Top economists call for rapid deficit cut
A group of leading economists warned today that the Government was putting Britain's economic recovery at risk without a "credible" plan for cutting its massive budget deficit.
An array of eminent academics and policy-makers put their names to an open letter urging that borrowing had to be reduced more quickly than Chancellor Alistair Darling set out.
They urged whoever won the forthcoming general election to present a "detailed" strategy to wipe out the underlying, structural deficit within five years.
There was a "compelling case" for cuts in 2010/11, they added.
Shadow chancellor George Osborne cited the intervention as proof that Prime Minister Gordon Brown's argument for dealing with the deficit had "collapsed".
The Tories promised to go "further and faster" in dealing with the £178 billion deficit than Labour's plans to halve it within four years. They want to start cutting in 2010.
The letter, to The Sunday Times, is signed by four former members of the Bank of England's monetary policy committee (MPC).
Other signatories include a former permanent secretary to the Treasury and Cabinet Secretary, and ex-chief economists of the International Monetary Fund, the Bank of England and HSBC.
They write: "In the absence of a credible plan, there is a risk that a loss of confidence in the UK's economic policy framework will contribute to higher long-term interest rates and/or currency instability, which could undermine the recovery.
"In order to minimise this risk and support a sustainable recovery, the next Government should set out a detailed plan to reduce the structural budget deficit more quickly than set out in the 2009 Pre-Budget Report.
"The exact timing of measures should be sensitive to developments in the economy, particularly the fragility of the recovery.
"However, in order to be credible, the Government's goal should be to eliminate the structural current budget deficit over the course of a Parliament, and there is a compelling case, all else equal, for the first measures beginning to take effect in the 2010/11 fiscal year."
They added that most of the deficit reduction should come from cuts in public spending and that any tax increases should be "broad-based".
And they called for more independent monitoring of the Government's performance against its fiscal goals.
Mr Osborne said: "This is a decisive moment in the economic debate in Britain - a moment when Gordon Brown's argument on the deficit has collapsed and a new consensus for more decisive action emerges.
"An impressive array of top economists, not just from Britain but around the world, are now clearly warning that the government does not have a credible plan to deal with the deficit and that this threatens the recovery with higher interest rates.
"Crucially, these economic experts also say there is a compelling case for starting in 2010 and that there should be independent oversight of the forecasts - two arguments we Conservatives have been making with force for months now."
Mr Darling is currently working on his last Budget before the election. It is expected to be held towards the end of March, ahead of a May 6 election.
The Sunday Telegraph reported that there were divisions between the Prime Minister and the Chancellor about the thrust of the financial statement.
Mr Brown was said to prefer a voter-friendly budget with spending increases in certain areas and even a hint of tax cuts. Mr Darling was apparently more keen to be frugal until the economy's recovery is better established. He is reported to be considering raising VAT to up to 20%.
:: The full list of signatories to the letter is: Orazio Attanasio, UCL; Tim Besley, LSE; Roger Bootle, Capital Economics; Sir Howard Davies, LSE; Lord Meghnad Desai, House of Lords; Charles Goodhart, LSE; Albert Marcet, LSE; Costas Meghir, UCL; John Muellbauer, Nuffield College, Oxford; David Newbery, Cambridge University; Hashem Pesaran, Cambridge University; Christopher Pissarides, LSE; Danny Quah, LSE; Ken Rogoff, Harvard University; Bridget Rosewell, GLA and Volterra Consulting; Thomas Sargent, New York University; Anne Sibert, Birkbeck College, University of London; Lord Andrew Turnbull, House of Lords; Sir John Vickers, Oxford University; Michael Wickens, University of York and Cardiff Business School.
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