By Tash Shifrin
Business leaders have urged Chancellor Alistair Darling to freeze public spending from 2011/12 to restore the public finances after the recession.
Business leaders have urged Chancellor Alistair Darling to freeze public spending from 2011/12 to restore the public finances after the recession.The CBI described the state of the public finances as ‘alarming’ following the fiscal stimulus announced in the Pre-Budget Report and the chancellor’s action to prop up the banking sector.
Darling’s April 22 Budget must offer ‘a clear and credible strategy to restore the public finances to health’, the CBI said in its March 23 Budget submission. It added that a further fiscal stimulus should be ruled out.
The business lobby said the budget could be ‘broadly balanced by 2015/16’ by freezing public sector spending at £587bn from 2011/12. It also urged ‘a more flexible approach’ to public service pay and ‘action to address the affordability’ of public service pensions.
CBI deputy director-general John Cridland said: ‘We need to cut our cloth to reflect these constrained economic times and the public sector will need to share some of this pain too.’
But the freeze on public sector capital funding announced in the PBR – which will lop £14bn off capital spending for the three years from 2011/12 – should be reversed, he added.
The CBI said a fresh fiscal boost would undermine business. Cridland added it would be ‘unaffordable and would lead to businesses and households retrenching in fear of higher tax bills in the future’. He said the current stimulus should be allowed to take effect before further action.
His view was echoed by Bank of England governor Mervyn King. ‘I think the fiscal position in the UK is not one where we could say, well, why don’t we just engage in another significant round of fiscal expansion,’ he said on March 24.
