City: cut deficit sooner not later

THE NEXT government should start cutting public spending later this year, rather than waiting until 2011, according to our panel of City and business professionals.

Seventy-seven per cent of panelists said spending should start to be cut shortly after the May general election, amid worries over the UK’s yawning £178bn budget deficit and exploding national debt.

The City A.M./PHI Panel, which has been specially recruited to represent a cross-section of London’s financial and business community, was asked to say when fiscal tightening should take place. Just 18 per cent said the government should delay cuts until next year, while four per cent said it should wait until 2012 or later.

The Tories seized on the findings as proof that the City backs their plans to start cutting earlier than Labour, which has said it will wait until fiscal 2011. Shadow chancellor George Osborne told City A.M.: “This is a vote of confidence in Conservative economic policy. I want financial markets to know that a Conservative government will take decisive action to deal with Britain’s record budget deficit which will start in 2010.”

The Tories will be relieved that the City backs their approach, after last week’s survey of panelists found that less than one in four (23 per cent) thought that Osborne would make the best chancellor. The majority backed shadow business secretary Ken Clarke, who got 36 per cent of votes.

Yesterday’s results found 59 per cent of respondents to be very worried about the deficit, 32 per cent fairly worried, eight per cent not especially worried and one per cent not worried at all.

Meanwhile, the European Commission hit out at the UK’s plans to reduce the deficit, saying they lacked ambition. The report said it failed to guarantee Britain would meet an EU deadline of 2014-15 for cutting the deficit to below the bloc’s cap of three per cent of economic output.

And the report’s authors said the UK should “start consolidation in 2010/11 in order to bring the deficit below [three per cent of GDP] by 2014/15”, in comments that also appear to back the Tories.

A Treasury spokesman said: “As the chancellor has made clear, to withdraw support earlier and at the wrong pace risks wrecking the recovery.”