Spending cuts vital to balance books

Oct 19 2009 by Sue Scott, Evening Gazette

BUSINESS leaders today called on the Government to cut its spending plans by an extra £120bn in a bid to "balance the books."

The Confederation of British Industry (CBI) said Chancellor Alistair Darling should use his Pre-Budget Report to deliver a credible plan for balancing the public finances by 2015-16, two years earlier than planned.

The business group said £50bn will need to be found between now and 2013 to allow for a slower economic recovery than the Government is predicting, and a further £70bn after 2013 to balance the budget by 2015-16.

A radical redesign of the way public services were delivered was needed, argued the CBI, adding that this could avoid large tax rises and “crude” spending cuts at a time when the economy is still fragile.

However Alastair Thomson, dean of Teesside University’s business school and vice-chairman of the Institute of Directors, North East, said some taxes on business were inevitable.

“Some have already been planned in - like the VAT rise (from 15% to 17.5% from January 1),” he said..

“Most commentators think that the Government is unlikely to balance the books without a combination of taxes and spending cuts.”

He said a revision of public procurement strategy could help companies secure work on lucrative infrastructure projects that had been delayed to help the Government balance the books.

The CBI said it had identified how the required savings might be achieved, including the introduction of new technology and competition, eliminating waste and inefficiency, and tackling “unaffordable” pensions and pay.

John Cridland, deputy director general of the CBI, said the country needed a credible plan for dealing with the “biggest peacetime deficit in our history”.

He said: “Our calculations suggest that an extra £120bn will need to be taken out of current spending to achieve budget balance by 2015-16.

“Such savings cannot be achieved by tinkering at the edges, but will require radical public sector reform.”

Philip Hammond, Shadow Chief Secretary to the Treasury, said the CBI report was a “shocking” indictment of the Government’s management of the public finances.

“Conservatives have long argued that real reform of the way public services are delivered will protect front line services and help to tackle the budget deficit at the same time.”

Public debt has been swollen by the Government’s £175bn quantitative easing programme, introduced to boost the supply of money and kick-start a faltering economy.

There are some signs that the policy is having a positive effect, though, with third quarter GDP figures out this week expected to record small growth to officially end the recession.

In addition, new data by research firm Experian showed that the number of insolvencies in the North-east has fallen 26% from September 2008 to 46 last month - the biggest decrease in the country.