Plan B would risk another recession, coalition is told

A “PLAN B” involving higher government spending would risk pushing the UK into another recession, the Institute of Economic Affairs (IEA) will argue today.

The costs of servicing even greater government debt levels would prompt higher taxes towards the end of the parliamentary term, the think tank will warn chancellor George Osborne.

“We must resist the calls of those who say that one last, big spending push could get the economy back to meaningful growth,” Mark Littlewood of the IEA argues. “The opposite is true -- many Western economies might well be tipping back towards recession partly because of these giant fiscal packages that were enacted in 2009”.

The group’s report warns that “the next financial crisis will be one of government debt” across both the Eurozone and the US.

Liabilities such as on government sector pensions are set to worsen the debt crisis, the IEA says.

The government’s official net debt came in at £966.6bn in October, according to the Office for National Statistics, and will surpass £1 trillion by the end of the fiscal year.