Page last updated at 00:40 GMT, Friday, 21 November 2008

Chancellor urged to help UK firms

By Jorn Madslien
Business reporter, BBC News

Richard Lambert
CBI head Lambert wants the government to safeguard employment

Government spending aimed at boosting the UK economy should be targeted at small companies rather than tax-paying consumers, business body CBI has said.

"It should be focussed on job preservation and job creation", CBI head Richard Lambert told BBC News.

Mr Lambert said British business would endorse additional government borrowing to pay for a fiscal stimulus package.

But it would have to be timely, targeted and temporary, and must be followed by curbs on public spending.

"Subject to these three conditions, we would support a limited fiscal boost," Mr Lambert said in an interview with the BBC News website ahead of the CBI conference on Monday.

It is also the day when Chancellor Alistair Darling will stand up in parliament to deliver his pre-Budget report.

The CBI will be publishing a 10-point plan detailing what the business community would like the chancellor to do, Mr Lambert said.

Key to recovery

The CBI's call for assistance for small companies came amidst speculation that the government is preparing to cut taxes for the poor in order to boost consumer spending in the run-up to Christmas.

Workers in India
Outsourcing has not hit the UK economy hard

Mr Lambert said he would prefer to see the government provide "incentives [to companies] to retain employees in a difficult time".

"We think employment is the key to what is going to happen," he said.

"Employment is the key to confidence and the key to recovery."

Mr Lambert deemed spending on public works, as is advocated by the Liberal Democrats, as an ineffective tool to deal with the current economic crisis, since any impact on economic growth and job creation would be slow and only apparent once the economy had already recovered.

Cash-flow problem

The situation facing companies in the UK has been made worse in recent weeks by a severe cash-flow problem as companies struggle to raise working capital.

Public spending should be growing at a slower rate than it has done in recent years
Richard Lambert, Director-General, Confederation of British Industry

"In normal times when demand goes down, businesses can borrow to see them through difficult times, but the cost of borrowing is rising quite a lot and it is not as freely available as it has been," Mr Lambert said.

"They find it difficult to get access to finance to sustain their current level of activities at a time when demand is weak.

Export orders from the euro-zone have also come under pressure as the downturn has hit companies there.

"The risk in the current circumstances is that viable companies will go under," Mr Lambert warned. "Companies are cutting costs because their backs are up against the wall."

The CBI has recently downgraded its economic forecast and now expects the UK to go into recession in 2009.

Emerging stronger

But Mr Lambert does not expect the crisis to last much beyond next year.

"The challenge is to get through the eye of the storm and out of it in a strong position to capitalise on the recovery, which we think will be in 2010," he said.

Indeed, with further interest rate cuts expected and with an anticipated revival of the credit markets, the situation should start to improve by spring 2009, he predicted.

"In six months time, we expect business conditions to have stabilised somewhat," he said.

And once recovery gets underway, the UK may well emerge stronger than many of its chief rivals, including the US and major European economies, he said, pointing to research by IBM showing that job creation in the UK is holding up well in the face of outsourcing compared with other leading economies.

"The UK is more or less evenly balanced. It's getting as many jobs from inward investment as it's outsourcing, roughly," he said. "Whereas [the US], Germany and France are transporting a lot of jobs overseas."

Reduced spending

With regards to the government, any fiscal stimulus package announced by Mr Darling on Monday should be paid for by a subsequent slowdown in the growth in government spending, Mr Lambert insisted.

"It would need to be whatever it takes to get the public finances into a sustainable position, which they are not in at the moment.

"That would include public spending growing at a slower rate than it has been doing in recent years," he added, mirroring the position taken by the Conservative party, which has moved away from its commitment to match the government's spending plans from 2009/10.

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