Interest rates 'could rise without spending openness'

The Government's "lack of openness" over future public sector cuts and tax hikes could lead to a rise in interest rates, Tories warned today.

Shadow exchequer secretary David Gauke said a comprehensive spending review had been "kicked into the long grass" and the Treasury was "using uncertainty to suit themselves".

But Economic Secretary Ian Pearson said "pretty painful decisions" were needed and the Government would work to "eliminate waste, cut some budgets and stop some programmes altogether".

The exchanges came in the Commons during debate on a report on the UK's budget submitted to the European Commission at the end of last year.

Mr Gauke said that, as the slowest of all G7 economies to emerge from recession, the UK was in a "very difficult position".

He told MPs: "In those circumstances, the credibility of the plans to get us out of this mess is absolutely crucial...

"If our credibility is at risk and it clearly is, we will have to pay more for our debt and interest rates will rise unless something is done to address this."

Ministers had "obfuscated" in setting out any future spending detail, he said.

"This lack of openness, this lack of candour, is doing nothing for the credibility of this Government and for the public finances of this country."

But Mr Pearson said the Government took "bold action" in introducing a fiscal stimulus, which had proven to be effective. It was right to be "cautious" and not remove this support until recovery had been secured.

He warned: "Now's not the time to be engaging in rash cuts as the Conservatives want to do.

"There is a need for a judgment to be made in terms of when to make the necessary fiscal consolidation that will be required to ensure that we have sustainable public finances.

"There will be more to be done - not just now but over the next few years. This is going to involve some pretty painful decisions on public spending but it is right that Government faces those decisions."

Liberal Democrat spokesman Jeremy Browne said Alistair Darling and Gordon Brown were in a "state of complete denial" about the extent of the problem.

"We had the absurd spectacle of the Chancellor in his Pre-budget Report coming before us to tell us of all the tough measures he was taking in order to get to grips with the deficit and then announcing additional spending programmes which exceeded in value the amount of money he was saving with his austerity measures."

But the Tories had also shown they "don't have any meaningful proposals to reduce the deficit".

Mr Browne cautioned against cutting public spending too soon, warning "you do not switch off the life support machine until you are certain the patient is alive"..

Tory Eurosceptic Bill Cash (Stone) warned that the parlous economic situation in Greece could lead to a wider crisis in Europe.

Mr Cash, who was one of the leading opponents of the Maastricht Treaty in 1993, warned that even if Greece was bailed out, attention would turn to other weak economies in the eurozone.

"We have got ... a really serious crisis for the eurozone as a whole.

"I don't say that with any great satisfaction of gloating. All I say is I wish that people would have listened to those of us at the time, back in 1993."