28 Jan 2010

Cameron commits to cuts even if Britain’s economy relapses

The leader of the opposition David Cameron told Channel 4 News today that the Conservatives would start cutting the deficit this year, even if Britain relapses into recession in this quarter. “We’re saying we must make a start in 2010,” he told me in Davos.

In one of his first interviews following this week’s poor economic numbers he did concede that a renewed economic contraction meant “the scale of what you might want to do needs to be worked out in conjunction with the Bank of England”.

So Mr Cameron might consult the Bank of England governor on fiscal policy.

Eminent financiers and economists such as George Soros, Robert Shiller and Ken Rogoff have warned of the danger of cutting too fast, given the UK’s fragile economic state. Ken Rogoff, who has advised the Conservative Treasury team told Channel 4 News last night, that “stimulus needs to get withdrawn, at least slowly. I wouldn’t do it too fast, we just don’t know what it might do.”

The chancellor Alistair Darling, earlier this week, criticised what he called the “sheer folly” of Tory plans to start cutting the deficit this year.

But warning of “Greek-style interest rates”, Cameron said that cutting the debt would be the Conservatives “number 1 priority”.

Of his fiscal austerity message, he said: “I accept these are not traditional ways of winning a general election, but we are being truthful with the british people and I think they respect that.”

He confirmed that the Conservatives back President Obama’s broad plans on banks, but denied rumours that he’s sounding out the Barclays and HSBC chiefs for the non-vacant Bank of England governorship.

The full interview is below, we ran about half of it with some intriguing Tory summitry with the likely new Chinese leader here.

Looking back at what he said about Varley or Green for the Bank of England, I’m not at all sure it was a convincing denial, he uses the phrase “nevermind who is actually in charge of it”. Here is the original story from the Times excellent banking editor Katherine Griffiths.

Here’s a transcript of what David Cameron, who would make the Queen’s decision on this if elected, said to me today:

Me: Are you sounding out potential governors of the Bank of England, we’re hearing names: John Varley, Stephen Green?

DC: Not at all, look, I think Mervyn King does an excellent job, we have an election to fight and an election to win, key to that election is strengthening our economy, key to that is having a strong Bank of England, nevermind who is actually in charge of it. We’ve said very clearly we want to change our failed financial regulatory system, abolish the tripartite arrangements that failed so badly, and put the power of bank regulation back in the Bank of England where it belongs.