Don’t kill our economy with spending cuts, report warns
By One of the region’s leading economists has warned the UK economy could be pushed back into recession if the next government cuts public spending too much or too soon.
In a report for the South West Regional Development Agency (SWRDA), chief economist Nigel Jump said the state of the British finances were “a mess” and that the current levels of public debt were “unsustainable”.
However, measures to bring the public purse under control had to be delayed to ensure the recovery from recession was not halted or reversed.
In the latest Quarterly Economics Review, Mr Jump said: “Tightening too early or too vigorously could halt the recovery and plunge us back into recession – resulting in a ‘double dip’ in output.
“We have to make sure the patient will survive before implementing a “necessary regime of strict fiscal control.”
Speaking about the region’s outlook, Mr Jump added that the model that had brought growth to Bristol and beyond for the last decade is unlikely to be repeated, and the regional economy would have to change substantially if it is to succeed again.
He highlighted the essential role that low-carbon, environmentally sustainable businesses would play in the new economy for the region – which would have to adjust to a smaller public sector
“The South West economy will have to adjust its previous development model,” he said. “The public sector (including defence) and financial and business services (including housing/property) the drivers of South West activity on which we have relied in the last fifteen years, will have to be replaced by something else — probably new technologies in manufacturing, construction and business services that favour a shift to a lower carbon economy.
“This serves to re-emphasise the areas of regional development we have been highlighting for some time — investment in human and physical capital and the infrastructure of access to markets.
“Thereby, the region can envisage growth in the high-value-added companies that can … employ more people in a socially and environmentally sustainable fashion.”
His comments came on the day the two main political parties fought to take the high policy ground on the economy in the wake of Wednesday’s Queen’s Speech.
In yesterday’s Speech, a new law was unveiled to commit the Government to halve the national deficit, which will reach at least £175billion this year.
Labour is now under pressure to reveal in next month’s Pre Budget Report and next spring’s eve-of-election Budget the detail of how their target for deficit reduction will be achieved.
Today, First Secretary Lord Mandelson said that there will be changes to tax and public spending levels, adding: “When, how and on what basis in relation to which areas of government expenditure is something that the Government will address initially in the Pre Budget Report and again after the election.”
Income tax rises for top earners will be brought in next year and National Insurance will go up in 2011 under current plans.
In his response to the Queen’s Speech, Opposition leader David Cameron said Labour had “run out of money, time, ideas and courage”.
He said that Britain’s debt was forecast to be 14% of gross domestic product next year, compared to 7% when Denis Healey was Chancellor in 1979.
Mr Cameron did not go into details as to how the Tories would deal with the deficit, reiterating on the BBC Today programme pledges made in his party conference speech last month.
“You do need to freeze public sector pay for a year, except for the lowest earners,” he said. “People will need to retire one year later. Benefits such as the child trust funds must be taken away from middle and higher earners, and you do need to look at tax credits again.”
Yesterday, Simon Face, South West Regional Director of the Institute of Directors, said the speech was “full of populist measures but it won’t be very popular with business”.
“The Government has announced a Fiscal Responsibility Bill to do what it was planning to do already,” he said.
“The 2009 Red Book showed net borrowing more than halving from 12.4% to 5.5% of GDP by 2013-14. It’s somewhat worrying that the Government feels it needs the power of legislation to meet its own fiscal plans. We need more self-discipline and less legislation.
“If the Fiscal Responsibility Bill puts deficit reduction by lower public spending on the statute book, all well and good. However, our fear is that the Bill will merely become an excuse to raise taxation, particularly on business.”
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