of the market's collapse are disruptive. The Government has agreed the scheme, which it hopes will cost no more than £1 billion, with the eight largest mortgage providers. Help will be available to homeowners with mortgages of up to £400,000. It will apply to payment of interest but not capital repayments, for up to two years. The taxpayer will underwrite the risk that borrowers will default.

There are many objections to the scheme. First, it appears to have been floated without serious estimates. Margaret Beckett, the housing minister, suggested unreassuringly that greater detail would emerge as the scheme developed. Given the severity of the recession and likely rise in unemployment, the cost may outstrip the Government's tentative expectations, and put further pressure on public finances.

Secondly, schemes of temporary assistance to cope with exceptional circumstances have a habit of not being revoked when conditions allow. The pensioners' Christmas bonus was a supposedly temporary measure to boost consumer spending in the 1972 recession; it is still here.

Thirdly, the scheme may prove counter-productive. It implicitly assumes that today's economic trauma will be eased at least in the medium term. But if recession is prolonged and the collapse in the housing market intensifies, then borrowers who take advantage of the scheme may find themselves impoverished at the end of the two-year mortgage holiday. They may have still greater negative equity in their home, no job, and the renewed risk of repossession. A scheme offered as a palliative for economic pain might harm the intended beneficiary, the taxpayer and the mortgage lenders, some of which are publicly owned.

But against these pragmatic considerations, there is a decisive argument of principle. The financial crisis and recession are unanticipated consequences of interlocking policy errors and bad business practices. There is much debate about long-run reforms to mitigate the risk of such a disaster happening again. But the short-run response must involve some bailout for those who face ruin. In the 1930s, a failure to protect the victims of the Great Depression precipitated the rise of xenophobia and social disruption. The costs of a bailout are borne inevitably by some people who were prudent as well as fortunate. But the costs of not bailing out those suffering hardship are incalculable.

In however inchoate a form, the mortgage holiday scheme expresses the principle of a social contract in times of trouble. If government is seen to be on the side of the victims of the crisis, then it may help to instil greater confidence in the eventual recovery.