Mr Darling has much food for thought

Oct 20 2009 by Sarah Green, The Journal

IT seems only a short while since the 2009 Budget, in which Alistair Darling announced Car Scrappage and the 50% tax on high earners.

Yet, as the dark nights draw in and the journey to work is plagued by a morass of russets and yellows underfoot, preparation is underway for the 2010 budget.

The annual Pre-Budget Report is a mainstay of the autumn political schedule, designed to encourage debate over the issues which will influence the actual Budget next spring.

To extend the oft-quoted ‘green shoots’ analogy, it’s perhaps fitting that the trees will be virtually bare by the time the PBR comes around in November – as it is clear that austerity needs to be the order of the day.

This week, The director general of the CBI, Richard Lambert, has written to the Chancellor, recommending that his Pre-Budget Report delivers a credible plan for balancing the public finances by 2015-16. This would be two years earlier than planned, but would crucially boost investor confidence and get the UK on the path to recovery. However, Mr Lambert is also warning that the government will need to take an extra £120bn out of current spending plans to achieve this – £50bn between now and 2013 to allow for a slower economic recovery than the government is predicting, and a further £70bn after 2013 in order to balance the books by 2016.

The proposed strategy involves bringing the public finances back into balance, a radical re-design of the way public services are delivered, and the introduction of a range of low-cost measures to position the economy for recovery. But what difference will this make?

If the government adopts these proposals, it could avoid large tax rises and crude spending cuts at a time when the economy is still fragile, while at the same time delivering high-quality public services. Restraint in public spending, and a closer working relationship between the public and private sectors – which would help to drive up productivity and efficiency – are two key ways in which recovery could be stimulated.

Despite huge amounts of investment, productivity within the public sector has fallen over the last decade. The CBI believes that radical public sector reform could reap huge savings for taxpayers, while ensuring no drop in the standard of services provided.

Making use of new and proven technologies, increasing competition within the public sector, and improving workforce management through the adoption of good private sector practice are just some of the ways in which the CBI proposes that money be saved.

Given the fragile state of the economy and the challenging environment in which businesses are operating, the government should also take some short-term steps to ease the pressure on firms, for example by reconsidering planned business tax increases. This will help business investment and jobs.

Clearly, Mr Darling will have plenty of food for thought in the coming weeks, and credible decisions must be made if the autumn of austerity is not to turn into a decade of discontent.

Sarah Green is regional director of CBI North East