King warning on UK deficit
The Treasury plans to sell £220bn in gilts this year in a bid to pump money into the economy, but King warned that the government was still facing a “long hard slog” to repair the damage caused by the banking crisis.
“The scale of the deficit is truly extraordinary,” he said.
“It reflects the scale of the global downturn but it also reflects the fact that we came into this crisis with fiscal policy itself on a path that wasn’t itself sustainable,” he told the Treasury committee.
He said the next government would need a long-term plan to show how the deficit could be reduced below Darling’s forecast of 5.5 per cent of gross domestic product in 2013-14.
The head of the Bank added he had not been properly consulted on Darling’s plans for reform of the regulatory system, prompting committee chairman John McFall to say he feared there was a “communications black hole” between the tripartite authorities.
King issued the warning as Prime Minister Gordon Brown sought to paint the government as an investor in public services, compared to the Conservatives.
But shadow chancellor George Osborne said King had dealt a fatal blow to the government’s credibility on the economy.
“This is the demolition day for Gordon Brown’s tax and spending policies,” Osborne said, adding that King’s comments had put paid to “any claim that this discredited government ever had to a credible plan for the recovery”.
It is the second time in as many weeks that King has clashed with the chancellor after the two delivered contrasting speeches at an annual dinner at Mansion House last week.
King hinted that banks that were too big to fail should be broken up, while Darling focused on the responsibility of banking executives for the financial crisis.