Conservatives try to soften blow before spending cuts usher in age of austerity

LONDON BRIEFING:Despite support from business leaders, former Bank of England adviser feels strategy is flawed, writes FIONA WALSH

JUDGING by the stick George Osborne got even before the cuts were announced, there’ll be a baying lynch mob on his trail by the end of today.

Britain’s age of austerity gets under way in earnest at lunchtime as the chancellor delivers the government’s Comprehensive Spending Review (CSR) to a packed House of Commons. His aim is to save £83 billion over the next four years and to do so he will have to deliver the most savage package of spending and welfare cuts seen in this country since the early 1920s.

The week started off well for the chancellor. The respected forecasting group, the Ernst Young Item Club, said fears of a slide back into recession were overdone and that growth in the private sector should be able to offset the government cuts. There would, however, be what they described as “a soft patch” for the economy this winter.

Then there was a public show of support from a group of 35 of the nation’s leading business figures, including Sir Stuart Rose of Marks Spencer, Andy Bond of Asda, BT’s Ian Livingston, Charles Dunstone of Carphone Warehouse and the Conservative peer and chief executive of Next, Lord Wolfson.

The business leaders signalled their support in an open letter to the Daily Telegraph, urging the chancellor to resist the temptation to delay the cuts or to water them down. Delay would result in almost £100 billion of additional national debt by the end of this parliament alone, they warned, and the result would ultimately be deeper cuts, or further tax rises to pay for the extra debt interest.

But the cost could be even greater than that, the business leaders said: “As recent events in some European countries have demonstrated, if the markets lose faith in Britain, interest rates will rise for all of us. There is no reason to think that the pace of consolidation envisaged in the budget will undermine the recovery.”

Osborne did not have long to bask in the business leaders’ approval, however. Former Bank of England policymaker David “Danny” Blanchflower swiftly weighed into the debate, accusing the chancellor of “cowardice” for risking the recovery with the severity of the planned cutbacks.

Choosing the Guardianto make his point, the economist painted a picture of an "economic war" and said that, rather than fight, the chancellor "is about to run up the white flag of defeat. His response is the equivalent of surrendering immediately because of the potential impact of the war on the deficit. It's as ridiculous as that".

Blanchflower has made no secret of his belief that the cuts are too much and too soon, repeatedly describing Osborne’s strategy to tackle the deficit in a single parliament as “the greatest macro-economic mistake in a century”.

That’s strong language, and it’s not a view shared by most economists, but the labour market expert does have an impressive track record – in his time on the Bank of England’s Monetary Policy Committee, he was alone in recognising the danger of recession. As the others worried more about inflation, Blanchflower repeatedly voted for rates to be cut, much to the irritation of Bank governor Mervyn King.

This week, Blanchflower was scathing of the company bosses and their support for the spending cuts: “They are not economists,” he said, barely concealing his distain. It doesn’t take an economist to work out that these cuts are going to hurt, and hurt badly.

And despite the apparent faith of Britain’s business leaders, there can be no absolute certainty that the nation’s fragile economy will be able to withstand the measures without sliding back into recession – the much-feared double dip.

Meanwhile, as the unions demonstrated yesterday in central London against the cuts, we were treated to an unexpected preview of the Osborne austerity package. In an inauspicious curtain-raiser to today’s main event, the chief secretary to the treasury, Danny Alexander, fell victim to a photographer’s long lens as he arrived at the Treasury building clutching a briefing document.

Close examination of the pages left open on his lap in the back of the car revealed that the cuts will cost almost half a million public sector jobs by the end of the parliament.

His boss, David Cameron, was also snapped with a copy of the defence review earlier in the day, leading some in Westminster to wonder if it was a deliberate ploy to soften the blow ahead of today’s statement. If it was, it didn’t work.

Fiona Walsh writes for the Guardiannewspaper in London