Brown advised to cut spending plans
The chancellor is putting the UK’s future growth at risk through his high levels of public spending, the Confederation of British Industry (CBI) has said.
And the employers’ group has urged Gordon Brown to trim his spending plans to address the alleged ‘black hole’ in the government’s finances.
“A £10 billion structural deficit has opened up in the public finances which needs to be tackled early in the next fiscal cycle – effectively in the next two years,” said CBI deputy director general John Cridland.
“Hefty Budget and local authority tax rises since 1997, the UK’s slide down the OECD tax league table, and the urgent need to encourage more work and savings to avoid a pensions crisis would make further tax rises extremely damaging.”
The statement, coming ahead of the chancellor’s pre-Budget report, recommends that the Treasury holds the growth in total spending over the next two years to £51.4 billion (ten per cent), in line with GDP growth but below the planned £61.4 billion (12 per cent).
Mr Cridland noted: “The workable solution is for the government to revisit its spending plans for 2007/08, and ease back on the dramatic rate of growth of public spending. The unworkable alternatives are allowing borrowing to drift even further – meaning higher interest rates and more public funds diverted into interest payments – or raising taxes, hitting economic growth and, ultimately, the future tax receipts available for public spending.”
The CBI believes spending should be limited to areas “vital for the economy’s long term prospects” – including education and skills, transport, and science and technology.
And the group calculates that £10 billion worth of savings can be made without cutting frontline service delivery.
By holding annual pay growth to 4.5 per cent, and trimming public sector staff numbers by 1.25 per cent through cutting absenteeism to private sector levels, could provide £6 billion in savings, the report finds.
Another £2.5 billion could be saved by reducing fraud and errors on benefits bills and helping people on incapacity benefit back into work.
And £1.5 billion more could be saved by simply not spending the government’s “resource budget reserve”.
Mr Cridland added: “While the chancellor can shift the fiscal goalposts and delay the comprehensive spending review, tackling the structural deficit can only be deferred, not ducked forever. The prudent decision would be to reconsider the government’s spending plans for the next two years and get a grip on the deficit now.”
The pre-Budget report is due out later this month.
