The CBI has urged the government to deliver a "credible" economic plan for balancing the books by 2016, including lower spending and reform of public services.
In a letter to Chancellor Alistair Darling, the CBI said "damaging" tax rises should be avoided as the economy is still "fragile." Ian McCafferty, the CBI's chief economic adviser, said: "The Government should aim to balance the books sooner than it currently plans. A target date of 2015-16 for restoring budget balance would send a powerful message to investors about the seriousness with which the UK is tackling the public finances. This medium-term target is much more important for credibility than the exact start date for action.
"However, in our view, fiscal balance should be achieved by curbing spending rather than increasing taxes, and cutting current rather than capital spending. This balance of measures is the most supportive of growth, but will mean grappling with thorny issues such as poor public sector productivity, pay and pensions. As well as setting out a more challenging target for the pace of reduction in public borrowing, we would also like to see full details of exactly how the fiscal austerity ahead will translate to departmental budgets."
Time is running out, added the CBI. "Investors are clearly jittery about sovereign debt, but are prepared to give the UK the benefit of the doubt until after the election,” said CBI director general Richard Lambert adding that the Budget comes at a "pivotal" moment for the economy. "The UK's deficit, though worryingly large, is still manageable, but the Government must act now to set out a convincing, credible pathway for balancing the books. It is critical that this Budget provides credibility and direction on the public finances, and creates the right conditions for businesses to drive economic growth."
The CBI is calling for:
- The budget to be balanced by 2015-16, two years earlier than currently planned, to instill market confidence in the UK’s public finances.
- A more detailed plan for public spending with a lower trajectory for overall spending. This should focus on public sector current spending cuts, rather than tax increases or cuts to capital spending.
- Public sector productivity to be raised by re-engineering the way public services are delivered, and inefficiencies in supply chains, procurement and workforce management to be addressed.
Separately, the Institute of Directors (IoD) is warning in its Business Manifesto 2010 that the next government will have to take measures to cut the UK's budget deficit as soon as it takes office. A survey of 1,500 of its members revealed almost nine in 10 believe current levels of public spending should be cut, with the majority saying reductions should start this year.
Shadow chancellor George Osborne said: "The voices of British business are now saying what we Conservatives have been saying: earlier action on the deficit is a key to securing the recovery. It is a huge vindication of our approach. There is an emerging consensus that Gordon Brown's economic approach is simply not credible."
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