David Cameron reaffirms urgency of deficit reduction

David Cameron has said that the Government needs to go “further and faster” to bring down the deficit after the loss of Britain’s coveted AAA credit rating.

His comments raised hopes among right-wing Conservatives that George Osborne might announce further spending cuts in next month’s Budget. But it provoked alarm among Liberal Democrats, who are pressing for a boost for major projects such as housebuilding to kick-start the economy. One Lib Dem said: “Further cuts would be madness. It would be another self-inflicted wound.”

Speaking at Prime Minister’s Questions, Mr Cameron said that the decision by the rating agency Moody’s to downgrade the UK was “a reminder of the debt and the deficit problem” the country faces. He said: “It demonstrates we have to go further and faster on reducing the deficit.”

His official spokesman played down the significance of his remarks, saying: “He was referring to the Government’s policy as is. He was not making a new statement.” He explained that the “further” element included the extension of the timescale for debt to fall while “faster” related to an expected “acceleration” in the fall of the deficit over the coming years.

The Chancellor announced in December that the Government would seek a further £10bn of cuts in the 2015-16 financial year. Despite Mr Cameron’s statement, Mr Osborne is likely to reiterate that target in his Budget, before the Cabinet negotiates how the savings will be achieved in a government-wide spending review to be completed by the end of June.

Cuts for Whitehall departments over the next few years will be extended for a further year into 2015-16. But a Cabinet battle has already broken out between ministers over where the cuts will fall. Theresa May, the Home Secretary; Eric Pickles, the Communities Secretary and Chris Grayling, the Justice Secretary, are among those arguing that their empires should not take another hit and that the pain should be shared more widely. Their move has put “ring-fenced” budgets – health, schools, overseas aid and defence equipment – under pressure, but it would be politically difficult for Mr Osborne to cut spending on the NHS and schools.