Bill Clinton yesterday warned David Cameron that Britain’s spending cuts could end up raising the deficit. He becomes the highest profile critic yet of the Tory-led coalition’s economic strategy.
Speaking at the annual Campus Progress conference in Washington DC, the former US President said:
“In the current Budget debate there is all this discussion about how much will come from spending cuts, how much will come from tax increases. Almost nobody’s talking about one of the central points that everyone who’s analysed this situation makes – including the bipartisan Simpson-Bowles Commission – which said you shouldn’t do any of this until the economy is clearly recovering.
“Because if you do things that dampen economic growth. And the UK’s finding this out now. They adopted this big austerity budget. And there’s a good chance that economic activity will go down so much that tax revenues will be reduced even more than spending is cut and their deficit will increase.”
The warning follows concerns a fortnight ago from the head of the respected Institute for Fiscal Studies think tank, that “the prospects for growth certainly don’t look rosy” and that a Plan B might be necessary if the OBR downgraded its predictions of growth. The chief economist of the OECD, Pier Carlo Padon, has said recently, “we see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front.” Even the IMF said earlier this month that there are, “significant risks to inflation, growth and unemployment”.
US gross federal debt (Table 7.1) was 66.1 per cent when Bill Clinton became president in 1993 and had fallen to 56.4 per cent when he left office in 2001. In 2001 – after eight years of George Bush – it had risen again to 83.4 per cent.