By Emma Rowley

The Coalition should keep people working longer to help allow a slowdown in the pace of cuts, which would aid the UK's recovery, a leading think tank has argued.

The economy is operating at around 4pc under its potential, signalling the need to rethink the fiscal tightening, according to the National Institute of Economic and Social Research (NIESR).

"Given that margin of spare capacity, there is a case for promoting the recovery by postponing at least some of the austerity programme," the think-tank said as it unveiled its quarterly forecasts. "As an alternative to swift consolidation, it (the government) could raise the state pension age faster so that it reaches 68 rather than 66 by 2020."

Adding three years to the average working life would boost growth by 0.3 percentage points a year for a decade, said NIESR, as the labour force grows and money otherwise stashed away for retirement stays in circulation.

The state pension age is 65 for men and will reach 66 for both sexes by 2020, under current plans.

The call for a rethink of austerity measures comes after week's alarming figures which showed the UK economy contracted by 0.5pc in the last three months of 2010, as the snow disrupted business and public spending cuts began to bite.

www.telegraph.co.uk

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