‘Ditch cuts to rescue UK economy’

The authors of “Plan B”, a study by centre-left think-tank Compass – which has been backed by 100 leading economists – argues the Chancellor’s hard-line plans to tackle the deficit are stifling growth and in danger of deepening the economic crisis.

The report says the coalition Government’s decision to cut public spending on a scale not seen in generations is “making the situation not better but worse” by holding back Britain’s recovery and denying the Treasury the proceeds of a strong economy.

Radical suggestions it puts forward include the use of quantitative easing to cancel out £50bn of the country’s long-term private finance initiative (PFI) debts – saving £200bn in the long run – and funding an enhanced Green Deal scheme where an army of young and unemployed people are trained to renovate buildings and make them energy efficient.

A financial “transaction tax” on the City should also be introduced, the authors say, to raise income, while an arm’s-length British Investment Bank should set up to fund new capital projects.

“The Government is taking a terrible gamble that reducing spending by £130bn over five years will have no effect on economic activity,” the report said.

“This presumes the private and public sector are separate, when they clearly aren’t. Cuts in the public sector have knock-on consequences.”

The report points to Britain’s dismal economic performance over the 18 months since the coalition came to power, with growth forecasts endlessly downgraded and the country hovering dangerously on the edge of a double-dip recession.

The study echoes assertions from Labour and many others on the left that austerity measures are back-firing by hammering the Treasury’s own tax revenues and leaving hundreds of thousands dependent on the state.

“This is not to argue that the deficit can be ignored indefinitely,” the report said. “But if demand could be restored and the employment rate increased, a significant portion of the structural deficit would disappear.

Other suggestions include raising benefits for the poorest “to ensure money goes to people who most need it, and who will spend it, thus boosting aggregate demand.”

In the longer-term, there is a more ideological call to “rebalance society” with moves to a shorter working week to tackle unemployment, and to re-engage the workforce by offering staff higher pay and more influence in decision-making.

Compass general secretary Gavin Hayes said: “With unemployment soaring and growth spluttering to a halt it’s clear that the Government’s Plan A has put the brakes on the British economy and it’s time for a Plan B – that’s why we’re calling on the Government to adopt a package of measures to protect people’s jobs and public services, whilst at the same time kick-start growth.”

Shadow Chancellor Ed Balls would not comment directly on the report but said a fresh approach was needed.

“We need a plan B now because plan A for austerity is hurting but isn’t working,” he said.

“The Government is set to borrow £46bn more than they planned because trying to cut spending and raise taxes too far and too fast has choked off the recovery and pushed up unemployment.

“This extra borrowing to pay for the costs of failure will rise even further unless we start seeing strong growth and falling unemployment soon.”