A top US professor and Nobel Laureate in Economics has branded George Osbourne's austerity plan as 'mad', 'a mistake' and based upon 'a policy that has never worked'.
Paul Krugman was speaking alongside National Institute of Economic and Social Research Director, Jonathan Portes, in the House of Commons yesterday, in a debate entitled 'Time for a radical rethink? The economics of deficit reduction'.
Krugman and Portes argued the Government's economic plans were flawed as they were based on the assumption that austerity measures and debt reduction would not have a negative impact on growth and that bond markets would panic if the government wasn't being seen to aggressively tackle the record budget deficit.
Krugman said: "This is fundamentally a mad policy.
"This is taking a policy that has never worked, that is based upon a notion of prudence that is utterly at odds with the available evidence and imposing it at a time when it inflicts enormous human as well as economic damage."
Arguing against Krugman and Portes, Stephen King, Group Chief Economist at HSBC, argued that it was stimulus spending by the last Labour government that had gotten the UK economy into the dire situation that it is in today and that a certain amount of austerity was required to promote recovery.
He said: "Ten years ago we assured ourselves that we could avoid a Japanese-style stagnation
"There was a huge amount of stimulus to avoid that, we ended up with the threat of a great depression instead.
"We have avoided a great depression but funnily enough we have ended up with something that looks remarkably like a Japanese-style stagnation.
"What we need is compassionate austerity."