Leader: One last chance for the deficit hawks to change course

The Tories and the Lib Dems could, and should, use the Spending Review to scale back the level of th

As he approaches his 100th day in office, the Prime Minister's obsession with the state of the public finances deepens. David Cameron and the Deputy Prime Minister, Nick Clegg, have sent a letter to their cabinet colleagues describing the Budget deficit as "the most urgent issue facing Britain" in the wake of a series of interdepartmental rows over the scale of cuts that might be required. Meanwhile, there are rumblings even among Mr Cameron's supporters on the right. Mark Field, the Tory MP and former shadow minister, told the Financial Times: "We need to focus some of our attention away from the gloomy news about deficit reduction and back on to growth."

The Centre for Social Justice, founded by the Work and Pensions Secretary, Iain Duncan Smith, has accused the Treasury of ­taking a "blunderbuss" approach to cuts. We have been consistent in our opposition to the scale and timing of the Tories' deficit-reduction programme and have long argued that extreme fiscal austerity, far from being the solution to our economic problems, will merely exacerbate them. We advocate pragmatism and economic flexibility over ideological rigidity.

Our economics columnist, David Blanchflower, a former external member of the Bank of England's Monetary Policy Committee, has been one of the few voices of sanity and scepticism on this issue.

In his column this week, he examines new data showing a rising fear of unemployment and plunging consumer confidence. He also considers Mr Clegg's volte-face on the pace of fiscal consolidation. The Lib Dem leader has cited various and contradictory reasons for his policy U-turn, chief among them the pre-election debt crisis in Greece. Like Mr Cameron and the Chancellor, George Osborne, Mr Clegg now claims to believe that the financial markets will turn their fire on and destabilise the British economy if deep cuts are not made immediately. But to outsource fiscal and monetary policy to the financial markets in this way is the economics of the madhouse.

The hallowed "markets" do not offer consistent or coherent views. On the contrary, as the leading US budget expert Stan Collender observes: "Instead of demanding reductions in the deficit and government borrowing and threatening higher interest rates if those don't happen, [the bond markets] are unmistakably saying just the opposite. They want Washington to do more to stimulate the economy and they welcome the deficit and debt it will take to do it."

The Obama administration in the US has wisely resisted the sudden fetish of EU governments for synchronised and swingeing cuts in public spending, and has publicly warned its European allies that they are at risk of undermining the global recovery with their austerity programmes.

This is the wrong moment for the Prime Minister and his Chancellor to reject the US and embrace Europe. However, there is still time to change course. The Tories and the Lib Dems could, and should, use the Comprehensive Spending Review in October to scale back the level of the planned cuts (of between 25 and 40 per cent). In spite of Mr Osborne's doctrinaire "emergency" Budget, all the economic data suggests that the UK is facing a deadly combination of rising unemployment, falling house prices, diminished consumer confidence and low - if not negative - growth for the rest of the year and beyond.

John Maynard Keynes remarked, in a celebrated phrase: "When the facts change, I change my mind." What will you do, Mr Cameron?