George Osborne should “listen to wise advice” as OECD deputy says government should reconsider pace of cuts

Ed Balls MP, Labour’s shadow chancellor, said in response to interviews in tomorrow’s Times and Financial Times in which the deputy secretary-general and chief economist of the OECD Pier Carlo Padoan says “we see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front”:

“This is a very significant intervention. Even the OECD, which has traditionally supported government economic policy and George Osborne’s deficit reduction plan, is now saying the Chancellor should consider changing course.

“As Labour has consistently argued we need more jobs and strong growth to get the deficit down in a sustainable way. But since the Conservative-led government decided to cut further and faster than any other major economy, growth has been much weaker and both unemployment and inflation higher than expected. The result is that the government is set to borrow £46 billion more than expected.

“George Osborne’s rigid determination, despite all the evidence, to stick with deep and fast cuts and refuse to even consider a plan B does not boost his credibility, it undermines it. We know the government’s most senior civil servants have drawn up a plan B, which Ministers have hastily rejected. But it’s now time George Osborne listened to wise advice, looked at what is happening to the economy and thought again about the speed and scale of his cuts.”

ENDS

A transcript of the Times’ interview with the OECD’s deputy secretary-general and chief economist Pier Carlo Padoan, which is available on The Times website here, can also be found below:

Extract from interview with Pier Carlo Padoan of the OECD

Extract from an interview on Tuesday between Sam Fleming and the Deputy Secretary-General and Chief Economist of the OECD

Q The OECD has been very supportive of the fiscal consolidation plans in the UK. Do you worry that they are going to bear down too hard on growth? I see you have taken your growth forecasts down again, from 1.7 to 1.4 per cent.

A We are incorporating new evidence. We are also saying that fiscal consolidation should be pursued, but at the same time we see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front, and we have seen good and bad news recently. So we not are saying just stick to it, we are saying take that into account. Especially given the fact that maybe monetary policy has less of a policy space to use because of the headline inflation story. So we fully recognize that in this transition phase while moving towards fiscal consolidation, which is needed because of the size of the deficit, that [the] pace of that could be modulated with respect to the performance results.

Q But even if that means potentially meeting fiscal targets a year later? Is that a worthwhile sacrifice to make in a sense?

A That is an intertemporal trade off. I would not say specifically a year later, I would say that you can slow down the pace over the next quarters, if things turn out to be weaker than expected.

Q But you are saying things are going to turn out weaker than expected because your growth forecasts are lower than the official forecasts.

A We have seen that they are a bit weaker than expected; should that continue to be the case then there is scope for, as I said, slowing the pace.

Q Does that mean slower cuts or reversing tax hikes? What’s the right way for a country in this situation to slow the pace of fiscal consolidation?

A I would not reverse the measures I have announced because that would bear down on credibility; I would slow down the pace of spending cuts rather.

Q But that is effectively a reversal in itself though, isn’t it, slowing the pace of spending cuts?

A Frankly if you want to use the reversal fine but it’s not my word.

Q Fair enough. But in any case it’s not like…

A …You are going in the same direction, only at a different speed.

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Posted May 25th, 2011 by Ed's team

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