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Sunday 21st of February 2010
February 19, 2010    

Senior economists support delay in spending cuts

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by Kay Murchie

Despite calls from leading business groups to take urgent action with regard to spending cuts, Chancellor Alistair Darling, has received support to delay cuts until 2011.

According to David Kern at the British Chambers of Commerce, the UK’s credit rating is being put at risk by the Government’s failure to act more quickly.

However, over 60 senior economists have signed two open letters that support Darling’s decision to defer spending cuts until next year.

The letters in the Financial Times warn that early withdrawal from stimulus measures could risk derailing the economic recovery.

The Treasury recently said it hoped the public deficit (the difference between Government receipts and spending) would stay below £170 billion for the current fiscal year.

Official figures yesterday revealed that the UK’s public finances deteriorated last month with net borrowing at £4.3 billion.

January is traditionally a strong month for tax receipts - due to income and corporation tax. However, tax income was lower than expected and it is the first borrowing figure for the month of January since records began.

The issue of trimming the Government’s deficit and wider public debts has become a political battle prior to the general election.

The Conservative party are committed to immediate cuts - believing that Britain could lose its triple-A credit rating and experience a debt crisis, like that in Greece, if urgent action is not taken.

Last week, former IMF chief economist, Simon Johnson, warned that the UK’s debt levels should be seen in the same category of highly indebted countries such as Greece.

However, Prime Minister Gordon Brown argues that the recovery is still too fragile and therefore spending cuts must be delayed - at least until the economy is strong enough to withstand it.

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