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Monday, June 14, 2010

Clegg calls for action on the deficit

Nick Clegg is due to make a keynote speech today in which he will defend the Liberal Democrats' change of heart in favour of making immediate cuts so as to tackle the deficit.

According to the Daily Telegraph Clegg will say that it is vital to take action to tackle the £145 billion deficit:

He will tell the Institute of Government in London: “It [cutting the deficit] is the only way we can get our public finances on a sound footing. And to do anything else would not only be irresponsible, it would be a betrayal of our progressive values.”

Stressing the urgency of the problem, Mr Clegg will say that “choices that were available to us just two months ago are no longer available”.

The crisis in eurozone countries has increased the charges to governments that want to borrow money. He will say: “We have to take action now so that we can still be in control of our future.”

Mr Clegg will also accuse ministers in the Labour government of being in denial.

Whatever the arguments that Labour will employ against this there is no doubt that they would have implemented similar cuts. The only difference appears to be on timing and opinion is split on what impact that will have on the recovery.

Spending may well stimulate demand for example but if Britain loses its AAA credit rating it will have an impact on exchange rates and interest rates, which in turn will wipe out any economic advantage from that spending.

It is a fine judgement but in this case I am more inclined to trust Ministers who have access to the books rather than a Labour party whose failure to regulate the banks helped to get us into this mess in the first place.
Peter, The difference is not just one of timing I'm afraid. Labour planned cuts in the region of £51 billion to cut the structural deficit to 0.7% of national income by 2014/15. Your party now supports cuts of £85 billion to eliminate the structural deficit. If you continue to protect health and international aid then the cuts required in the other departments amount to £82 billion. This will require cutting defence and transport by about a third. There is a need to cut the deficit but this is not the way to go about it I'm afraid. Why are Liberal Democrats supporting a 80/20 split in favour of public expenditure cuts when even Lamont and Clarke in the 1990s used a more equitable 50/50 split between public expenditure cuts and tax rises? The only two economists in the Coalition cabinet are Liberal Democrats and surely they can see in the words of Paul Krugman that what is being proposed is 'utter folly posing as wisdom.' Unfortunately for Liberal Democrats you have been taken over by the faction of Liberalism that lost the argument against Lloyd George and the New Liberals before 1914. As Larry Elliott argued in an article in yesterday's Guardian which I'm sure you have read: "Is it, for all Nick Clegg's guff about 'progressive cuts', that the real agenda is to complete the demolition job on welfare states that was started in the 1980s? Or is it simply that the deficit hawks are simply crackers." Over to you Peter.
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