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Change course on deficit - Balls

Shadow chancellor Ed Balls will urge George Osborne to "change course" on deficit reduction, warning that the Government's plans risk long-term damage to the UK economy.

The Chancellor's plan to eliminate the structural deficit by fast cuts in Government spending creates the danger of a "vicious circle" of lower investment, income and employment producing slower growth, requiring larger tax increases and spending cuts in years to come, Mr Balls will say.

He will brand Mr Osborne's refusal to draw up a "Plan B" of slower deficit reduction a "political gamble" driven by the desire to secure election victory for the Tories in 2015 rather than by Britain's economic interests.

Speaking to the London School of Economics, Mr Balls will reject Mr Osborne's often-repeated allegation of "deficit denial".

"I'm not someone who shirks tough decisions," the shadow chancellor will say. "And I am making the case for a slower and more balanced approach not because I am a deficit denier, but because this is the tough - but cautious and credible - thing to do."

Mr Balls will cite forecasts from the Office for Budget Responsibility (OBR) which suggest that the UK will be £5.6 billion worse off as a country - the equivalent of £300 for every family - at the end of 2012 than was predicted at the time of Mr Osborne's Budget last year.

If current trends continue for the remainder of this Parliament, that figure will have swollen to £58 billion - or £3,300 for every family - by 2015, he will say.

While the US, German and French economies have recovered to pre-crisis levels, Britain remains 4% below that level, Mr Balls will say.

He will point to OBR warnings that unemployment could be 200,000 higher over the coming years than was predicted a few months ago.

"The test for the Treasury isn't just whether they can post better growth rates - we all know the economy will return to stronger growth eventually - it's whether they can make up all this lost ground in jobs and living standards," Mr Balls will say.

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