GEORGE Osborne yesterday rejected a call from the International Monetary Fund’s chief economist to adopt a less aggressive stance on cutting the UK’s deficit.
The IMF’s Olivier Blanchard suggested this year’s Budget, due in March, “would be a good time to take stock and make changes to the austerity plan” and “slower fiscal consolidation” may be appropriate.
But the chancellor, speaking at the World Economic Forum in Davos, rejected the proposal, saying any reduction in spending cuts would risk Britain’s economic credibility.
“That credibility is very hard won and easily lost and I think it would be a huge mistake to put that at risk,” Osborne told an audience in the Swiss alps.
Osborne’s views appeared to contradict those of deputy Prime Minister Nick Clegg, set out in an interview yesterday where he seemed to regret the extent of the cuts to capital expenditure under the coalition.
“If I’m going to be sort of self-critical, there was this reduction in capital spending when we came into the coalition government. I think we comforted ourselves at the time that it was actually no more than what [former chancellor] Alistair Darling spelt out anyway, so in a sense everybody was predicting a significant drop off in capital investment.”
Clegg added: “But I think we’ve all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible,” Clegg told The House magazine.
Meanwhile Angela Merkel told the Davos conference that European leaders must keep down the cost of labour to ensure the EU remains competitive, adding that fiscal consolidation and growth “are two sides of the same coin.”
The German chancellor also declined to criticise David Cameron’s decision to call for a referendum on Britain’s continued membership of the EU and the two leaders held private discussions yesterday afternoon.
The Prime Minister used his speech at the conference to repeat his attacks on tax avoidance. “Companies need to wake up and smell the coffee, because the customers who buy from them have had enough,” he said. “I am a low-tax Conservative. But I’m not a companies-should-pay-no-tax Conservative,” he told business leaders.