Financial News

  • 25 January 2013, 19:21

Nick Clegg Suggests Coalition Cut Too Deeply

Deputy Prime Minister Nick Clegg has appeared to admit that the coalition cut spending too deeply when it took power.

Speaking ahead of new GDP figures showing that the UK economy contracted by 0.3% over the last quarter, he said ministers had "comforted" themselves at the time that the reduction was in line with plans drawn up by the previous Chancellor, Labour's Alistair Darling.

In an interview with The House magazine, he said: "If I'm going to be sort of self-critical, there was this reduction in capital spending when we came into the Coalition Government.

"I think we comforted ourselves at the time that it was actually no more than what Alistair Darling spelt out anyway, so in a sense everybody was predicting a significant drop off in capital investment.

"But I think we've all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible."

Rachel Reeves, shadow chief secretary to the Treasury, said: "This is the first admission that this Government has made serious mistakes on the economy."

When asked about the interview, a spokesman for David Cameron replied: "The right decisions were made (on the economy)."

Mr Clegg later insisted that the Government was now doing the right thing and investing more in infrastructure.

He added that the latest GDP data "confirmed it does take time for the economy to properly heal".  

Friday's figures from the Office for National Statistics showed gross domestic product shrank by 0.3% in the fourth quarter of 2012, compared with a 0.9% rise in the previous three months.

The drop was worse than expected, with most economists forecasting a fall of 0.1%. It was mainly driven by the biggest quarterly drop in mining and quarrying output since records began.

If the economy also contracts in the current quarter the nation will be officially back in recession. It would be the third one in four years.

Economic output as a whole remained flat in 2012.

The figures add to growing pressure on the Chancellor to ease up on his hard-line austerity measures. George Osborne said the latest drop in GDP was a reminder that Britain "faces a very difficult situation".

He added:"(It's) a reminder that last year was particularly difficult, that we face problems at home with the debts built up over many years, and problems abroad with the eurozone, where we export many of our products, deep in recession.

"We can either run away from those problems or confront them and I'm determined to confront them so that we go on creating jobs for the people of this country."

Shadow chancellor Ed Balls accused Mr Osborne and the Prime Minister of being "asleep at the wheel".

He said: "They've spent the last six months obsessing about a referendum in five years time, not focusing on the problems in our economy today. And their decision in 2010 to raise taxes and cut spending further and faster choked off the recovery, as even Nick Clegg is now beginning to admit."

Unions also launched a fresh attack on the Government's economic policies. Unison general secretary Dave Prentis said: "Today's news means the prospect of a triple dip looms even larger. How much longer will it take for the Government to admit that it has got it wrong?"

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