Economists Warn Cuts Put Recovery At Risk

A group of Britain's leading economists have told the Chancellor he needs a "plan B" on the economy - which the shadow chancellor told Sky News is "stalling".

Writing in The Observer, the experts criticised George Osborne's strategy, and said he has not made plans for the flat economic growth of the past six months.

Speaking on Sky News' Murnaghan programme, shadow chancellor Mr Balls said "we were told we were out of the danger zone".

He added: "We are now seeing week by week more evidence that the economy is stalling."

He said all parties agreed the deficit had to be reduced, but warned that if it happened too quickly, the economy would get weaker.

"The lesson history teaches us is it sounds good to hear a chancellor say 'I am going to stick to my plan.'

"But if that plan is not working, they should change course," he said.

Mr Balls also said he felt the Labour party did not do enough to regulate the banks when it was in power.

He said he was proposing a tax on bankers' bonuses to go towards a fund to help get young people back into employment.

Mr Osborne's critics include signatories of a letter to the Sunday Times last year which supported the Conservatives' approach, as well as the former chief economist at the Cabinet Office Jonathan Portes.

Mr Portes, who is now director of the National Institute of Economic and Social Research, said: "You do not gain credibility by sticking to a strategy that is not working."

He added that the Government could only partly blame factors out of its control such as rising oil prices, the poor recovery in the US and the Greek debt crisis.

"It isn't just about the international environment, it's because of the strategy the government has followed," he said.

Vicky Pryce, the former head of the Government's economic service, predicted ministers may need to prepare for a U-turn: "It's a very risky situation, and I think personally that at some stage they'll panic."

Britain's economy grew by a sluggish 0.5% in the first three months of this year but inflation rose by more than expected to 4.5%.

In the letter to The Observer, economic experts demanded the "plan B" include proposals to boost jobs and growth, instead of sticking to deficit targets.

They recommended a crackdown on tax evasion and higher taxes on the rich to create jobs and boost economic growth, saying: "These are the foundation of a real alternative and it is time the Government adopted it."

But Conservative MP Mary Macleod told Sky News: "I do not think George Osborne should change his plan at all. We inherited a huge deficit so had to act.

"We do not expect to change things overnight, we can not change 10 years in 10 minutes so it is going to take time."