Tuesday, 19 October 2010

Experts Say Government is Taking a "Reckless Gamble" With The Economy

By Ben Aulakh

“Lunacy,” a “reckless gamble” and the “greatest macro-economic mistake in a century,” three verdicts on cuts expected to be announced in tomorrow’s comprehensive spending review. 

Economist David Blanchflower, Shadow Chancellor Alan Johnson and Public Policy Expert Alistair Jones have all directed stinging criticism at the coalition governments expected spending reductions.

Chancellor George Osborne has already announced that he’s to slash the social housing budget by half; make access to council accommodation subject to means testing, and allow local authorities to charge tenants near-commercial rents.

David Blanchflower said that if the spending reductions went ahead, that the country was in “desperate danger of slipping back into recession.”

“Clearly you have to deal with the deficit, but there is no economics that says you have to deal with it in a week or a month.”

The former advisor to the Bank of England has also described the possible decrease in spending as “the greatest macro-economic mistake in a century.”

The National Health Service and Overseas Aid are expected to have their budget’s ring-fenced, though defence and education could have to manage with 8 per cent and 10 to 20 per cent less funding.

However, Alistair Jones, Public Policy Lecturer at De Montfort University says that there is no need for any cuts at all to be made to public spending.

“If the economy recovers to grow at only two per cent, the deficit will be halved within two years; if you then privatise the banks and get about a five per cent return that too can be put back into tackling the deficit.

“The sad thing is the we are not having a debate on whether we need to have spending cuts, only how quick those cuts need to be made, when it’s just sheer lunacy.”

Mr Jones also predicts that any spare money available to the government after deficit reduction measures will be used to fund a possible tax cut for higher earners.

The announcement that the social housing budget is to be cut by half has also been heavily criticised by Eileen Short, Chair of the Defend Council Housing action group.

She said, “'Attacks on secure tenancies, cuts in housing benefit and forcing up rents will create more debt, evictions and homelessness. 
“Tenants did not cause the housing crisis - we need investment in more and better council housing for all those priced out of the market, to make council housing once again a mixed and sustainable tenure of choice.”

Newly appointed Shadow Chancellor Alan Johnson has proposed a more balanced approach to deficit reduction, with a greater emphasis on “targeted tax changes and rises” without heavy job losses. 

“We need a more balanced approach to get the deficit down; growth and jobs are not a sideshow to the economic strategy, they are what it’s for.

“Without growth any attempts to cut the deficit will be self-defeating, a rising dole queue means a bigger dole bill and less tax coming in.”  

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