George Osborne warns unions over strike plans

? Chancellor insists deficit-reduction strategy is right
? Ed Balls calls on government to think again

George Osborne today called unions the "forces of stagnation" and blamed them for holding back Britain's economic recovery.

He warned that the government was preparing to draw up contingency plans if its deficit-reduction timetable was disrupted by strikes.

Union leaders met on Friday to discuss the possibility of co-ordinating strikes against the public spending cuts and the TUC has organised a protest in London on 26 March, three days after the budget, which it hopes will attract 1 million demonstrators.

Osborne repeated earlier warnings that union law could be changed.

"We are prepared to consider changes to the law around strikes ? as a last resort ? but I hope we never get there because I hope we can have a mature, grown-up conversation," he told BBC1's Politics Show.

"I completely understand that trade unions want to represent the interests of their members, but the interests of their members is that jobs are created and prosperity returns to our country".

Speaking at the end of a week in which the government was rocked by an unexpected contraction in the British economy in the last quarter of 2010, Osborne said he hoped growth would come from debt reduction, cutting corporate tax rates and reforms to health and education.

He said: "The challenge for the government in the next year or so is to remove the supply-side obstacles to growth.

"The [other] challenge to me is that UK corporates are sitting on cash on their balance sheets equivalent to about 5% of GDP. What I've got to do in the next few months is to persuade them to start spending that money."The shadow chancellor, Ed Balls, dismissed the government's growth plan and accused the chancellor of being in denial.

On BBC1's Andrew Marr Show, Balls stopped short of predicting another quarter of negative growth but he warned the VAT increase imposed earlier this month made the economy's chances of recovery more unlikely and he called for the government to think again.

Balls pointed out that the US economy, which has not embarked on deficit reduction yet, grew towards the end of last year.

Balls also questioned a statement made on Tuesday by the governor of the Bank of England, Mervyn King, who called the government's deficit reduction timetable the "right course".

He said: "I don't think that Mervyn King, in his heart of hearts, really believes that crushing the economy in this way is the right way to get the economy moving."

Asked if he thought King had been leaned on by the government, Balls said: "I think the governor is being loyal."

Osborne said he felt a "huge responsibility" to make the right decisions for Britain. "I'm fulfilling it to the best of my ability, doing what I think is required for Britain," he told the BBC. "So we are doing those things, they are not easy, they are not easy for families, I completely understand that. But frankly, when you look at the mess we inherited, we didn't have many other options.

When asked why he did not modify the government's deficit-reduction timetable, he said: "If I went to parliament and got up at the despatch box in the House of Commons and said, 'I am abandoning the deficit-reduction plan that Britain set out last year.' What do you think the reaction would be? Within minutes Britain would be in financial turmoil. I'm not prepared to let that happen. It requires tough, difficult decisions. No politician likes cutting spending, increasing people's taxes, but I was delivered a mess by the previous government and I'm trying to clear it up."

The government will tomorrow announce one element of its growth strategy. The employment minister, Chris Grayling, will say that six "enterprise clubs" will be created around the country where established businesses will share their experience with unemployed people, providing them with advice they might not otherwise be able to afford.

Grayling will launch the first club in St Helens, Merseyside, with the head of the British chambers of commerce, David Frost. They will also launch a new enterprise allowance to provide financial help and mentoring to those who have been unemployed for more than six months. They aim to support up to 40,000 new businesses in this way.

Allegra Stratton

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