Plan to balance public finances must be 'convincing'

8 March 2010

The government needs to set out clear plans for reducing the budget deficit sooner rather than later, the CBI has argued.

The CBI wants the Chancellor to use the forthcoming Budget to spell out details of spending plans for various government departments as a way of boosting confidence in the UK's finances.

Specifically, the CBI called for a balancing of the government's books by 2015/16, two years earlier than intended.

The reduction of the finance deficit should be achieved through spending cuts rather than tax rises, the CBI said in a letter the Chancellor.

The Budget should also nurture economic growth by backing business and enterprise, one measure of support being the scrapping of the planned rise in NICs.

Richard Lambert, the CBI's director general, commented: "This Budget comes at a pivotal moment for the UK economy. Investors are clearly jittery about sovereign debt, but are prepared to give the UK the benefit of the doubt until after the election.

"The UK's deficit, though worryingly large, is still manageable, but the government must act now to set out a convincing, credible pathway for balancing the books. It is critical that this Budget provides credibility and direction on the public finances, and creates the right conditions for businesses to drive economic growth."

Ian McCafferty, the CBI's chief economic adviser, added: "The government should aim to balance the books sooner than it currently plans. A target date of 2015-16 for restoring budget balance would send a powerful message to investors about the seriousness with which the UK is tackling the public finances.

"However, in our view, fiscal balance should be achieved by curbing spending rather than increasing taxes, and cutting current rather than capital spending. This balance of measures is the most supportive of growth, but will mean grappling with thorny issues such as poor public sector productivity, pay and pensions."