Michael Dugher: Coalition runs the risk of triggering double-dip recession

Clarke told a Sunday newspaper: "I think there's a 50-50 chance of a double-dip recession. What I'm worried about is the global uncertainties and our being hit by the downturns in key markets. I do not rule out the risk of a double-dip recession."

So there you have it. What Labour has been saying for months, has finally been admitted by a senior and experienced Conservative.

George Osborne's fiscal retrenchment, taking money out of the economy, is the biggest planned by any major economy anywhere in the world. UK growth figures were revised upwards at the end of August, a sign that the previous Labour government's support for the economy was having an impact, but the markets are extremely jittery and economists are fearful.

In the United States, the debate is not about fiscal tightening but whether a further stimulus might be needed to avoid a so-called double-dip. To make things worse for us here, Britain's major market is Europe, where the major centre-right governments are pursuing deflationary policies, meaning they are likely to buy even fewer goods and services from the UK.

All of this comes at a time when interest rates are rooted to 0.5 per cent – Conservative warnings about the threat of higher interest rates are a complete nonsense – and inflation is still historically very low. As Ed Balls has said: "As the second storm looms on the horizon, everything he (Osborne) is doing is designed to suck money out of the economy and cut public investment... His tax rises and benefit cuts will directly hit household finances at the worst possible time. It is the exact reverse of the policy which allowed Britain and the rest of the world to weather the first storm."

So if Ken Clarke has let the cat out of the bag, and if there's a growing consensus that our economy is fragile, what should our response be? Ed Miliband, the Doncaster North MP, used his first speech as Labour's leader to stress that he was serious about reducing the deficit. He said that economics teaches us that in times of recession, governments run up deficits. But he admitted that our economy was too exposed to financial services, that the impact of the crash

was therefore deeper on us than on others, and that we need to build a more balanced and resilient economy.

While he restated Labour's position that the deficit being halved in four years was the starting point, he made clear that growth was the priority, arguing: "When you cancel thousands of new school buildings at a stroke, it isn't just bad for our kids, it's bad for construction companies at a time when their order books are empty."

In office, Labour was already committed to a greater and faster reduction in the budget deficit than any British government in living memory. We are not, in George Osborne words, "deficit deniers" but believe that the deficit must be reduced in a way that does not put in jeopardy our economic recovery, upon which so many people rely in this region for their jobs, their homes and their livelihoods.

But whereas the Tories and Liberals want to use predominantly public spending cuts, together with a VAT rise which clobbers the unemployed and the poorest pensioner to the same extent that it hits the banker and the millionaire, Labour understands that there are three ways to drive down the deficit. Yes, you must cut spending. Labour was already committed to difficult reductions – the Tories want to see 87bn over and above Labour's cuts. But you can also use fair taxation, and, critically, policies for jobs and growth.

Labour has always believed that those with the broadest shoulders should bear more of the weight. After all, it was speculators in the banks – not families in Barnsley – that caused the global financial crisis, so why should the most hard-pressed people have to deal with the consequences?

Ed Miliband made it clear that Labour will be a responsible opposition and that means we will not oppose everything the coalition Government does. But cutting government spending too quickly, and by too much, is not only unfair, it also jeopardises the recovery, jobs and growth.

Ken Clarke's fears of a double-dip recession may well be proved right. I hope not. But it is increasingly clear that it is the policies of Cameron and Nick Clegg, the Deputy Prime Minister, that risk turning those fears into a reality.

Michael Dugher is the Labour MP for Barnsley East.