Clarke has let cat out of the bag on cuts, Labour claims

Government seizes on shadow minister's decision to back European Commission
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Indy Politics

Gordon Brown last night rejected demands by the European Commission for a further and faster reduction in Britain's £178bn public deficit as ministers warned it would mean "reckless" extra spending cuts of more than £25bn.

Labour tried to turn the tables on the Conservatives after Kenneth Clarke, the shadow Business Secretary, endorsed the Commission's stinging criticism of the Government's plans to balance the nation's books. Ministers claimed Mr Clarke had let the cat out of the bag about the Tories' secret plans by putting a figure on the cuts they would make if they win the general election.

The unexpected intervention by Brussels raised the temperature in a debate over cuts likely to dominate the election campaign. The timing of the Commission's report, formally published today, is embarrassing for Alistair Darling, coming a week before he unveils his Budget.

Yesterday the Chancellor shrugged off the public rebuke and made clear he would not change his strategy. The Commission has no power to fine Britain for exceeding its guidelines because it is not a member of the euro.

Speaking after a meeting of European Union finance ministers in Brussels, Mr Darling said: "The EU must concentrate on getting deficits down – and make sure we can achieve sustainable recovery. We are doing it in a way which is sustainable, manageable, and which does not damage the social and economic fabric of our country. My judgement is that this is the right thing to do, and that judgement is shared by many economic commentators: the Commission advice is wrong."

He said the Tories would have to find £25bn of extra cuts to follow the Commission's approach, adding: "The Tories have jumped on a passing bandwagon, and, unusually for them, it happens to be a European one."

Labour seized on remarks by Mr Clarke, a former chancellor, in a series of media interviews in which he described as "the right sort of target" the Commission's call for Britain's deficit to be reduced to below 3 per cent of gross domestic product (GDP) by 2014-15. He said: "What has to be done now is to get this debt rapidly under control and get rid of the bulk of the structural deficit during the next parliament."

Mr Clarke added: "A new government is required to start cutting spending now, get rid of wasteful spending, and to continue to get on to the perfectly sensible target of 3 per cent of GDP for a deficit, which was the rule I had when I was Chancellor."

Labour's plans, to be confirmed in the Budget, would reduce the deficit from 12.1 per cent of GDP in 2010-11 to 4.7 per cent in 2014-15. They envisage spending cuts of £31bn, efficiency savings of £7bn and tax rises of £19bn to halve the deficit over those four years.

Mr Brown said last night: "The EU Commission has made clear that we should not have the fiscal stimulus removed until the recovery is assured. We will therefore make the best decisions for Britain, for British growth and for British jobs."

The Tories, who will announce more details of what they would cut after the Budget, insisted that Mr Clarke had not committed the Tories to a new policy and that his remarks were totally in line with statements by the shadow Chancellor, George Osborne.

Nick Clegg, the Liberal Democrat leader, warned that a government which tried to "ram through" spending cuts without popular support could be "torn to pieces" and face huge social unrest. He said: "If we do not find a way to take the people of Britain with us on this difficult journey of deficit reduction, we will not be able to make the journey. We will instead follow Greece down the road to economic, political and social disruption."

Charles Bean, deputy governor of the Bank of England, intervened in the argument about the deficit, describing its current level as "unsustainable". In a speech yesterday he said that allowing the deficit to rise was helpful in cushioning the fall in demand. But Mr Bean added: "The deficit now looks set to be around 12 per cent of GDP this year, which is unsustainable in the medium term."

"Fortunately, all political parties recognise the need to put in place a credible plan for the consolidation of the public finances over the medium term, even if their preferred routes to doing so differ," he said.

He also warned that the housing boom had resulted in some households, especially younger ones, carrying forward high levels of debt.