Downing Street has sought to play down reports that senior officials are preparing an economic “Plan B” amid fears of a sharp downturn.
Cabinet Secretary Sir Gus O’Donnell is said to have drawn up a confidential paper calling on the Government to consider possible stimulus measures in case the economy suddenly stalls, according to the Financial Times.
The FT said that while the first option would be to extend the Bank of England’s programme of quantitative easing – effectively printing money – the Bank could also lend directly to business by buying commercial bonds.
A third option, the FT said, could be tax cuts – although that would mark a major reversal of policy by the Government, which is set to raise VAT and has made tackling the deficit its top priority.
No 10 said ministers had not commissioned advice on an alternative economic strategy, but it was “quite normal” for officials to consider various possible economic scenarios.
“Ministers haven’t asked for advice on ‘Plan B’ because they are very clear that the plan we have is the right plan. Recent experience in the sovereign debt markets shows that it is precisely the right plan,” the Prime Minister’s official spokesman said.
“It is quite normal for Government officials to be thinking about alternative scenarios and doing some thinking around that. I don’t think it is anything out of the ordinary.
“It is completely normal for the Treasury to be thinking about different scenarios for the economy – what might happen in financial markets. You would expect them to be doing that kind of work.”