Video: Defiant Clegg shrugs off calls for 'Plan B' on spending cuts

DEPUTY Prime Minister Nick Clegg has brushed off calls for the Government to adopt a "Plan B" to cuts and insisted the coalition will help a new economy rise "phoenix-like" from the ashes of the old one.

He told an audience at the Advanced Manufacturing Park in Rotherham that although the Government's determination to cut the deficit was "centre stage" at the moment, Ministers are focused on growth.

In an attempt to counter accusations that the Government is risking the recovery by its determination to push ahead with tough spending cuts and is insufficiently focused on economic growth, Liberal Democrat leader Mr Clegg also talked up the coalition's drive to tackle regional inequalities "running like scars across our country".

He also threw his weight behind Yorkshire's drive to be at the centre of a green energy revolution by insisting carbon capture and storage (CCS) – where emissions from industry and power stations are captured and piped to safe storage under the North Sea – is destined to play "an enormously important part" in the new economy.

"Right now, our deficit reduction plans are inevitably taking political centre stage," said Mr Clegg. "And nobody should be in any doubt of our determination as a coalition Government to stick to those plans.

"But as I have argued today, our ambitions go far beyond deficit reduction. We are equally determined to set our economy on a new course; to fuel growth in a new, more balanced way; and to replace the old, debt-ridden economy with a new one, based on investment, export and sustainability.

"The old economy got burned down in the financial crisis. But a new economy might be able to rise, phoenix-like, from the ashes of the old."

His choice of Rotherham, not far from his Sheffield Hallam constituency, to make his first economic speech was significant, given fears in South Yorkshire over the impact of cuts to local government funding and business grants.

Mr Clegg is still widely criticised for the Government's decision to axe the 80m loan to Sheffield Forgemasters which had been set up by Labour before the General Election and which the coalition said was unaffordable.

With ambitious plans for a CCS network based around the Humber and South Yorkshire, which would link major industrial and power plants to a huge pipeline going out to empty gas fields in the North Sea, Mr Clegg said: "CCS will play an enormously important part in the new, re-balanced economy.

"It is an industry of the future; taking the best of British talents in manufacturing, engineering and research; using our natural resources; and spreading growth – green, sustainable growth – across all corners of the UK."

He said investing in CCS now could create export opportunities of up to 6.5bn a year by 2030, although there was no news on when the Government will decide on where it will fund another three pilot projects.

Rejecting criticism that the Government has focused purely on cutting spending and neglected a plan to grow the economy, he said he would not apologise for the delay in publishing a growth strategy until the Budget, saying it was being treated with "the utmost seriousness". The coalition, he said, had inherited a "failed economic model" from Labour and the country needed to "wean ourselves off debt-financed growth".

"It is very tempting in a time of economic difficulty for governments to churn out initiative after initiative, in a desperate attempt to stimulate the economy or – all too often – to try and give the appearance of doing so," he said.

"And politicians can fall prey to the myth that somewhere there is a lever they can pull to generate growth, and that they should simply pull as many as possible in the hope of finding it.

"We have learned the hard way that an economy built on debt is built on sand. Right now, we are going through the sometimes painful process of unwinding a toxic legacy of debt.

"We should not fall into the trap of seeing deficit reduction and economic growth as separable. Our deficit reduction plan is a vital element in our growth plan."

Middle classes 'will pay the price'

Middle-class families facepaying the price for the

Government's plans to raise the income tax threshold and help the low paid, Mr clegg admitted.

He admitted there would be "knock-on" effects as the coalition raises the starting point at which people pay tax towards 10,000.

In the frst step this april, the threshold will be raised by 1,000 to 7,457, meaning 500,000 will stop paying income tax altogether – but the

higher rate threshold is being lowered to compensate and experts say an extra 750,000 could pay the 40 per cent rate.

Asked if such people would have to bear an ever-greater burden as the lower threshold goes up, he said in an interview: "you need to fnd

the money from somewhere because we are not going to borrow it."

He said there would be a "wider" re-balancing of thetax system to cut down on tax avoidance, but accepted there would be consequences for the

middle classes.

He claimed there would be "consistent, constant" steps towards the 10,000 lower threshold, but added: "as for the knock-on effects on other parts of the tax system, particularly for those people who are brought into the

upper rate of tax, that is clearly something we would want to look at."

He said some stories about numbers affected had been exaggerated.