Lib Dems turn on George Osborne over cuts

Ministers demand action on growth as IMF economist calls for Plan B

George Osborne is under mounting pressure to slow the pace of his spending cuts amid growing fears that Britain could be heading for a “triple-dip” recession.

Liberal Democrat cabinet ministers are worried that the Government is not doing enough to boost growth, and are privately pressing the Chancellor to speed up job-creating building projects in his March Budget.

The chief economist at the International Monetary Fund called for Britain’s planned spending cuts to be slowed – in effect for an economic Plan B.

City analysts expect figures published by the Office for National Statistics tomorrow to reveal the economy shrank during the final three months of last year, after a mini-boost from the Olympic Games. A second consecutive quarter of negative growth in the first three months of this year, made more likely by bad weather, would tip the country back into recession.

Simmering behind-the-scenes tensions between the two coalition parties over economic policy have surfaced with Nick Clegg saying: “Wherever we can we’ve got to mobilise more investment into productive capital because the economic evidence is overwhelming. It helps create jobs now; people go on to construction sites; it raises the productive capacity of the economy in the longer run.”

The Liberal Democrats are not calling for a Plan B, which would divide the Coalition on its central mission of tackling the deficit.

But in an interview with Parliament’s The House magazine published today, the Deputy Prime Minister admitted the Coalition made a mistake when it cut capital spending soon after it was formed in 2010. He said: “I think we’ve all realised that ... in order to foster a recovery you need to try and mobilise as much public and private capital into infrastructure as possible. So what we’ve done since then, in effect, is come up with various surrogate ways in getting working capital into infrastructure.” Mr Clegg cited the Treasury’s £40bn of guarantees for infrastructure projects and £10bn for house building.

The Liberal Democrat leader said the Government should “put money back into the pockets of people on middle and low incomes” so they could keep the economic wheels turning by spending on the high street.

Liberal Democrat ministers including Vince Cable, the Business Secretary, are also fighting to protect building projects in a government-wide spending review for 2015-16 now under way. Mr Osborne, meanwhile, is seeking an extra £10bn of cuts.

The IMF’s chief economist, Olivier Blanchard, said yesterday that the continued weakness of the UK economy justified a change of fiscal course. “Slower fiscal consolidation in some form may well be appropriate,” he told BBC Radio 4’s Today programme.

Last May, the IMF, in its annual review of UK finances, recommended that the Coalition should ease up on its austerity measures to support growth if the economy continued to under-perform. “Our early advice is still there,” said Mr Blanchard.

“We’ve never been passionate about austerity. From the beginning we have always emphasised that fiscal consolidation should be slow and steady.

“We said that if things look bad at the beginning of 2013 – which they do – then there should be a reassessment of fiscal policy. We still believe that.”

Mr Blanchard said, “You have a Budget coming in March. We think this is a good time to take stock and see whether some adjustment could be made,” he said.

City analysts have speculated that Britain could lose its triple-A credit rating, which is already on a negative outlook with all three of the main ratings agencies, after public borrowing rose in December.

Mr Osborne, asked about Mr Blanchard’s call at the World Economic Forum in Davos, said that he would be sticking with his existing spending cuts schedule. “I have been prepared to let the automatic stabilisers operate in the UK but I don’t think it’s right to abandon a credible deficit-reduction plan,” he said. “That credibility is very hard-won and very easily lost. It would be a huge mistake to put that at risk”.

The Chancellor received a pre-release yesterday of the official figures for the final quarter of 2013. Asked in Davos about how he would describe the present condition of the UK economy Mr Osborne said: “We are walking a difficult road, but we are heading in the right direction”. He added: “We’re not about to bring that [cuts] programme to an end. We’ve set out a programme of deficit reduction until 2017. Britain still has a high budget deficit. I wish it were not the case. This new Government is having to deal with this.”

Asked whether his current fiscal plans are working, the Chancellor said: “I would say the rebalancing is taking place.”

Treasury sources suggested that Mr Blanchard did not speak for the IMF as an institution. “It’s no surprise coming from Mr Blanchard,” said one a senior source. “Everyone knows there’s a debate in the IMF about this and he’s at one end of it”. The source also pointed out that the IMF called for the policy to be reappraised at the beginning of 2013, but there has been no hard economic data yet showing how this economy has been performing this year.

Nevertheless, other prominent economists backed Mr Blanchard’s call for a change of course. Adam Posen, who left the Bank of England’s Monetary Policy Committee last year and was also in Davos today, said: “I cannot add anything to Olivier’s call, except to say, ‘Right’.”

The shadow Chancellor, Ed Balls, said: “David Cameron and George Osborne must finally heed the IMF’s advice. They have repeatedly warned that a change of course would be needed in Britain if the economy turns out worse than expected. The IMF is now clearly losing patience.

“The longer the Government clings on to its failing plan, the more long-term damage they will do to our economy. David Cameron and George Osborne must now put political pride aside and put the national economic interest first.”

I just want the best: Clegg may send son to private school

Nick Clegg has suggested that he and his wife may send their son to a private secondary school this year.

The admission came during the Deputy Prime Minister's weekly phone-in show on LBC Radio. He said his son, Antonio, could be educated privately when he leaves his state primary in Putney, south London, this summer.

"Like all parents who are sending their children to secondary school in London... there is huge competition for places," said Mr Clegg. "I just want the best for my child and that's exactly what I think most people listening to this programme want for their children..."

Mr Clegg has in the past described the "corrosive" social divisions caused by private education.

Prime Minister David Cameron this week said he plans to keep his daughter Nancy at her state primary school.

Sam Masters

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Personal Tax Senior

£28000 - £37000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Customer and Markets Development Executive

£22000 - £29000 per annum: Recruitment Genius: This company's mission is to ma...

Recruitment Genius: Guest Services Assistant

£13832 per annum: Recruitment Genius: This 5 star leisure destination on the w...

Recruitment Genius: Sales Account Manager

£20000 - £32000 per annum: Recruitment Genius: A Sales Account Manager is requ...

Day In a Page

A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory