Darling says spending cuts are inevitable

Spending cuts and wage curbs are inevitable at some point, Chancellor Alistair Darling said in an interview published on Friday, but he reiterated a warning against premature action that could aggravate recession.

Alistair Darling also told the Irish Times the government was in touch with Ireland over its recovery plans and advised against a hasty sale of British property assets acquired through Ireland's "bad bank" scheme.

Britain - which expects a general election in May - would face much tighter public spending, Darling said. The issue was "when and how fast."

"I make no bones about it. There are going to be some difficult decisions taken - public spending is going to be tighter. That is on the back of public spending having more or less doubled over the last 10 years.

"There will be things that will be cut, things that will be postponed. It is said that in the public sector wage increases will be held a lot lower than they have in the past" he said.

"If we don't back down on our borrowing, then you will simply end up spending money on servicing debt instead of spending on things that people would probably like to have monies spent on."

He cautioned, however, against acting too soon.

"Until you have got recovery established - in the absence of private sector investment coming back - if you start to reduce your spending too soon, then the risk is you derail the recovery and tip us back into recession," he said.

Darling said Ireland should not rush to sell assets acquired under its National Asset Management Agency (NAMA) scheme, about one fifth of which are in Britain whose property market is expected to recover much more quickly than Ireland's. 

"I would have thought from the Irish government's point of view, though, they would be quite keen to ensure that these assets are sold as and when they will want to get their money back too for the Irish taxpayer" Darling said.

"I am quite sure that it wouldn't be in their interest to do something that would actually depress prices, which would end up in them getting less money for the assets."

In total the Irish state is taking on around 80 billion euros (70.7 billion pounds) in loans from its banks, an estimated 16 billion of which cover British property assets.