To cut or not to cut...

The Lib-Con coalition have been very clear from the outset: the budget deficit will be reduced drastically by the end of this parliament. This is in contrast to Labour who planned to cut the deficit by half over the next four years. Between the two parties, there is a clear divergence on how to deal with our fiscal policy.

This conflict reverberates through the entire British economy. On the one hand, we have the ardent Keynesians, who argue that government spending must not yet be curbed. On the other hand, there are those like George Osbourne, who vehemently feel that reduction must be at a much faster rate. Perhaps this is true; sustained spending could trigger inflation in the long-run. Further, interest rates will rocket as investors lose confidence in our government.

However, I see more merit in keeping our foot on the pedal. There are pertinent lessons to be learnt from the demise of Japan. In the 1990s, they tightened their fiscal belt before private demand could sustain itself. This is the case with Britain. Household debt levels in the UK are worringly high - reduced public spending and tax increases do not bode well for the British economy.

Perhaps this issue is so capturing because of the conflict of ideas it presents. Both sides wield strong economical arguments.

Nevertheless, the budget deficit question is not as clear as it may seem. There is nobody who disagrees that the deficit must be cut. Our structural budget deficit is unforgivable and an EU commission estimates that our deficit lies at 12% of our GDP. It is the rate of cutting that is so hotly contested.