Osborne told he needs ‘Plan B’ for UK revival

Leading economists, including several who initially backed the Government’s austerity drive which has seen unprecedented cuts in public spending, say they have profound concerns about the direction of Treasury policy.

The economy has weakened markedly in the year since the coalition’s emergency budget and was stagnant in the six months to the end of March, with latest data suggesting the economy could be heading for a “double-dip” recession.

In a letter, 50 academics urged Mr Osborne to set out a strategy for growth, describing the deficit reduction plan as “self defeating”.

“It will probably not manage to close the deficit in the planned timeframe and the Government’s strategy is likely to result in a lot more pain and a lot less gain,” they said.

They call for a new green deal, a targeted industrial policy, a clampdown on tax avoidance, higher taxes on the rich and plans for job creation.

Shadow Chancellor Ed Balls yesterday challenged Mr Osborne to produce a Plan B for economic recovery, claiming the Government’s strategy for reviving the economy was faltering.

Mr Balls said: “Confidence is down and we are now seeing week by week more evidence the economy is stalling.”

He said Labour would cut spending and hike taxes, but more slowly than the Government which has pledged to eliminate the deficit by 2015, while Labour went into last year’s general election with plans to cut it by half.

“The economic impact of our plans would be better for the economy because we would be reducing borrowing but at a steadier pace. He (Mr Osborne) is going too fast and it’s not working,” said Mr Balls.

He admitted he “got it wrong” over bank regulation while a Treasury adviser as Labour pursued a “light touch” regulation policy towards banks, which helped cause the 2008 financial crisis.

He also called for a £2bn tax raid on bankers’ bonuses to fund job schemes to cut youth unemployment and fund thousands of new homes.

But Foreign Secretary William Hague defended the Government’s recovery plan.

“The harsh truth is that Gordon Brown did not leave this country with the luxury of a Plan B or a different economic strategy,” he said.

“We have to get down the debt he left, control the deficits he left and if we wavered from that for a moment then economic confidence would be reduced, the confidence of the financial markets would be very severely affected.

“It is vital to continue the course we have started.”

“There are many economists in the International Monetary Fund, the Organisation for Economic Co-operation and Development and the G20 who think that what George Osborne is doing is exactly right.”

Employment Minister Chris Grayling said the Government was focused on dealing with the “huge challenge of youth unemployment which has been rising sharply even in the years when the economy was doing well”.

“What we don’t need is the old failed ideas all over again,” he added.

Meanwhile the right-wing Centre for Policy Studies today claims the Government needs to open up public services to the private sector and introduce tax cuts to tackle the UK economy’s competitiveness.

It calls on the coalition to lower the tax burden and deregulate enterprise to “reverse the country’s decline”.

The think-tank has welcomed the Government’s attempts to slash the deficit and the decision to lower corporation tax but is calling on Ministers to go further.

It claims that since 1997 the country’s “competitiveness has been undermined by excessive regulation, high taxes and mismanagement of government finances”.

Tim Knox, acting director of the think-tank, said: “If growth is the key which will release us from our economic and fiscal predicament, then re-establishing competitiveness is crucial.

“But in order to return the UK to its competitive position achieved in the late 1990s, the coalition will also need to open up public services to competitive pressures, deregulate enterprise and lower the tax burden.”