Conservatives set out 3-phase deficit reduction plan

25/02/2010 00:15:50

The Conservative Party said on Wednesday that it would, if elected, make an "early start" on reducing the record budget deficit in order to prevent markets forcing emergency spending cuts on it.

The Conservatives are still deemed likely to win an election expected on May 6 but their opinion poll lead has been narrowing in recent weeks, putting markets on alert for a possible hung parliament where no one party has an outright majority.

In a major speech setting out his blueprint for economic policy, George Osborne, almost certain to be chancellor if the Conservatives win, said tackling the deficit had to be a priority and highlighted possible reforms to the Bank of England though the 2 percent inflation target was set in stone.

He did not offer any numbers on how far any early fiscal tightening might go but said the Conservatives have a three-phase plan to reduce the deficit.

"We will make an early start - in order to bring confidence to the economy, establish the credibility with markets that buys you time, and to ensure that spending cuts are well targeted," he said.

The first phase would be finding out the exact situation. "Within days of taking office we will establish our new independent Office for Budget Responsibility...The Office will help us publish a truly independent audit of the public finances before the first Budget."

That budget, which would take place within 50 days of taking office, would be the second stage and will set out the overall fiscal path and spending totals.

"We will take targeted steps to reduce some budgets in-year -- and we have set out some specific examples -- in order to build credibility and make a start on reducing the deficit," Osborne said.

"The scale of these steps will be informed by that proper audit of the nation's finances, that independent assessment of growth and discussions with the independent Bank of England about the scope for monetary policy to remain supportive."

And the third phase will be a spending review some time in the autumn.