Massive spending cuts could derail recovery

| July 21, 2010 | 1 Comment

The Treasury Select Committee has warned that cutting the deficit too quickly could risk pushing the UK back into recession.

Since coming to power, the new coalition Government has made cutting the deficit its top priority.

However, many leading business groups and former Chancellor, Alistair Darling, all warned that cutting the deficit too quickly could pose a threat to the fragile recovery.

Chancellor George Osborne will need to be prepared to postpone reducing debt and “stimulate” growth if the economy deteriorates, a report by the Committee warned.

“The Chancellor told us that he had built a degree of caution into the fiscal mandate by seeking to achieve it a year early,” the report said.

“We welcome this as a signal that if economic conditions demand it he may be prepared to take measures to stimulate the economy, even if these delay the current plans for cutting the deficit,” the report added.

The report also raised concern that cuts may have been introduced too early and “as such could cause the economic recovery to falter, leading to a ‘double dip’ recession.”

The report comes just a week after a senior member of the Office for Budget Responsibility, the economic forecasting body, said spending cuts have increased the chance of a double dip recession.

Geoffrey Dicks said public spending cuts and a hike in taxes will have slashed the forecast for growth which “logically increases the possibility of a double dip”.

Last month, Professor David Blanchflower, a former member of the Bank of England’s Monetary Policy Committee (MPC), warned that cutting the deficit too quickly risks putting the UK back into recession.

Mr Blanchflower, said: “I think if these plans are implemented it is almost certain that we are going to have a double dip recession.

“The issue is: where is the growth coming from in the economy?. We need a plan for growth, we shouldn’t be cutting now”, he said.

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  1. Simon France says:

    With the government obsessed with its “tunnel visioned” approach to reducing the UK’s deficit seemingly with no long term thought to how SME’s will cope with such savage cuts to vital tax benefits. All UK business owners must act quickly in securing every single tax benefit they are eligible for before they are blocked.

    One of the most valuable of which are Capital Allowances, but once again all commercial property owners must make their claim as soon as possible as this avenue of tax relief will be reduced as of April 2012.

    Speak to a professional Capital Allowance advisor now and ask about making a retrospective capital allowance claim - TOP TIP, type retrospective capital allowance claims into Google to get a heads up.

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