DEFICIT cuts for this year are “too tight” and will slow down growth by over half a per cent, a leading think tank said yesterday.
The claims, from the National Institute of Economic and Social Research (NIESR), provoked the Treasury into response, with a spokesperson insisting the cuts are “a vital pre-condition to growth.”
And a separate study, released today by the Centre for Policy Studies, endorsed the fiscal austerity measures. Deficit cuts are “less risky and definitely a great deal more morally honest,” said author Jon Moulton – chairman of Better Capital.
However, NIESR accused the coalition government of slashing spending for political, rather than economic, reasons.
“Plans based on spending are not necessarily more credible and effective, but some politicians have an appetite for a slimmer state,” said acting director Ray Barrell.
And NIESR also criticised chancellor George Osborne’s VAT hike, describing the measure as inflationary and likely to cause more economic contraction than direct taxes. However, reductions in the deficit have to happen at some point, NIESR admitted.
“Deficits transfer income from our children to us -- a deficit reduction plan is essential, but you need to keep an eye on the economy,” NIESR said, suggesting that the recovery was too fragile for cuts to begin.
While predicting that growth will bounce back in the first quarter of this year, the figure will be “flattered” due to a rebound in activity that was delayed by December’s freezing weather conditions, said NIESR economist Simon Kirby.
Growth for 2011 will come in at just 1.5 per cent, Kirby forecast.
Labour used the report to attack chancellor George Osborne’s handling of the economy. “This report is yet another warning sign to a Conservative chancellor who seems to be in denial,” they said. “He needs a plan B and he needs one quick.”