Publications
Slash and grow? Spending cuts and economic recovery
| Author: | Giles Wilkes |
| Date of Publication: | October 2009 |
| Download: |
“Osborne’s plan for cuts imperils Britain’s recovery” says think tank
George Osborne’s determination to cut the deficit at all costs risks leaving the economy sluggish and the government still mired in debt, according to a new report from liberal think tank CentreForum.
The Conservative Shadow Chancellor is determined to be tough with the government deficit, and says that the economy can withstand the shock by turning to exports and capital investment for growth. But the report, ‘Slash and grow? Spending cuts and economic recovery’ shows how this relies upon highly optimistic assumptions. Even with a monumental collapse in the pound, there is little reason to believe that Britain’s export sector could respond fast enough to drive economic growth. Instead, this policy may just as easily weaken confidence and drive interest rates up, which would wreck a fragile recovery
Commenting, Giles Wilkes, the report's author, said:
“It’s no wonder that George Osborne would like to see Britain growing through soaring investment and an export boom - it’s the only way his highly ambitious plan to beat the deficit by 2015 can work. The trouble is that this sort of growth hasn’t happened for forty years – and conditions for such an unprecedented performance are hardly auspicious. The world economy is weak, Britain’s economy labours under mountains of debt, and the Bank of England is close to running out of firepower.”
“It’s true that Margaret Thatcher and John Major both managed to beat the deficit while restoring growth. But unlike the 1980s, Britain’s heavily indebted consumers can ill-afford to open their wallets, particularly if the government is going to carry out such a sharp assault on the public deficit. Given a choice between growth and debt reduction, the Conservatives should choose growth, or they risk achieving neither.”
Download spreadsheet for playing with future GDP levels