Economists urge swift action to reduce budget deficit

December's pre-Budget report contained belt-tightening measures

The government must act more quickly to cut Britain's huge budget deficit, a group of economists has said.

In a letter to the Sunday Times, the 20 experts say the lack of a credible plan threatens to push up interest rates and undermine the recovery.

Shadow chancellor George Osborne said Prime Minister Gordon Brown's "argument on the deficit had collapsed".

But the Treasury has insisted it has already outlined a clear strategy for reducing borrowing.

The letter was signed by an array of eminent academics and policy-makers including former members of the monetary policy committee and Sir Howard Davies, a former deputy governor of the Bank of England.

Detailed strategy

It urges that borrowing had to be reduced more quickly than Chancellor Alistair Darling set out.

Action to bring it down should start this year, mainly through cuts in spending rather than tax increases

They urged whoever won the forthcoming general election to present a "detailed" strategy to wipe out the underlying, structural deficit within five years.

They wrote: "The exact timing of measures should be sensitive to developments in the economy, particularly the fragility of the recovery.

This is a decisive moment in the economic debate in Britain George Osborne Shadow chancellor

"However, in order to be credible, the government's goal should be to eliminate the structural current budget deficit over the course of a Parliament, and there is a compelling case, all else equal, for the first measures beginning to take effect in the 2010/11 fiscal year."

Mr Osborne said: "This is a decisive moment in the economic debate in Britain - a moment when Gordon Brown's argument on the deficit has collapsed and a new consensus for more decisive action emerges.

"Crucially, these economic experts also say there is a compelling case for starting in 2010 and that there should be independent oversight of the forecasts - two arguments we Conservatives have been making with force for months now."

A Treasury spokesman insisted the government had set out a clear plan to halve the deficit in four years.

Tight markets

Labour peer Lord Desai, one of the signatories to the letter, said this was not about party politics.

"Right now we have got a fragile recovery but as soon as conditions allow, somebody will have to tackle the structural deficit with which we started the recession," he told the BBC.

"Obviously during a recession you have to spend extra money, the deficit has to go up, to get rid of unemployment.

"But once all that has passed us, we will have to tackle this because we can't go on borrowing money. The markets are going to get very tight because it's not just [that] we are borrowing money but everybody else is borrowing money."

Both Labour and the Conservatives have yet to provide full details on how they plan to cut public expenditure.

Last summer, Mr Osborne declined to rule out increasing VAT.

On Sunday, shadow business secretary Ken Clarke said a Conservative government would not rule out raising taxes in order to shrink the UK's deficit.

In December's pre-Budget report, Labour announced belt-tightening measures including a 1% cap on public sector pay rises and an increase in National Insurance from 2011.