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Osborne renews call for early deficit reduction

Shadow Chancellor George Osborne has warned that giving in to the “temptation” of a further fiscal stimulus and delaying deficit reduction will put long-term recovery at risk.

Writing in today’s Financial Times, alongside Jeffrey Sachs of Columbia University, Osborne calls for early budget consolidation, followed by further measures over five years.

He says: “We believe delaying the start of deficit reduction would put long-term recovery at risk. Such an approach misjudges politics, financial markets and underlying economic realities.

“The general notion that delay is beneficial in the short term because it provokes more spending today, irrespective of future debt burdens, is wrong, in theory and in practice.

“If the starting position is a large structural deficit, further fiscal ‘stimulus’ can darken consumer and business confidence by creating fears about future debt burdens.”

Over the weekend Chancellor Alistair Darling repeated his assertion that cutting public spending too quickly could damage the economy and that the UK and world economies remain fragile.

Darling told the BBC: “If anyone imagines for a moment that we are all out of the woods yet, that is simply not the case.

“My judgement is that halving the deficit over a four-year period with the structural deficit coming down by two-thirds, is the right [course of action].”

Speaking at the LibDem spring conference in Birmingham over the weekend, Shadow Chancellor Vince Cable warned against cutting spending too quickly, whilst LibDem leader Nick CLegg suggested the Government was “in denial” about the need for cuts at some point.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. This is all very well and good, and to be honest I think Osbourne is probably right when he says to bring down the deficit earlier. Yet, at the same time, now the polls are looking less one-sided, the Tories are reverting to the old mantra of promising tax cuts (IHT, corporate taxes, etc), and refusing to discuss cutting spending on frontline services (whatever they are).

    No doubt they’ll be telling us the problem can be solved by just “cutting waste”! Anyone who seriously thinks so should watch this:

    http://www.channelflip.com/2009/08/20/david-mitchells-soapbox-waste/

  2. Of course, what a lot of people fail to understand is that when Darling talks about halving the deficit he means the annual deficit, not the accumulated deficit, which will be at least £23000 for every man, woman and child by 2014.

    We need a lot of pain, pdq otherwise we could be in trouble for a long time, perhaps a generation. Time to take a leaf out of the Irish book.

  3. I’m not an economist and there are probably sound arguments in favour of either waiting or making a start. Personally, I lean towards the view that we should at least make a carefully considered start sooner rather than later. But that’s just MHO.

  4. If Darling refuses to say how the deficit will be addressed next week in the budget then we can expect the pound to tank.

    Politically he can’t do it.

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