Do we need to make further spending cuts?

The government has behaved recklessly. Assuming a strong recovery with high growth and rising tax revenues, it gambled that relatively modest spending cuts would be enough to fulfil the deficit reduction plan. The latest borrowing figures betray the magnitude of this miscalculation. It seems likely that the deficit will remain dangerously high, and there is a very real risk of the UK losing credibility in the bond markets.

Given the gravity of the situation, a combination of more substantial spending cuts and radical deregulation is the only realistic option for the Chancellor. The former would reduce the deficit directly while the latter would translate rapidly into higher growth. By contrast, a stimulus programme would only increase the risks facing the economy. Additional borrowing would put the deficit further into the danger zone and an even larger state would suffocate private-sector activity.

23 August, City AM

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