MercoPress. South Atlantic News Agency

PM Cameron fumble turns austerity and budget cuts policy into a national debate

OBR Robert Chote said “there is widely held assumption that tax increases and spending cuts reduce economic growth”

Prime Minister David Cameron was reprimanded by a budget watchdog for claiming that it did not see his austerity agenda as a drag on Britain's economy. In a speech on Thursday, Cameron said his deficit-cutting agenda was not responsible for the country's depressed growth rate which was instead caused by the financial crisis, the Euro zone's problems and higher oil prices - a view he said was endorsed by the independent watchdog.

However the Office for Budget Responsibility's (OBR) Chairman Robert Chote replied in a letter to the Prime Minister which it published on its website.

“For the avoidance of doubt, I think it is important to point out that every forecast published by the OBR since the June 2010 budget has incorporated the widely held assumption that tax increases and spending cuts reduce economic growth” Chote wrote in the letter.

While it was unclear how much of a drag the government's belt-tightening had on the economy - and the factors cited by Cameron were likely to have been factors - the OBR believed it had reduced growth over the past couple of years, he said.

Chote's letter was seized upon by the opposition Labour party which has lambasted the government over its economic policies and said it must change course to return to growth.

“Deep spending cuts and tax rises have reduced economic growth, as the OBR says, and so it was deeply misleading for David Cameron to claim otherwise,” said Ed Balls, Labour's main economics spokesman.

Britain risks tipping into its third recession in four years after the economy shrank in late 2012.

It was stripped of its triple-A credit rating last month by ratings agency Moody's which said weak growth had knocked off track the government's plan to fix the budget deficit and rising debt.

The government uses the OBR's projections as the basis for its budget planning and has made much of the credibility of its forecasts. The next budget is due to be announced on March 20. Cameron said in his speech that the government would not deviate from its plan to tackle the deficit.

A Downing Street spokesman defended Cameron's choice of words and said he had been referring to reasons why Britain's economic growth had been weaker than the OBR original forecasts.

“The OBR has today again highlighted external inflation shocks, the euro zone and financial sector difficulties as the reasons why their forecasts have come in lower than expected. That is precisely the point the prime minister was underlining,” the spokesman said.