Nick Clegg warns economic recovery will be 'fitful'

http://www.guardian.co.uk/politics/2012/oct/28/clegg-warns-cameron-over-gdp-triumphalism

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Nick Clegg has cautioned against the triumphalism displayed by the prime minister over last week's economic growth figures, warning that the recovery will be "fitful" and that London will no longer "bail out" the rest of the country.

David Cameron taunted Labour in parliament that the good news would keep on coming, as GDP figures for the third quarter of the year revealed that the country had emerged from recession.

However, speaking to the <em>Observer</em>, the deputy prime minister voiced a contrasting message over the 1% bounce in growth, which was helped by spending on the Olympics, insisting that politicians would be unwise to dwell on one set of statistics.

He further warned that the UK needed to move on from a "clapped out" system where tax receipts from London and the south-east were used to subsidise the rest of the country.

Clegg, who is a Sheffield MP, said his city had been one of the areas to have become over-reliant on wealth created in London: "I think any politician or economist who over-relies on one quarter's statistics is being unwise.

"I have always said our recovery is going to be slow. It is part of a long healing process; it is part of a complex rebalancing process and the recovery is going to be fitful."

The Liberal Democrat leader added: "Basically, what we are doing is nothing short of replacing a clapped-out model of growth which over-relied on one square mile, the City of London, generating huge tax revenues which were then recycled to the other hundred thousand square miles around the country.

"That worked fine as long as the goose was laying the golden egg. That came to a crashing halt in 2008, and I think that's why it is so important to understand that we can't just put Humpty Dumpty back together economically.

"Yes, we need to fix the finances. Yes, we need to fix the banks and all sorts of things, but actually what we need to do above all is find a new model of sustainable balance where you are not over-relying on one part of the country to fund what are, in effect, bailouts for the rest of the country."

Clegg made his outspoken intervention as he prepared to launch a second wave of deals on Monday in which power and money will be devolved to major and fast-growing cities in an attempt to build an economy less reliant on the City of London's financiers.

In the last round, in July, eight cities – Birmingham, Bristol, Leeds, Liverpool, Newcastle, Nottingham, Sheffield and Manchester – negotiated the transfer of transport and skills budgets, along with additional powers to borrow on their future tax receipts.

Clegg, who has been working closely with Greg Clark, the financial secretary to the Treasury, on the project, will announce that 20 further cities will now compete for similar deals, although they will have to propose innovative methods to improve their local economies in order to win the new powers. In Manchester, for example, the local authority has struck a deal that allows it to keep a proportion of the tax receipts earned from the infrastructure investments it drives forward and funds.

In forthright comments, Clegg said that in the recent past large swaths of the country gave the impression of prosperity, but had in reality been "kept afloat through a massive transfer of public subsidies". Today, Clegg warns, this is not even an option. He said: "That merry-go-round has stopped, and so anyone in power has to make sure that areas outside London and the south-east can stand on their own two feet."

Clegg said he was in a rush to make the changes, describing devolution of power and cash as the preeminent constitutional reform that he hoped to make, following failure of the AV referendum and reform of the House of Lords.

He said: "I don't just see it through the economic lens, but I also see it from my perspective of constitutional reform because, while of course I have been bogged down in constitutional reform in terms of how to reform Westminster, voting systems and the House of Lords, my ambition is that the biggest constitutional reform of all this government will leave behind is a radically decentralised country, where I want to see by 2015 every area of the country more empowered than they were … in 2010."