Former finance minister

"The econ­omy is in serious trouble. We are facing a decline of over 2% in GDP this year and a further decline next year which now looks as if it will be considerably greater than that forecast by the government at the time of the October budget.

"The exchequer is suffering from a triple whammy. Tax revenue is melting from the combined effects of the property market collapse, the effects of slowing export and services demand and the need to take on obligations in the context of the financial markets meltdown.

"There is still a substantial risk that, unless we can get the right kind of co-ordinated action at international level, we could see a depression similar to that which began in 1929. US president-elect Obama has shown clear signs of recognising this: the responses in the EU and in Europe generally have been less impressive.

"In my view, the recent increase in VAT was the wrong move and can only accelerate the contraction of economic activity and the growth in unemployment. It is time to contemplate a major gamble, such as reducing VAT to below its pre-budget level with a view to helping the productive sectors of the economy to get around some of the difficulties they are experiencing in gaining access to normal credit.

"The early presentation of the budget in October was badly misjudged. Clearly, it was done too quickly to be either well-informed or well-directed. The next adjustments must be much better thought-out and they must include some well-targeted stimulatory measures as well as measures to halt the continued and excessive growth in public expenditure.

"There is enough knowledge around to get us and the rest of the world out of this bind, if that knowledge is properly applied. The longer we take to implement the right measures, the higher unemployment will go. In 2009, it could go to 10%, on current trends."