King warning on UK deficit

<div>BANK of England governor Mervyn King launched a broadside against chancellor Alistair Darling&rsquo;s fiscal policy yesterday, urging the government to take drastic action to reduce the UK&rsquo;s &ldquo;extraordinary&rdquo; deficit once the recession begins to ease.<br /><br />The Treasury plans to sell &pound;220bn in gilts this year in a bid to pump money into the economy, but King warned that the government was still facing a &ldquo;long hard slog&rdquo; to repair the damage caused by the banking crisis.<br /><br />&ldquo;The scale of the deficit is truly extraordinary,&rdquo; he said.<br /><br />&ldquo;It reflects the scale of the global downturn but it also reflects the fact that we came into this crisis with fiscal policy itself on a path that wasn&rsquo;t itself sustainable,&rdquo; he told the Treasury committee.<br /><br />He said the next government would need a long-term plan to show how the deficit could be reduced below Darling&rsquo;s forecast of 5.5 per cent of gross domestic product in 2013-14.<br /><br />The head of the Bank added he had not been properly consulted on Darling&rsquo;s plans for reform of the regulatory system, prompting committee chairman John McFall to say he feared there was a &ldquo;communications black hole&rdquo; between the tripartite authorities.<br /><br />King issued the warning as Prime Minister Gordon Brown sought to paint the government as an investor in public services, compared to the Conservatives.<br /><br />But shadow chancellor George Osborne said King had dealt a fatal blow to the government&rsquo;s credibility on the economy.<br /><br />&ldquo;This is the demolition day for Gordon Brown&rsquo;s tax and spending policies,&rdquo; Osborne said, adding that King&rsquo;s comments had put paid to &ldquo;any claim that this discredited government ever had to a credible plan for the recovery&rdquo;.<br /><br />It is the second time in as many weeks that King has clashed with the chancellor after the two delivered contrasting speeches at an annual dinner at Mansion House last week.<br /><br />King hinted that banks that were too big to fail should be broken up, while Darling focused on the responsibility of banking executives for the financial crisis.</div>