Conservatives Might Implement Emergency Budget

David Cameron

David Cameron

(Reuters) – CONSERVATIVES MAY BE FORCED to stage an emergency budget to calm markets and prevent a run on the pound if they win an election due by next June, a senior Conservative was quoted as saying today.

Philip Hammond, a Conservative Treasury spokesman, urged voters to give his party a big majority so a new government could act boldly to cut public debt, which is rising sharply because of a deep recession.

Interviewed by the Guardian, he warned that the public finances were in such a state that ‘the worst outcome for Britain would be an unclear political result at the election.’

The Conservatives are well ahead in opinion polls, suggesting they are on track to end 12 years of Labour rule at the next national election.

They got a boost on Friday when they won a parliamentary seat from Labour, securing a big majority that would give them a landslide if repeated nationally.

Data on Friday showed the British economy shrinking more rapidly than expected, darkening the outlook for the public finances. The public deficit is forecast to reach £175 billion this year, more than 12% of Gross Domestic Product.

Public spending will be a key battleground of the next election, with the Conservatives accusing Labour of ignoring reality by pledging to continue to spend.

Hammond, who as ‘shadow’ chief secretary to the Treasury is likely to be the man who would have to rein in public spending if the Conservatives win, said he was ‘likely to become a great figure to pin up on the dartboard and throw darts at.

‘I am sure there will be short-term pain,’ he said.

He was quoted as saying that if there was an election next spring, there would have to be a budget either soon afterwards or in the autumn, so the Conservatives could start to rein in public spending next year.

He warned that Britain’s credit-worthiness could be downgraded, pushing the economy into crisis.

Ratings agency Standard and Poor’s has warned Britain it could lose its prized triple A credit rating because of fears its debt levels will soar higher than the government has forecast.

‘It is absolutely essential that we send a signal to the markets that we have a credible plan to resolve the fiscal crisis and the debt crisis over a sensible period of time,’ Hammond said.

He said it would be dangerous to assume the government could do whatever it liked without getting a market reaction.

‘I think the markets will expect to see early action because we have made it clear that we will start the process (of cutting spending) in 2010; whereas Labour has said it won’t start the process until 2011-12. Early action adds credibility.’

An analysis for the Guardian by the Institute for Fiscal Studies showed Britain would face spending cuts of more than 16% to key public services if Labour and the Conservatives protected spending on schools, hospitals and defense.

… (Telegraph, 25/07/2009) – Gordon Brown faces fresh calls to ‘consider his position’ after poll disaster

… (Reuters, 26/07/2009) – Darling says spending review key to election

… (BBC, 26/07/2009) – Economic mess daunting — Cameron

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