Page last updated at 20:13 GMT, Wednesday, 6 January 2010

Budget deficit plans are tough, says Mandelson

Lord Mandelson
Lord Mandelson will insist the government's plans are credible

The chancellor's pre-Budget report was "bold and tough" in its objective to cut the UK's £178bn budget deficit, Lord Mandelson has said.

The business secretary said in a speech the PBR was "far more credible ... than some of the British press and our political opponents like to pretend".

It follows reports that he was privately unhappy that the PBR did not include more detailed plans for cuts.

Meanwhile the Tories say UK economic credibility is under question.

One month after the PBR, Lord Mandelson told journalists it had been "first rate" and its analysis and policies "absolutely dead right".

Asked why he had not commented on it earlier he said he would make no apologies for going on a trade visit to India and taking a Christmas break.

'Best antidote'

In his speech to the Work Foundation in London, Lord Mandelson said reducing the deficit would require spending reductions, tax increases and economic growth.

But he said fostering growth was "the best antidote to debt, both in the short and long term".

"December's PBR is far more credible in all these respects than some of the British press and our political opponents like to pretend," he said.

"It has a clear objective, to halve the deficit by 2013-14. It is bold and tough, the equivalent of something approaching an £80bn turnaround in the public finances.

"This is the sharpest reduction in the budget deficit for any G7 country. This is vital for credibility, vital for attracting inward investment."

He said while "rigid limits" had not yet been fixed for departmental spending cuts that was because "future uncertainties remain" - but he said the government had provided "a much clearer and more coherent commitment than the opposition".

And he defended government spending, saying it provided "vital demand" at a time of low activity in the private sector.

"Pull away that prop for the economy and you reduce the tax take, push up spending on unemployment and make the deficit worse. This is the paradox of government thrift," he said.

"We learnt it in the 1930s. It seems to be totally lost on the present day Conservative Party."

Lord Mandelson said Labour "must not confine itself to the politics of distribution" and said a "politics of production" was needed.

He said there was "never a case for punitive taxation" that removed incentives for "self improvement" or to set up businesses.

He said the new 50p tax rate on high earners was "justified in the quite exceptional circumstances we face" but said the government would "always be vigilant" the tax burden did not damage competitiveness.

Government spending

He described Conservative plans to reduce the deficit faster as "potentially dangerous nonsense" and said it could only mean that they would "cut spending more, put up taxation more and do all of this more quickly".

"This would only stall recovery, stymie growth, put unemployment up and the costs it imposes on us, reduce the tax take and make the deficit worse, not better."

Pull away that prop for the economy and you reduce the tax take, push up spending on unemployment and make the deficit worse
Lord Mandelson

On Tuesday shadow chancellor George Osborne seized on a warning by the world's biggest bond investor, Pimco, that the UK faced seeing its credit rating downgraded and it would be selling off UK government bonds this year.

The head of Pimco's European investment team is the brother of Ed Balls, the cabinet minister who is said to have Gordon Brown's ear.

'Complete nonsense'

On Tuesday night, in Parliament, Mr Osborne labelled legislation aimed at halving the deficit in four years as a "feeble stunt".

He said the Fiscal Responsibility Bill was "complete nonsense" which had been dreamed up by Gordon Brown on the eve of last year's Labour Party Conference.

This government is to fiscal responsibility what Tiger Woods is to marital fidelity
David Gauke MP

Mr Osborne was speaking during a debate on the Bill, which eventually received its second reading by 265 votes to 196, a government majority of 69.

Shadow Treasury minister David Gauke later quipped: "This government is to fiscal responsibility what Tiger Woods is to marital fidelity."

The election must be called by early June but the widely-expected date is 6 May.

Pre-election momentum has been building this week with speeches, advertisements and rows over tax and spending.

The Tories were accused of a £34bn funding gap in their policy commitments, amid some confusion over their plans for tax breaks for married couples.



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