- Prime Minister said oil prices and Euro crisis responsible harming growth
- Claimed the Office for Budget Responsibility backed his view
- But watchdog chairman says spending cuts have curbed growth
- Labour seizes on intervention as ’embarrassing’
23:47, 8 March 2013
23:48, 8 March 2013
Prime Minister David Cameron has been given an embarrassing rebuke by the budgetary watchdog
Britain’s independent fiscal watchdog has rebuked David Cameron for claiming it backed the Government view that austerity measures are not to blame for the lack of economic growth.
In a speech on Thursday, the Prime Minister said the economy had been harmed not by spending cuts and tax rises to reduce the deficit, but by soaring oil prices and problems in the eurozone.
He said this view was backed by the Office for Budget Responsibility, which was set up by the Coalition in 2010. Mr Cameron claimed the OBR was ‘absolutely clear that the deficit reduction plan is not responsible [for low growth], in fact, quite the opposite’.
But in an unprecedented rebuff, Robert Chote, the OBR’s chairman, said it has always argued that spending cuts and tax rises would impact on economic growth.
Mr Chote wrote: ‘For the avoidance of doubt, I think it is important to point out that every forecast published by the OBR since the June 2010 Budget has incorporated the widely-held assumption that tax increases and spending cuts reduce economic growth in the short term.
‘To summarise, we believe that fiscal consolidation measures have reduced economic growth over the past couple of years.’
But Mr Chote agreed that the 2008 financial crisis, chaos in the eurozone and high oil prices were ‘more likely explanations’ for why growth had been even weaker than expected.
Labour seized on the letter, saying it was ‘embarrassing’ for Mr Cameron.
Ed Balls, the Shadow Chancellor, said: ‘This is another embarrassing rebuke for the Prime Minister, just 24 hours after his panicky and defensive speech on the economy.
‘Deep spending cuts and tax rises have reduced economic growth, as the OBR says, and so it was deeply misleading for David Cameron to claim otherwise.’
He added: ‘David Cameron must be living on another planet if he thinks spending cuts and tax rises have had no impact at all.’
The Prime Minister was slapped down last month by the head of the independent UK Statistics Authority for saying the Government was reducing its debt, when in fact it was rising.
A Downing Street spokesman said the OBR had highlighted ‘external inflation shocks, the eurozone and financial sector difficulties as the reasons why their forecasts have come in lower than expected’.
‘That is precisely the point the prime minister was underlining,’ he added.
Business Secretary Vince Cable backed the PM, saying the squeeze on British living standards was not ‘primarily due to the impact of the Government’s measures’.
Critics: Shadow Chancellor Ed Balls, left, described the intervention as ’embarrassing’ while Lib Dem president Tim Farron, right, said it was wrong to ‘overstate what the OBR is saying for political reasons’
But Lib Dem president Tim Farron, said it was wrong for the Prime Minister to ‘overstate what the OBR is saying for political reasons’.
‘We have to accept what they say. We might not always agree with it, but the figures which the OBR put out have to be taken at face value,” he told the BBC News Channel.
Business Secretary Vince Cable has been openly calling for a more relaxed approach to borrowing to allow more spending on infrastructure to boost growth, despite the coalition’s focus on trying to reduce the deficit.
But the government’s economic strategy was dealt a blow when Britain’s AAA credit rating – trumpeted by Chancellor George Osborne as a sign that he was on the right track – was downgraded last month.
Business Secretary Vince Cable backed David Cameron saying the squeeze on living standards has not been cause by the Government’s austerity measures
He now faces pressure from Lib Dems to raise spending on infrastructure while Tory backbenchers are demanding tax cuts to stimulate growth.
Insiders believe that the letter from Mr Chote was a legitimate attempt by the OBR to reassert its independence from politicians.
Vince Cable the Business Secretary, backed the PM. He said the squeeze on British living standards was not ‘primarily due to the impact of the Government’s measures’.
‘We’re doing what we have to do, getting the economy right. The evidence is very clear that the squeeze on living standards that took place, which was very painful, was not primarily due to the impact of the Government’s measures and the Government had to take action on the budget,’ he told Sky.
‘We inherited at that time the largest deficit in the developed world. We had to do something about it. We’re going to continue to do something about it.’
Sir Alan Budd, the former head of the OBR, said Mr Chote’s letter should act as a warning to politicians that they would be publicly corrected if they misused independent figures. He said he was surprised that someone briefed David Cameron to say ‘the deficit reduction plan is not responsible, in fact quite the opposite’ in his speech yesterday.
‘I think it’s a firm, polite letter, and it’s extremely important that it has been written, quite how it balances in people’s minds is a much more difficult matter. I think the important thing here is that the Office for Budget Responsibility must be extremely determined to show that it is independent,’ he told BBC Radio 4’s Today programme.
Sir Alan added: ‘I think he has to be more careful about what he says but again these are political matters, those are for the politicians to decide. But I hope what politicians from both parties are aware of is if they misuse information from these independent institutions then they will be publicly corrected.’
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