“I wish that all economists could get on a boat, a too small boat, and sail away to an island, a too small island where they could argue amongst themselves allowing me to get on with the job of rebuilding my business”

Those words given in a private speech to a Birmingham audience some twenty three years ago by a recently retired Chairman and former CEO of a major quoted UK industrial company are words that I for one have never forgotten! Might they also be applicable now I ask myself as I read in the FT that sixty so-called leading economists are taking a completely opposite view to the dozen economists that a week ago had a letter published in the Sunday Times calling on the government to begin the spending cut process right away? Who’s right – those that fear UK economic recovery is impossible unless governments somehow maintain reasonable levels of spend or those that believe significant public spending cuts need to occur right now if Britain is not to find itself into an even bigger mess that risks the economy for a generation or more? The answer is that they are probably both right – strangling public spend at the same time as the private sector is shrinking as it continues to deleverage is, I agree, a clear recipe for a double dip recession. And yet at the same time doing absolutely nothing on public spending until a year or so risks not only extending Britain’s already protracted economic weakness for the best part of a whole generation whilst at the same time sending the wrong message to those both at home and abroad that are expected to keep on funding UK government debt.

But while both arguments have some individual merit it is clear also that continuing the status quo – the unknown quantity of doing virtually nothing purely for electoral reasons, pretending to keep taxes down, pretending that recovery has already begun, pouring even more money into spurious stimulus measures designed to encourage consumers to borrow and spend is not, in the case of Britain at least, necessarily the right way either. None of us want a double dip recession of course – neither do we want years of stagnation. Chances are that whatever the authorities do we will get one or the other together with a long period of very low growth afterwards. There is a bill to be paid by all of us – not just government for its part in the failure but by the rest of too for the part that we played. That of course also includes economists!

We here must also remember that the huge damage that has been done over the past ten years transforming the UK economy into one led by the consumer has to be changed. For that failing and for their part in pushing consumer to live beyond their means along with the government we know who we have to blame. Equally true is that both Labour and the previous Tory administration must share responsibility for tearing up age old rules that governed the way and how much consumers borrowed from banks and mortgage lenders!

However, we must now move on meaning instead of looking back somehow start the process of working toward the future. That future will not of course be anything like the best days that we have lived in the past. But we do have to make it work and to do that we must listen to all the various views expressed taking away and working on the best. That best must be a middle road that say come May the new government begins a process of spending cuts firstly within government operation itself. Next is to have in my view and industrial and investment policy that could at the other end of the spectrum encourage investment in the UK and create new jobs. We can do it if we have the will but make no mistake the pain may in the process of recovery need to be pretty bad. So, cut but also invest is my solution to the ills that the UK economy faces.

Fragile though the UK economy certainly is right now whatever the problems that currently ail us in terms of just how bad the public sector deficit currently is let alone what it will likely be a year from now allow me to scotch misguided attempts at comparing Britain’s plight with that of Greece. Yes, Britain’s economic misery and plight is bad enough but it is very different from that of Greece and, in a responsible manner, it can be dealt with. I suppose it is an issue of differences of quality in economic terms but I will come back to this later. First let me concentrate on the arguments that have reasoned my opinion piece today – the two distinct and very opposite views of how to approach the problem form separate groups of economists. Far from being one group supporting Labour ideology and one supporting that of the Tories these two arguments might almost be a repeat of the two very different ideologies Milton Keynes against Friedrich Hayek. So, deep cuts beginning immediately against slow, slow, quick quick, slow policies of Labour. The former show due regard to the dangers that strangling off the public sector too quickly when as I say above, the private sector is still cutting back against the latter that risks pushing up the deficit even further, pushing up the level of national debt to maybe above £1.5 trillion a couple of years from now and one that also risks endangering the opinion of the world toward Britain’s ability to sort out its huge economic problem.

Normally I am absolutely loathed to sit on the fence of any argument such as this but in this case whilst I can find fault in both arguments whilst also saying that both also have merit I have no choice but to say that I have no wish to see further risks being taken with the economy. I would of course like to hear what the Bank of England makes of the two distinct views as opposed to having to listen only to the views of a former member of the MPC in the form of Mr. Blanchflower. Equally it seems to me that neither view encompasses any suggestion of what the effects would be on inflation and indeed, on interest rate policy. In my view slashing public spend too fast would risk a too fast and dramatic increase in the number of jobless, destroy any faint remnants that have emerged of late within the industrial and service based economy of progress, destroy confidence of voters, lead I believe to the next government struggling to convince investors that Britain can pull through within a period of say five years and quite likely causing significant industrial unrest. Conversely doing nothing or waiting until 2011 is hardly an option either particularly if foreign investors lose any remaining confidence in Britain, the pound further collapses while inflation produced predominantly by increased global demand pushes up the cost of our imports. Of course, we all wish to see the huge and unaffordable cost of the NHS and of social and welfare costs brought down as quickly as possible. That process should start right away. We all want to see efforts to cut waste, to see government itself cut back department costs and so on. All this can and should begin now. But at the same time the government must invest – it must do nothing that actually rocks the boat leading to massive job losses in the private sector because of slashing spend on infrastructure projects etc.

At the end of March 2009 the official level of UK government deficit had hit £101.3bn which is equivalent to 7.1% of GDP. The actual level of government debt at that time was £796.9bn equivalent to 55.5% of GDP. To remind – the Maastrict Treaty which Britain signed sets a specific deficit and debt target of 3% and 60% respectively. It is of course too early to confirm figures for 2009/10 yet but while the government target remains that the deficit stays within the current £170bn target this year it does look increasingly likely that the actual level of UK deficit will have hit 13% by the end of March and that national debt as calculated by the ONS will likely total around £870bn by then – approximately 63% of GDP. However, that the actual level of UK deficit could well already exceed that of Greece is of less concern to me that the knowledge that the UK political system has it within its powers to bring down that deficit with relative ease compared to the far more problematical political system in Greece. That is not to forgive the UK government for its huge part in creating the current financial crisis or that Britain’s precious triple A rating is under review but it is worth reminding perhaps that to all intents and purposes compared to Greek banks we do know at least know here in Britain what and where our assets are and importantly, where our banks have made questionable loans. In Greece that process is only just beginning. Perhaps the bottom line is that while Britain must now face up to its deficit and debt situation unlike Greece the weaknesses here can be solved internally and don’t require additional pressures from the EU yet. Greece because of its political weakness needs far more that just the EU rallying to its support it needs the additional discipline of the IMF.