Prime minister says there is no 'plan B' despite IMF warnings that Britiain will miss deficit reduction targets
Prime minister David Cameron made clear on Tuesday that the government has no intention of easing up on its austerity programme, insisting that Britain does not need a 'Plan B' despite concerns expressed by the International Monetary Fund.
The IMF has cut its growth forecasts for Britain and warned in its annual fiscal monitor on Tuesday that Britain will miss deficit reduction targets this year.
Cameron said: "These are difficult times for the economy and what the IMF report is doing is coming into line with other forecasters who have already said that growth is going to disappoint right across Europe this year. We know that," he told the BBC.
"The IMF also say we shouldn't abandon our plans in making reductions in government spending and also regretbably in some cases put up taxes to get on top of our debt and our deficit."
He added: "It's not 'Plan B' that we need. What we're doing is making sure that every part of 'Plan A' is firing on all cylinders."
The government's target of reducing the cyclically adjusted annual deficit will be missed after the IMF estimated it will be reduced by 1.25% and 1.5% this year and next.
Officials warned the UK that measures to boost growth will be needed if the economy fails to lift. They said the Treasury should put in place a Plan B to implement tax cuts and other measures to support businesses and consumers.
The failure to restrict government spending puts the UK in the bottom third of developed nations according to an IMF banding system that ranks countries into three groups.
Britain, the US and France were held up by the Washington based lender as among the worst performers against Sweden and Denmark which appear in the top group.
The IMF said it was difficult for the UK to reduce its annual deficit when tax receipts had declined in response to low growth, but it should continue to make strides to bring spending and income into balance.
The cyclically adjusted annual deficit shows how well countries are balancing their budgets in normal times, without taking into account unusual costs or spending commitments.
On Monday George Osborne said he would extend the government's cost-cutting programme until 2018, delaying the year that the UK achieves a balanced budget for three years based on estimates when it took office in 2010.
Osborne expects the UK economy to recover over the next couple of years as consumer return to the high street and business begin to increase investment.
He has also backed Bank of England initiatives to bring down borrowing costs to kickstart the housing market and encourage businesses to hire new staff and expand production.
But critics have called on the chancellor to take bold measures to support the economy and bolster confidence.
Labour said the IMF report showed Osborne needed to adopt measures to boost growth without waiting to see if the situation deteriorated.
Ed Balls MP, Labour's shadow chancellor, said: "Twelve months ago, the IMF forecast growth of 1.6% in 2012 and said a plan B would be needed if growth were to be lower than expected. A year on, with Britain in a double-dip recession and growth forecast to be minus 0.4%, there can be no question that a change of course is urgently needed.
"The IMF has rightly warned that the government's policies risk causing permanent damage to our economy and growth is needed to get the deficit down. And, like Labour, they've said a plan B should include temporary tax cuts and additional infrastructure investment. It's time David Cameron and George Osborne finally listened and took action to kickstart our economy before even more damage is done."
Carlo Cottarelli, the head of the IMF's fiscal affairs department, said critics of austerity, such as the US economist Paul Krugman, should be taken seriously, but were misguided in thinking that international money markets would accept indebted countries overspending to boost growth.
He said that markets may accept stimulus packages by the US and UK in the short term, but could panic at a later stage, causing a catastrophic economic event.
He said countries should move gradually to balance their budgets to protect vulnerable members of society from the worst effects of austerity.
Asked if his advice applied to Greece and Portugal, he said that it was only possible to take a gradual approach when the international markets were satisfied the commitment and implementation were in place, which was not the case in peripheral eurozone nations.
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