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Budget 2013: Norman Lamont Admits Austerity Has Hit Growth But Defends George Osborne

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One of the chancellor's closest allies has said that George Osborne "should stick to the strategy" of deficit reduction, despite admitting that "no one can argue" austerity measures have had an "effect" on "meagre" economic growth in the UK.

Reacting to Wednesday's Budget, former Conservative chancellor Norman Lamont told the Huffington Post UK that George Osborne "was a man with his back to wall, [with] very little room for manoeuvre... in the circumstances, he did as well as anyone could".

However, in response to comments about deficit reduction having "stalled", from the chair of the Office for Budget Responsibility (OBR), Robert Chote, Lord Lamont conceded: "No one can argue reducing the budget deficit or cutting spending has no effect on the growth of an economy. It has some effect, but equally doing nothing carries a huge danger."

Lamont, who served as chancellor of the exchequer in the John Major government between 1990 and 1993 and has advised Osborne in the past, rejected the argument that "there has been too much austerity": "It is an absurd argument. What stands out is that Britain has been much more gradualist and much more moderate in its attempts to redice its deficit than most other countries in the world."

It is "facile", he added, to claim the deficit hadn't "gone down as planned". For Lamont, "the main problem for the British economy has been exports. The domestic economy has performed pretty well in line with the OBR's forecasts. Even the consumer has not been completely cowed. We have had this growth in employment reflecting a domestic economy that is not doing badly in some respects."

Lamont said that he didn't think "anyone's surprised" by the OBR's downgrade to its forecast for growth in 2013 - from 1.2% to 0.6%. "You could make similar comparisons of expectations for growth for all the countries in the eurozone," said the former chancellor. "It just hasn't happened. Meagre as they are, ours are slightly better than those fo the Eurozone as a whole."

He added: "The gradualist approach, the moderate approach, that [the coalition] chose was right. They were trying to take advantage of the fact that we do have our own currency which gives us certain... freedoms that they don't have in the eurozone. Austerity does have an impact but it's not the only factor."

In remarks pointed at the chancellor's Tory critics on the backbenches, Lamont said he believes "as passionately as anyone else on the right wing of the Conservative Party, in smaller, more effective government but there is a tendency sometimes for people to believe that tax cuts always finance themselves... It doesn't make sense always to cut taxes. I believe that tax cuts that are funded by borrowing can't be justified."

"I'm not going to criticise them but obviously there's a lot nervousness in the Conservative Party... and the obviously difficult circumstances in which the government finds itself."

The Tory peer also predicted that other major economies could lose their triple-A credit ratings as well: "I think that we'll probably end up with a situation in which there are no large, triple A credit ratings. All of them, even Germany, could lose their triple-A rating eventually. It's quite a possibility."

Lamont defended Osborne's 2012 cut to the 50p top rate of tax - despite the energetic attack that Labour leader Ed Miliband launched on Tory ministers over this particular issue in the Commons yesterday. "I personally don't believe that it resonates in the way that [Miliband] obviously believes it [does].... I personally believe it was the right thing to do." Lamont added that the Tory leadership would have liked to have reduced the top rate to 40p, rather than 45p, but "there's something called the coalition".

At a post-Budget briefing by the Institute for Fiscal Studies (IFS) on Thursday lunchtime, IFS director Paul Johnson said the chancellor had "carefully managed" his "headline borrowing figures for this year - but Lamont told HuffPost UK that he didn't believe "there's been a fiddling of the accounts". He said that Treasury officials "don't let you get away with" such "tricks".

The former chancellor, however, said it was "absolutely" right that the Treasury is conducting an inquiry "into the practice of the proactive pre-releasing of Budget information", in the wake of the Evening Standard fiasco yesterday, and said it must have had an impact on Osborne's delivery.

"I guess he must have felt pretty uncomfortable, with Balls waving it around... But the hero of the hour was Mr Deputy Speaker."

Responding to Lord Lamont's intervention, Jonathan Portes, director of the National Institute for Economics and Social Research (NIESR), told HuffPost UK: "It's simply a matter of fact, as the IMF has repeatedly said, that there was sharp fiscal consolidation in the first two years of this Parliament. I do not think anyone seriously questions that this was a major policy mistake which did considerable damagne. Taxes also went up substantially."

Portes, a former (civil servant) speech writer to Lamont at the Treasury, added: "The irony is that in the early 1990s Norman Lamont put in place a plan that did precisely the reverse of what we are seeing now - no deficit reduction until the recovery was well under way; indeed, the Lamont/Clarke spending cuts and tax increases didn't really kick in until growth was well over 3%.

"That is, of course, textbook economics and the result was both a strong recovery and the relatively painless elimination of the deficit. "