Via an open letter in The Times:
IT IS now clear that the UK economy entered the recession with a large structural budget deficit. As a result the UK’s budget deficit is now the largest in our peacetime history and among the largest in the developed world.
In these circumstances a credible medium-term fiscal consolidation plan would make a sustainable recovery more likely.
In the absence of a credible plan, there is a risk that a loss of confidence in the UK’s economic policy framework will contribute to higher long-term interest rates and/or currency instability, which could undermine the recovery.
It is good to see that some of our Chairman’s and our CEO’s old University distinguished teachers are advocating a credible plan for deficit reduction and an end to the ruinous tax and spend of the Labour Government . There is hope yet that the mainstream have not all succumbed to the snakeskin oil smooth and seductive Keynesian economics which we thought the second but last Labour Prime Minister, James Callaghan, had buried when he said:
We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.
— Labour Party Annual Conference Report 1976, page 188.