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Clegg: coalition cut capital spending too deeply

Deputy Prime Minister Nick Clegg has admitted that the coalition cut capital spending too deeply when it took power.

Speaking last night, ahead of the release of GDP figures today that are expected to show a fresh contraction in the UK economy, he said ministers had "comforted" themselves at the time that the reduction was in line with plans drawn up by the previous Chancellor, Labour's Alistair Darling.

Mr Clegg said ministers now realised money for infrastructure was needed to foster recovery and the Government must do more to fuel capital investment if Britain does plunge into a triple dip recession.

In an interview with The House magazine, he said: "If I'm going to be sort of self-critical, there was this reduction in capital spending when we came into the Coalition Government.

"I think we comforted ourselves at the time that it was actually no more than what Alistair Darling spelt out anyway, so in a sense everybody was predicting a significant drop off in capital investment.

"But I think we've all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible.

"Wherever we can we've got to mobilise more capital investment. The economic evidence is overwhelming. It helps create jobs now - people go on to construction sites. It raises the productive capacity of the economy in the longer run.

"Money in people's pockets, people on low and middle incomes, and, and mobilise capital investment will always remain my two - I mean, there are plenty of other things: supply-side reforms, making us more competitive and so on, there's fixing the banks, but those two are the ones I always single out."

Experts believe gross domestic product (GDP) will have fallen by 0.1% in the final quarter of 2012, putting the country on course for an unprecedented triple-dip recession.

Asked if the Government should change tack if that becomes a reality, Mr Clegg said: "What kind of things do I think we need to do where we can? I would single out two things.

"Firstly, we need to try, wherever we can, to put money back in the pockets of people on middle and low incomes, because all the evidence is that it is those people that will tend to spend a bit more money on the high street if they feel they've got a few extra pennies in their pockets."

He added: "And secondly, wherever we can we've got to mobilise more capital investment into productive capital because the economic evidence is overwhelming. It helps create jobs now, people go on to construction sites, it raises the productive capacity of the economy in the longer run."

Labour has repeatedly urged the Government to implement a "plan B" for economic recovery based on temporary tax cuts and to bring forward long-term infrastructure investment.

Rachel Reeves, shadow chief secretary to the Treasury, said: "This is the first admission that this Government has made serious mistakes on the economy. But the real question is what Nick Clegg's Government is going to do about it. We have urged ministers to bring forward infrastructure investment and build thousands more homes, but they have refused to listen.

"Nick Clegg also claims he wants to put money into the pockets of people on middle and low incomes. So he should now admit that the VAT rise was a mistake and cancel the plan to cut tax credits for working families on modest incomes on the day millionaires get a tax cut."

An unprecedented triple-dip recession for the UK will be confirmed if today's feared contraction in GDP is followed by another decline in the current quarter.

Economists believe the chances of such a scenario are high, given that there has been no let up in the pressure on consumers and businesses and snow disruption threatens to cost the economy an estimated £500 million a day.

There is no official definition of a triple dip, but it is widely accepted to mean that the economy has fallen into recession three times without returning to a period of robust growth in between.

The UK plunged into a double dip recession last year, contracting for three quarters in a row before bouncing back with growth of 0.9% in the three months to September.

According to the Office for National Statistics, there has not been a triple dip recession since its records began in 1955, with Britain last suffering such economic gloom in the Great Depression.

But the UK did experience some shaky economic times in the 1970s, when the economy came very close to a triple-dip recession, slipping in and out of negative territory.

Largely caused by the 1973 oil crisis, the UK was in recession for two years in the mid 1970s and it took 14 quarters for GDP to recover to levels seen before the start of the recession - during which time it slipped into a double dip recession and nearly a triple.

Britons also faced eye-watering stagflation in the 70s, when negative GDP combined with high inflation.

Inflation peaked at more than 20% during that recession, putting today's above-target UK inflation of 2.7% in perspective.

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