Page last updated at 17:29 GMT, Thursday, 15 April 2010 18:29 UK

Economists warn over Tory efficiency plans

David Cameron launching the Tory manifesto
The Tories want to make savings of 6bn this year

More than 50 economists have reportedly warned that Tory plans for spending cuts risk job losses and tipping the economy back into recession.

The Daily Telegraph says the letter has been signed by Labour peer Lord Layard and Sir David Hendry among others.

Meanwhile the Tories say 415 small and medium firms back its plan to halt most of Labour's National Insurance rises.

The Lib Dems say only they offer a "fair" tax system and have spelled out "honest and detailed" savings plans.

The Telegraph reported that it had seen a leaked letter in which 58 economists, including Lord Layard, Lord Skidelsky, Lord Peston and Sir David Hendry, back Gordon Brown's plans for the recovery - which it said was organised by Labour peers.

'Still fragile'

They said the Tories' proposed £6bn efficiency savings this year are "just a cut by another name".

"This is not the time for such a destabilising action," they add.

"The recovery is still fragile. Only when the recovery is well under way, will it be safe to have extra cuts in government expenditure."

It sounds alarm bells about the risk the Tories pose to the recovery
Labour's Liam Byrne on the letter

Some of the signatories also signed a letter to the Financial Times in February warning against a rapid reduction in Britain's deficit.

Labour said it showed the Conservatives were looking "increasingly isolated every time they call for immediately cutting support to the economy and putting the recovery at risk".

"This letter is very significant," Chief Secretary to the Treasury Liam Byrne said. "Signed by some of the world's leading economists, it sounds alarm bells about the risk the Tories pose to the recovery."

But the Tories said the leaders of 415 small and medium businesses, from flower shops to small manufacturers, had signed a letter backing their plans to block the bulk of Labour's planned rise in National Insurance.

"We believe that the government's proposal to increase National Insurance, placing an additional tax on jobs, comes at exactly the wrong time in the economic cycle," the letter said.

'Battle of letters'

It added: "Cutting government waste won't endanger the recovery - but putting up National Insurance will."

BBC business correspondent Nils Blythe said it was the latest in the "battle of the letters" which began in February when a group of economists wrote to the Sunday Times supporting the Conservatives' approach. That was followed by the letter to the FT by another group of economists backing Labour.

He said the Tories' support from business leaders, including the bosses of Marks and Spencer and Next, probably had a bigger impact on the debate because they were better known among the general public.

The row over Labour and the Conservatives plans for tax and spending dominated the first week of the election campaign.

Gordon Brown's war with British business puts him on the wrong side of working people
Philip Hammond, shadow chief secretary to the Treasury

Labour plans to raise National Insurance by 1% for people earning more than £20,000 from April next year - which the party says is necessary to protect spending on health, policing and education.

But the Tories say it would be a "tax on jobs" that would "kill the recovery" - and have pledged to block the bulk of the rise by saving £6bn cutting "wasteful" government spending.

They have been backed by 80 senior business leaders and the Tories said on Thursday that more than 400 small firms were also supporting their position.

"Once again, Gordon Brown's war with British business puts him on the wrong side of working people," said Philip Hammond, shadow chief secretary to the Treasury.

Gordon Brown and Chancellor Alistair Darling have said the Conservative plans are "reckless" and based on "back-of-the-envelope" calculations.



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