Darling warns of action to cut deficit

The chancellor has warned that significant action remains necessary next year to cut the UK's national debt, but assured spending cuts would be "fair and manageable".

Alistair Darling told the Commons Treasury committee that targets to halve public sector borrowing in four years would be "sensible and doable", although he warned of the tough action next year once the economy is on a firmer footing.

The chancellor was facing questions from the cross-party group of MPs following last week's Budget statement.

Darling had cautioned in the Budget that the upcoming spending review would be "the toughest in decades".

He told the committee that from next year "significant action is needed to reduce the amount of borrowing we are carrying."

The chancellor said: "We can do it in a way that we can protect front line services and that doesn't damage the fabric of our economy."

Darling also said he was confident of a sustained economic recovery this year, but he added that risks over growth in Europe pose a threat to the UK's recovery.

"It's modest growth, which is why I do think we have to be careful, but it's growth nonetheless," the chancellor said.

He told MPs: "Taking away support now would be disastrous."

And he the cost of financing the national debt had been lower than expected.

"One of the encouraging things is, if you look at what we're paying in debt interest at the moment, it's less than we thought we were going to be paying," he said. "Indeed, yields have come down slightly - they're about four per cent at the moment - which is historically lower than they were."

On plans for a tax on banks, Darling said an international levy was now more likely than it had been six months ago as countries move closer towards agreement.

"I'm more optimistic now that we can get an international levy or tax than I was six months ago," he said, adding the issue will be discussed at a G20 meeting of finance officials in Washington next month.

But he reiterated the need for the UK not to go it alone on the issue, which could encourage banks to go overseas.

"You would have to have the US and ourselves on board," he said. "Our financial centres are by far the biggest in the world."

Michael Fallon (Con, Sevenoaks) asked how many jobs will be lost because of the chancellor's plan to raise national insurance rates.

Darling assured the committee that the Treasury took the impact of the National Insruance changes on employment into account.

He told MPs: "We said we think the impact [on jobs] is manageable, it'll be limited, because you've got to take into account everything else that's happening at the time.

"Remember the National Insurance increase doesn't come in for another 12 months yet - when we expect the economy to be growing - and I hope we will then see jobs increase."

The chancellor was also quizzed by MPs as to what sanctions he had in place to ensure Lloyds and RBS met their business lending targets next year.

Darling said: "We have binding agreements with the banks and we have every reason to believe they will be met."

The chancellor said the main penalty will fall on the remuneration of the board members of each of the banks.

However he said he could only hope this would be taken seriously and "not disregarded as some token thing".

MPs also asked what powers the government had to ensure the nationalised lenders lent the required amount to SMEs.

The chancellor said he wanted to set-up an independent adjudication service to ensure companies are treated fairly.

The hearing was the chancellor's final committee session before the general election.

Committee chair John McFall concluded the session by thanking Darling for his willingness to appear "at any time" before the cross-party group of MPs.

Darling responded: "I would like to acknowledge what you have done over the last three or four years - you have chaired this committee in an exemplary manner."