THE UNITED Kingdom must begin immediately to cut its spiralling deficit, or else risk higher interest rates and a fall in the value of sterling, a group of leading economists, including several top former Bank of England officials have urged.
The 20 economists, in an open letter, expressed doubts about the strategy outlined by chancellor of the exchequer Alistair Darling, who has promised to halve the deficit within five years, but wants to avoid making cuts until after April 2011.
The group acknowledges Mr Darling’s arguments that too rapid cutbacks could expose “the fragility of the recovery”, but said, nevertheless, that there was a compelling case for the first measures to take effect from April this year.
Meanwhile, relations between the Labour Party and the Conservatives have deteriorated further, following bitter television clashes yesterday over talks to agree a common policy on funding rapidly rising elderly care bills.
The very public intervention of the group, including four former members of the Bank of England’s top monetary policy committee and a former head of the treasury, in the debate may encourage the Conservatives to return to their once more bullish attitude towards faster cuts.
Conservative shadow chancellor George Osborne said it was “a decisive moment” and showed that “Gordon Brown’s argument on the deficit has collapsed”.
Mr Osborne had for months argued that sharp cuts were needed, but party leader David Cameron softened the message earlier this month, suggesting that “swingeing cuts” could not be made in the coming year because of the economy’s weakness.
Mr Darling, who is already preparing for a March budget, insisted on Saturday that it would highlight economic growth, and not tax and spending austerity, as the solution to the economic woes.
“Growth not only brings many of its own benefits, it is also a crucial part of our plan to reduce the deficit, because, as any family knows, when your income grows, it is much easier to reduce borrowing and cut debt.
“At a time of low private sector activity, continued government spending provides vital demand. Pull away that support too soon, or too rapidly, and you hurt growth, reduce the tax take, push up benefit spending, and eventually make borrowing worse,” he continued.
However, Mr Darling appears to be resisting the prime minister’s demand for a voter-friendly budget, with suggestions of extra spending in some areas, as he adopted a more frugal stance.
Meanwhile, Mr Brown’s decision to speak openly in an ITV interview about the loss of his daughter Jennifer in 2002 has led to complaints from the Conservatives that the Labour leader had been given an unfair election advantage.
However, Mr Cameron yesterday gave an interview to Scottish television station STV, where he spoke about the loss last year of his six-year-old son, Ivan, who suffered from cerebral palsy and epilepsy.
“It’s an incredibly difficult thing when you lose a child. Everybody has to decide what they do in terms of answering questions and how much they open up their lives. It’s something that just hits you in an incredible way.
“It takes quite a long time before you can even start to put things on track. Then afterwards you do find things do get better, but it’s not a straight line, you have good days and bad days, and that’s the way that it goes,” he told the programme.
