June 6 (Bloomberg) -- U.K. Chancellor of the Exchequer George Osborne rejected calls for a “Plan B” to scale back his deficit-reduction plan if the economic recovery stalls.
Osborne said there is already flexibility in his program, the economy is creating jobs and investors have concluded the U.K. is a “safe bet” because the coalition government has committed to putting the public finances on a sustainable path.
“What our plan provides is credibility where there was no credibility, stability where there was no stability, confidence that the British economy is getting its act together,” Osborne said in an interview with BBC Radio 4’s “Today” show. “There is flexibility built into the plan. It’s flexible because it was very specifically designed to be cyclical.”
Osborne made his comments as the International Monetary Fund prepares to release its annual assessment of the British economy later today. A group of 52 economists wrote to the Observer newspaper yesterday saying government spending cuts, the deepest since World War II, are damaging growth and increasing the deficit by reducing tax income and increasing welfare costs.
“The breakneck deficit-reduction plan, based largely on spending cuts, is self-defeating in its own terms,” said the economists including Richard Grayson of London University’s Goldsmiths college. “It will probably not manage to close the deficit in the planned time frame and the government’s strategy is likely to result in a lot more pain and a lot less gain.”
Osborne said the signatories were taking a partisan view of the economic situation and ignoring signs of growth. Employment is rising, unemployment is falling and the most recent manufacturing survey is “encouraging,” he said.
“It’s not the case that all the data has shown there’s no growth,” Osborne told the BBC. “It’s very one-sided to say there are no signs of any growth in the British economy. It’s not borne out by the evidence at all.”
Ed Balls, Treasury spokesman for the opposition Labour Party, said the letter supported his argument that “confidence is down, and we’re now seeing, week-by-week, more evidence that the economy is stalling.” Data released May 24 showed Britain posted its largest budget shortfall for any April since monthly records began in 1993.
Osborne said his fiscal mandate is based on the structural deficit rather than the total shortfall so that automatic stabilizers can kick in if the economy hits a weak patch. The Treasury’s fiscal watchdog expects a structural deficit of almost 5 percent of economic output to return to balance by April 2015, a year earlier than needed under his rules.
He also said tight fiscal policy was allowing the Bank of England to hold down interest rates, providing a stimulus to growth.
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