Page last updated at 12:12 GMT, Monday, 8 March 2010

Business leaders urge faster action on UK's 178bn debt

Richard Lambert, CBI
CBI director Richard Lambert says the Chancellor must act now

Business leaders have demanded that the government start making public spending cuts this year to reduce the UK's £178bn deficit.

Two employers' groups, the CBI and the Institute of Directors, say faster cuts in government borrowing are needed to restore credibility in public finances.

The CBI has called for "a clear pathway" towards balancing the books.

And the IoD says the recovery could receive a boost if public spending was cut as part of fiscal tightening.

'Investors jittery'

The CBI and IoD set out their demands in pre-Budget submissions.

"The government must act now to set out a convincing, credible pathway for balancing the books," said Richard Lambert, director-general of the CBI, in a letter to the Chancellor of the Exchequer, Alistair Darling.

"Investors are clearly jittery about sovereign debt, but are prepared to give the UK the benefit of the doubt until after the election," Mr Lambert added.

The pace at which Mr Darling plans to bring the public finances into balance has become a major political issue. He wants to achieve this by 2017-18, but the CBI says it should be done by 2015-16.

On Sunday, Mr Darling insisted that Labour was "absolutely committed" to halving the deficit with four years. He repeated warnings that to go faster could damage Britain's economic recovery.

"Ill-advised"

Mr Lambert also urged Mr Darling not to resort to "damaging tax rises" in the Budget on 24 March, the last before the general election.

The CBI wants planned increases in employers' National Insurance contributions to be reversed.

Raising NI is "particularly ill-advised" and a "direct tax on jobs", Mr Lambert wrote.

"We are convinced that we need swift action to tackle the budget deficit. This means making significant spending cuts in 2010.
Miles Templeman, Institute of Directors,

The CBI also suggests that more than £130bn of savings could be generated by spending public money "more smartly".

Separately, the IoD warned 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.

The IoD says the economic recovery could receive a boost if public spending was cut as part of fiscal tightening.

'Swift action'

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.

"We are convinced that we need swift action to tackle the budget deficit," said IoD director-general Miles Templeman.

"This means making significant spending cuts in 2010."

He added: "The argument that early cuts would jeopardise the recovery is mistaken. We believe that lower spending is likely to trigger a whole series of positive developments that will assist growth."

"There is an emerging consensus that Gordon Brown's economic approach is simply not credible."
Shadow Chancellor George Osborne

The shadow chancellor George Osborne said business leaders appeared to be agreeing with the Conservatives' approach to spending cuts.

"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."

'Economics not dogma'

Vince Cable, Liberal Democrat party Treasury spokesman, said the CBI's Budget submission highlighted "how dangerous the government's position is".

"The country can't afford to have political parties playing politics with the public finances," he said.

"The Liberal Democrats have made it clear that the point at which we cut spending will be based on economics and not political dogma."

Speaking on Sunday's edition of the BBC's Politics Show, in response to an earlier report indicating that the CBI had lowered its economic growth expectations for 2011, Chancellor Alistair Darling defended the government's approach to the economy.

"In order to secure economic recovery we need to maintain public sector investment. To take this away would be an unacceptable risk to the economy," he said.



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