Prime Minister David Cameron rejected suggestions that cutting taxes or increasing government expenditure would help Britain’s struggling economy, saying the risk of higher interest rates is too great.
Cameron mocked those, including Business Secretary Vince Cable from his Liberal Democrat coalition partners, who have called for more spending as talking “as if they think there’s some magic money tree.” To answer those in his own Conservative Party calling for tax reductions, he invoked a former Tory prime minister.
“Margaret Thatcher understood that a tax cut paid for by borrowed money is no tax cut at all,” Cameron said in a speech to business people in the swing electoral district of Keighley in northern England. “Getting taxes down to help hard-working people can only be done by taking tough decisions on spending.”
Over the past 50 years, Keighley, near Leeds, has usually fallen in general elections to the party that has gone on to win power nationally. The Conservatives must hold it in 2015 to stay in office. A week after the Tory candidate came third in a special election in Eastleigh in southern England, a seat the party hoped to gain, Cameron’s ability to win such battles is in question and his authority in the party may be waning.
Britain’s economy shrank 0.3 percent in the final quarter of 2012, leaving it on the brink of a triple-dip recession. The opposition Labour Party argues that the lack of growth is the result of Chancellor of the Exchequer George Osborne’s program of spending cuts to narrow the budget deficit. Moody’s Investors Service cut the U.K.’s top credit rating last month, citing the weak growth outlook and challenges to fiscal consolidation.
The premier’s speech took a course he’d told some of his lawmakers about two days ago. As discontent among them has risen, he has begun inviting small groups of them to private sandwich lunches around the Cabinet table.
At the most recent gathering, according to one of those present, who asked not to be identified as the meeting was private, Cameron discussed electoral strategy. He was asked about the Feb. 28 election in Eastleigh, where the Conservatives, who began the campaign with the goal of winning the seat from the Liberal Democrats, finished behind both their coalition partners and the U.K. Independence Party, which campaigns for withdrawal from the European Union and opposes Cameron’s plan to permit gay marriage.
The prime minister told the group that Lynton Crosby, his newly appointed campaign chief, was advising the party to “remove the barnacles from the ship” and stick to delivering a clear message about the benefits of continuing the austerity program, rather than change direction.
“The very moment when we’re just getting some signs that we can turn our economy round and make our country a success is the very moment to hold firm to the path we have set,” Cameron said in his speech today. “The path ahead is tough, but be in no doubt the decisions we make now will set the course of our economic future for years to come. And while some would falter and plunge us back into the abyss, we will stick to the course.”
Cameron said Osborne’s annual budget statement to Parliament on March 20 will “be about sticking to the course.” Cable contradicted the premier’s strategy yesterday, saying the economic argument in the U.K. may have shifted in favor of debt-funded capital investment, with slow growth now a greater concern than a loss of market confidence.
“There is a body of opinion arguing that the risks to the economy of sticking to existing plans are greater than the risks stemming from significantly increased and sustained public investment,” Cable wrote in an article in the New Statesman magazine, headlined “When the facts change, should I change my mind?”
Cameron denied there was a difference of opinion. “There is no need for me to fight with Vince Cable because he agrees with the government’s plan,” he told reporters after the speech, adding that the article had been approved by the Treasury.
Cable wrote that the coalition’s decision when it was formed in 2010 to emphasize austerity and deficit reduction was right at the time “in the context of febrile markets and worries about sovereign risk, at that stage in Greece, but with the potential for contagion.” Now, he said, “the question is whether the balance of risks has changed.”
Cameron invoked Thatcher again, using a slogan she frequently used, to say that no other course was possible for his government.
“We are making the right choices,” he told his audience. “If there was another way I would take it. But there is no alternative.”