In a speech to British business leaders, the Conservative leader, David Cameron has pledged to cut the budget deficit this year if he wins power. In some of his most aggressive language yet on tackling the public finances and "restoring Britain's reputation", Mr Cameron warned that Britain could follow Greece into financial meltdown. At about 13 per cent of GDP, the UK and the Greek budget deficits are of similar magnitude.
Conservative sources have suggested that they would go ahead with such a plan to cut the deficit immediately, even if the economy was faltering or falling back into a "double-dip" recession.
But Mr Cameron drew back from asking for deep as well as immediate cuts in spending, hinting that behind the rhetoric the Opposition's plans may be closer to the Government's stance than at first appears. Mr Cameron said instant cuts did not have to be "particularly extensive".
The Tory leader maintained that the case for "early action" after the election of a Conservative government was "overwhelming" to prevent a Greek-style crisis that would result in rocketing interest rates and mortgage bills which would wipe out recovery and destroy confidence. He said a family with a £150,000 mortgage could end up paying £200 a month extra in such circumstances, which would "outweigh" any benefit to the economy of leaving the deficit unchanged.
He added: "We are saying you must make a start in 2010, but clearly the scale of what you can do needs to be worked out in conjunction with the Bank of England because we want to keep those interest rates low.... The biggest threat to the British economy is not dealing with the deficit."
Elsewhere in Davos, the Chancellor, Alistair Darling, and the Business Secretary, Lord Mandelson, claimed such moves would destroy economic confidence. Mr Darling argued it is "critically necessary" to maintain current plans until private sector investment begins to recover and stressed the fragility of the economy, which crawled out of recession last week. Mr Darling said that, "provided we stick to the current course", growth would be sustained – of 1 to 1.5 per cent in 2010.
However, the scale of fiscal entrenchment planned by the Conservatives is far from clear. Mr Cameron at one point indicated that it might be relatively modest for 2010 – radically reducing the scale of the differences between him and the Government.
Mr Cameron said: "It has to be early action, but it doesn't have to be particularly extensive; it just has to be early and it has to be action."
He suggested that relatively small cuts undertaken now as a token of determination would be more effective in persuading sceptical markets than much larger cuts in the distant future.
Vince Cable, the Liberal Democrat Treasury spokesman, said: "The economy remains dependent on artificial money creation and a Government running a massive deficit, but with growth of just 0.1 per cent, immediately slashing government spending would be disastrous."Reuse content