U.K. Keeps Deficit Plan as Coalition Eyes Quicker Investment
U.K. Prime Minister David Cameron said his government will continue with its deficit-reduction plans amid calls from opposition lawmakers for a rethink as the economy struggles to exit a double-dip recession.
“We’ve cut the deficit by a quarter already, and we are sticking to this course: rejecting the easy path; restoring sanity to our finances,” Cameron wrote in an opinion column published yesterday in the Mail on Sunday newspaper. “We’re on a hard road to balancing Britain’s books” and “you cannot borrow your way out of a debt crisis,” he said.
With Britain striving to climb out of its second slump in three years, calls for the government to do more to spur the economy have intensified as the largest budget reductions since World War II and the euro-area debt crisis hurt demand.
While stopping short of saying he will fund new infrastructure, Chancellor of the Exchequer George Osborne said yesterday that the government will announce proposals to guarantee investment finance and is overhauling planning laws to accelerate the approval of projects. Legislation will be put forward this week, he said.
The plan is for the government to “use the low interest rates we’ve earned by being tough on the deficit to help underwrite construction projects, including housing,” Osborne said in a television interview on the BBC’s “Andrew Marr Show.” The government is doing “all these things to get the economy moving, to make sure that the jobs we’re already creating in this economy continue to be created,” he said.
“A lot of this is how you can make sure projects, particularly those big, sometimes controversial projects, can go through,” Cameron’s spokesman Steve Field told reporters in London today. “We are looking at the financing of those projects and the planning restrictions that might put a brake on those projects happening.”
The Campaign to Protect Rural England, a pressure group, said the “green belt” of countryside around Britain’s cities is “the envy of the world” which stops urban sprawl into rural areas.
“In times of economic slowdown, politicians can sometimes be tempted by the false promise of an easy construction boom,” Paul Miner, senior planning officer for CPRE, said in a statement on the group’s website. “But destroying the countryside is not the path to lasting economic prosperity. Sustainable economic improvement can only come from the sort of urban regeneration that has already done much to rejuvenate many of our largest cities.”
The chancellor has resisted demands to ease the pace of his fiscal squeeze, saying his plans have helped to insulate Britain from debt turmoil emanating from the euro-area. Based on 10-year government bond yields, the U.K. pays 1.64 percent to borrow compared with 2.65 percent in October last year. The rates are 6.77 percent for Spain and 5.79 percent for Italy.
The government said it will announce legislation this week to guarantee as much as 40 billion pounds ($63.5 billion) of infrastructure investment, as well as proposals for guarantees worth up to 10 billion pounds to boost homebuilding.
Osborne also said officials are working on creating a state-backed bank to lend to small businesses.
“The weakness in our banking system is one of the biggest problems we’ve got,” he said. “We do need to actively consider now, and actively work on as we are in the Treasury, a small business bank sponsored by the government. Small businesses are the innocent victims of the financial crash.”
The comments come after the Confederation of British Industry and the British Chambers of Commerce last week both urged the government to act to foster growth as they forecast the economy will contract this year.
The Bank of England in August abandoned its forecast of growth this year and said the outlook is “unusually uncertain” after the economy shrank 0.5 percent in the three months through June.
With tax receipts slowing in the face of the deteriorating outlook, Osborne will miss the Office for Budget Responsibility’s deficit-reduction forecasts until 2015, according to the chambers of commerce.
Chuka Umunna, the opposition Labour Party’s head business spokesman, said they would welcome a move by the government to speed up infrastructure projects.
“We would give an immediate boost to the economy,” Umunna told the BBC yesterday. “Unless you get people back into work, you can’t reduce your borrowing figures.”
Osborne said yesterday that he would ask his critics to support the government in making it easier to spur investment.
“We are getting on top of the deficit,” Osborne said. “Britain’s economic problems are deep-rooted, built up over many years. If there was a quick fix, or an easy road, I would be the first on it. There is no alternative easy road.”
“There is no simple alternative,” U.K. Business Secretary Vince Cable, a member of the Liberal Democrats, the coalition’s junior partner, said in an interview on BBC Radio 4 yesterday. “The way we have approached this is to make sure the government’s finances are in order so the Bank of England then has confidence to give stimulus through monetary policy. We’ve got to continue to work on that combination of things.”
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