Clegg dismisses claims over 'double-dip' recession

Deputy Prime Minister Nick Clegg today dismissed claims that last month's emergency Budget will pitch Britain into a "double-dip" recession.

The DPM acknowledged that implementing the Budget's cash-saving programme will be a "painful process". But he insisted the measures announced by Chancellor George Osborne offered "pain for gain", making it "very much more likely" that the UK will see strong economic growth in the medium term.

Mr Clegg's comments came in a speech in London in which he set out his belief that Britain will be a "more liberal nation" after five years of the Conservative-Liberal Democrat coalition Government.

The Liberal Democrat leader has come under fire from some party activists since going into government with Conservatives and giving his backing to measures like an accelerated cut in state spending and a 2.5% hike in VAT, which he opposed during the election campaign.

But today he faced down critics who accuse him of abandoning liberal principles, insisting that the Lib Dems remain an independent party and that their Tory partners in the coalition share their "reforming zeal".

Last month's Budget showed "the contours of a distinctly liberal approach to tax", he said, citing the increase in income tax thresholds to £7,475 and the hike in capital gains tax to 28% as "a good example of liberalism in action".

Decisive action was needed to rein in debts inherited from Labour and the Liberal Democrats stand "full-square" behind the judgment that the record deficit represented "a clear and present danger to the economic sovereignty of the nation", Mr Clegg told the Demos think-tank.

"It was called an emergency Budget for a reason," said the DPM. "It was a Budget aimed squarely at retaining democratic control over the public finances.

"As a nation, we faced a real risk of losing control of the management of our economy to unaccountable financial markets."

And he added: "Let me be crystal clear about where the Liberal Democrats stand. This was a Coalition Budget, not a Conservative Budget. The Liberal Democrats stand full-square behind the Budget judgment.

"There would be, to my mind, absolutely nothing liberal about handing over £70 billion to the bond markets to service the debt we inherited from the previous government."

Dismissing fears about the threat of a return to recession as billions of pounds are taken out of the economy in cuts to state spending and tax hikes, Mr Clegg said: "There is some concern that the Budget measures risk creating a 'double dip' recession.

"The opposite is the case. If we had not taken action in the Budget, and interest rates had risen, that would have been the quickest route to an early double dip recession...

"By acting now, we are very much more likely to see strong economic growth in the medium-term. It is pain for gain."

Mr Clegg said that Lord Mandelson's memoirs, published yesterday, suggested former chancellor Alistair Darling wanted to raise income tax thresholds, raise VAT and avoid a rise in National Insurance - similar measures to those announced by Mr Osborne last month.

"It is a shame Mr Darling could not persuade Gordon Brown," he said. "It is also shameful for Labour to attack the Coalition for measures their own chancellor wished to implement."

Mr Clegg rejected suggestions of tension with his Conservative partners over liberal ambitions to redistribute power to the people, restore civil liberties and create a green economy.

He cited Education Secretary Michael Gove's plans to give schools greater autonomy as "a quintessentially liberal approach".

And he said: "Now that the Liberal Democrats are in government, liberal ideas are being deployed directly.

"What you are seeing is liberalism in action.

"And I can tell you that as Deputy Prime Minister, my liberal instincts are stronger than ever. Our goal is clear.

"By the time of the next election, on 7 May 2015, Britain will be a more liberal nation.

"This goal will be delivered in partnership with the Conservative Party. Our two parties are distinct and independent, but we are united in our zeal for reform."

Mr Clegg made clear he was ready to reach compromise with Tories as part of a new approach to political decision-making.

Declaring himself "hugely excited" by the way in which the coalition deal has encouraged open discussion, he said: "Sometimes we can agree to disagree. A compromise might sometimes be the best way forward, rather than representing a defeat for politician X and a victory for politician Y.

"Sometimes - and here I am going to court great controversy - we might even change our minds.

And he added: "It is too easy for politicians to fall into the trap of knee-jerk opposition, to spend all their time in a combat stance, to stop listening to those with whom they disagree.

"But the time for this kind of politics has passed. There is a thirst for a new and different way of doing politics, and I think we are responding. Politics is changing before our eyes, and I am genuinely afraid that the Labour Party is blind to the transformation."