By Jaimie Kaffash
28 September 2009
Business leaders have urged the next government to balance the budget by 2015.
The CBI’s New government in action report, released today, says that whichever party wins the next general election should implement spending cuts within 100 days of coming to power. It added that this would require a ‘new explicit commitment’ by the main parties.
‘The tone should be set within weeks of taking office so that business sees credible commitments to get spending under control and ensure continued investment,’ it said. There should not be any ‘no go areas’, the report adds. It said the emphasis must be on spending cuts rather than tax increases.
John Cridland, deputy director of the CBI, said: ‘The major political parties really need to focus on the public finances, even though this requires tough decisions. They should make it their ambition to set out a clear, credible plan that would return the budget to balance by 2015.
‘We also emphasise the need for speed. A new administration should act quickly and decisively. This will not only put the right priorities in place quickly, but also help win confidence.’
The CBI’s report was timed to coincide with the first full day of the Labour Party conference in Brighton. The business lobby’s 12-point agenda for any incoming government included prioritising a reduction in youth unemployment and addressing public sector pensions.
Tony Travers, chair of the Greater London Group at the London School of Economics, told Public Finance that balancing the budget by 2015 would require economic growth of 10% in the years up to 2015. Assuming all this growth would be picked up by the government in taxation – ‘which would be a pretty dramatic thing to do’ – there would still be spending cuts that were ‘towards the severe end of what is expected’, he said.
‘And, with a general election in 2015, there will be a lot of pressure not to apply too many cuts in the years leading up to it. This would mean ever greater pressure for the years 2010 to 2012. So it is a pretty radical set of proposals. The CBI must be pretty confident that bringing expenditure down at this speed would have no effect on demand on the economy.’
He added that the CBI would have to justify an attack on public spending after the bail-out of the financial sector. ‘There will be those in the public sector that will see the irony of an organisation like the CBI calling for spending cuts so soon after the government has ended up bailing out huge parts of the private sector,’ he said.
Colin Talbot, professor of public policy at the University of Manchester, said that balancing the budget was essential. ‘We need a balanced budget at some time in the medium term, or else the public sector net debt will just keep on rising,’ he told PF. ‘You cannot let the UK deficit carry on rising because at some point the markets will stop lending the government money.’
But he added that there had to be a mix between tax increases and spending cuts. ‘If it is just through spending cuts, the effect will be disastrous for public services themselves. Having built up services over the past ten years you would be pulling down the things we have put in place.’ He added that this would be putting short-term interests ahead of services that would be sustainable in the long term.
Unions said that public spending should not face the cuts that the CBI is proposing. A spokesman for the Public and Commercial Services union told PF: ‘What should be happening is that the £100bn of tax that goes uncollected, avoided or evaded is going into the Treasury’s coffers. It should not be the ordinary tax payer and public services that suffer for the bail-out of the banks when it was the greed of the city that caused it.’
28 September 2009
Business leaders have urged the next government to balance the budget by 2015.
The CBI’s New government in action report, released today, says that whichever party wins the next general election should implement spending cuts within 100 days of coming to power. It added that this would require a ‘new explicit commitment’ by the main parties.
‘The tone should be set within weeks of taking office so that business sees credible commitments to get spending under control and ensure continued investment,’ it said. There should not be any ‘no go areas’, the report adds. It said the emphasis must be on spending cuts rather than tax increases.
John Cridland, deputy director of the CBI, said: ‘The major political parties really need to focus on the public finances, even though this requires tough decisions. They should make it their ambition to set out a clear, credible plan that would return the budget to balance by 2015.
‘We also emphasise the need for speed. A new administration should act quickly and decisively. This will not only put the right priorities in place quickly, but also help win confidence.’
The CBI’s report was timed to coincide with the first full day of the Labour Party conference in Brighton. The business lobby’s 12-point agenda for any incoming government included prioritising a reduction in youth unemployment and addressing public sector pensions.
Tony Travers, chair of the Greater London Group at the London School of Economics, told Public Finance that balancing the budget by 2015 would require economic growth of 10% in the years up to 2015. Assuming all this growth would be picked up by the government in taxation – ‘which would be a pretty dramatic thing to do’ – there would still be spending cuts that were ‘towards the severe end of what is expected’, he said.
‘And, with a general election in 2015, there will be a lot of pressure not to apply too many cuts in the years leading up to it. This would mean ever greater pressure for the years 2010 to 2012. So it is a pretty radical set of proposals. The CBI must be pretty confident that bringing expenditure down at this speed would have no effect on demand on the economy.’
He added that the CBI would have to justify an attack on public spending after the bail-out of the financial sector. ‘There will be those in the public sector that will see the irony of an organisation like the CBI calling for spending cuts so soon after the government has ended up bailing out huge parts of the private sector,’ he said.
Colin Talbot, professor of public policy at the University of Manchester, said that balancing the budget was essential. ‘We need a balanced budget at some time in the medium term, or else the public sector net debt will just keep on rising,’ he told PF. ‘You cannot let the UK deficit carry on rising because at some point the markets will stop lending the government money.’
But he added that there had to be a mix between tax increases and spending cuts. ‘If it is just through spending cuts, the effect will be disastrous for public services themselves. Having built up services over the past ten years you would be pulling down the things we have put in place.’ He added that this would be putting short-term interests ahead of services that would be sustainable in the long term.
Unions said that public spending should not face the cuts that the CBI is proposing. A spokesman for the Public and Commercial Services union told PF: ‘What should be happening is that the £100bn of tax that goes uncollected, avoided or evaded is going into the Treasury’s coffers. It should not be the ordinary tax payer and public services that suffer for the bail-out of the banks when it was the greed of the city that caused it.’
