Tuesday 14th December 2010 | 10:40

No. 10 and Treasury: Ministers haven't asked for Plan B

By Paul Waugh

 

Number 10 and the Treasury moved swiftly today to insist that ministers have not asked for a 'Plan B' for the economy.

The Prime Minister's spokesman refused to deny that Cabinet Secretary Sir Gus O'Donnell had drafted a confidential paper looking for fresh options in the event of a sharp downturn. But he stressed that ministers had not "asked for" or "commissioned" a 'Plan B'.

"Ministers have set out our economic plan to tackle the budget deficit in the Budget and Spending Review. Recent sovereign debt pressures in Europe show why it's the right plan", the spokesman said.

Government insiders were earlier swift to react after the FT reported this morning that Sir Gus had called on the Treasury to examine in detail all of the policies available should the nation slide into a "double-dip" recession.

Although not a fully-fledged "Plan B", the paper is understood to look at the uncertainty over growth forecasts and asks for supplementary plans to the current fiscal tightening backed by the Chancellor.

Treasury sources today told PoliticsHome.com that the paper was normal contingency planning given the continuing uncertainty surrounding the eurozone.

"Ministers have not asked for any work on or analysis of alternative economic plans. We are not considering any alternative economic plans. Of course, Treasury officials regularly assess economic risks."

One source pointed out that even the Office for Budget Responsibility (OBR) had set out two alternative economic scenarios and even on its weaker growth assessment, it had concluded that the Government's fiscal rules would be met.

However, it is highly unusual for the Cabinet Secretary rather than the Treasury Permanent Secretary to be directly involved in such contingency planning.

Labour seized on the suggestion that work was ongoing within the Treasury, even by civil servants rather than ministers, on the possible risks of George Osborne's current plans.

Shadow Chancellor Alan Johnson told PoliticsHome the government should "think again".

Mr Johnson said: "Even David Cameron's top civil servant thinks he needs a plan B on the economy. The truth is he shouldn't be gambling with growth and people's jobs in the first place. No other country is following the risky path the Tories and Lib Dems have set the country on. They should think again about their plan for a £13bn VAT rise in just three weeks time."

Labour sources pointed out that it was a damning indictment of the Chancellor that ministers had not asked for a Plan B and that it was civil servants who had realised the need for such options.

As well as more Quantitative Easing by the Bank of England, some economists believe there should be more capital spending to prop up the economy. But ratings agencies have consistently backed the Coalition's deficit reduction plan.