Dated: 20 October 2010
Commenting ahead of today’s Spending Review, Graeme Leach, Chief Economist at the Institute of Directors, said:
“There is far too much negativity around the Spending Review. It is not the end of the world, far from it. We know this because of two important fiscal lessons from the 1990s. First, between 1991 and 1997 public sector employment fell by 600,000 – roughly on a par with the falls projected as a result of the Spending Review – but this did not prevent a sustained upturn in economic growth. Second, over the 1997-99 period fiscal tightening resulted in public spending falling sharply as a proportion of GDP, but this did not prevent the economy recording its fastest period of growth over the past 20 years.
He added:
“The economic backdrop to this fiscal tightening is clearly weaker now than in the 1990s, but this merely suggests that GDP growth won’t rise as much as then. It does not lead to an automatic conclusion that the public spending squeeze will trigger a double-dip recession. In the long term spending cuts will be positive for economic growth. Tax rises would damage the economy in both the short and long term.”
