Former British chancellor says austerity 'stifling recovery'

Former Labour chancellor Alistair Darling has warned the UK economy could face more than a decade “bumping along the bottom”.

Former British chancellor says austerity 'stifling recovery'

Former Labour chancellor Alistair Darling has warned the UK economy could face more than a decade “bumping along the bottom”.

He warned of a Japanese-style prolonged period of stagnation as a result of the “stifling” austerity policies being pursued by his successor George Osborne and governments across Europe.

Mr Darling said the Chancellor’s measures to revive the housing market could result in a fresh bubble and said it was “nonsense” to delay making a decision on an extra runway for Heathrow.

Speaking at a Westminster lunch he said: “It has come to a pretty pass when people will say bumping along the bottom is OK because we aren’t going into a triple dip recession.

“My fear is we could be bumping along the bottom for an entire decade if not longer, as happened in Japan. The problem we have got at the moment is a lack of confidence.”

Businesses were “sitting on cash” but were reluctant to invest because they were not confident in the market for goods and services.

Mr Darling continued: “Our Government is in much the same position as many other governments.

“We have got debt that is much higher than they forecast, borrowing remains stubbornly high and actually hasn’t shifted in the last couple of years, simply because you don’t have the economic activity that is going to generate the revenue that you need.”

Across Europe “austerity is stifling economic recovery” and Mr Darling said the Government needed to press other EU leaders to change course.

“I believe we do have a role to play where we mend our bridges and play a more active part in trying to persuade Europe that if it continues down this path of austerity it is likely that our debt levels and our borrowing levels will remain unnecessarily high and therefore our economic activity will be depressed for some time to come,” he said.

“Here at home too the Government could change its tack and begin to do things that would actually help restore confidence. Partly I think you could do a lot more in relation to repairing our infrastructure at a time when there is capacity to do that.”

Former transport secretary Mr Darling said it was “nonsense that we won’t make our mind up about Heathrow until the middle of the next Parliament” but dismissed as unworkable London Mayor Boris Johnson’s plan for a Thames Estuary airport. If Heathrow expansion was ruled out, Stansted would be a better option for development, he added.

“I think it is a profound mistake to introduce measures which I think will simply create a housing bubble, particularly in London, rather than address the underlying problem which is a shortage of housing.”

Mr Darling, who is leading the Better Together campaign calling for a No vote in the Scottish referendum, would not be drawn on his ambitions beyond the October 2014 vote.

He said Ed Miliband had been “a lot more successful than people gave him credit for when he was first appointed” as party leader, but he would soon need to begin setting out the broad themes that would carry the party into the 2015 election.

“It is not necessary for us to be setting out at this stage a detailed, line by line, manifesto or anything like that. We won’t know the baseline of the Government’s spending limits until the June spending review.

“But we will during the course of this year have to set out the political parameters. If you think back to what we were doing in 1995, 96, 97 when Tony Blair was elected gradually what we did was establish in the public’s mind what our priorities were ... so people could see a direction of travel.”

He said there was a “growing body of opinion” that shadow chancellor Ed Balls was right in his arguments about austerity.

“I’ve made the point similarly, if you take a lot of money out of the economy when it’s slowing down, the private sector doesn’t take it’s place, there is an inevitable result.

“If you look at what’s happening in Europe if every country starts to practice austerity, to deflate at the same time, there is an inevitable result, you get a contraction.”

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