Painful choices ahead on spending, says CBI president

Published on Thursday 3 September 2009 21:10

THE government was last night urged to provide a "clear and robust path back to fiscal health" which required some painful choices.

Helen Alexander, CBI president, told the organisation's Scottish annual dinner that the Pre-Budget Report must offer a credible assessment of where Britain stands.

"It would be deeply disappointing if this opportunity for realism fell prey to short-term politicking," she warned.

She said the budget deficit is likely to rise to 12 per cent of GDP by 2011, and even Treasury figures suggest this will decline only very slowly over the following seven years.

She said: "By 2018, total UK government debt will be at least 80 per cent of GDP. The 40 per cent limits of the golden rule seem to belong to a sepia-tinted past. Painful choices will have to be made.

"If political expediency means decisions aren't made soon, the future will be one with fewer choices, and even more painful ones."

She said this could threaten the recovery and further undermine business and consumer confidence.

The result of that would be less investment, fewer jobs, and less wealth creation.

"The evidence from history is that spending cuts and not tax increases represent the best way forward – although the recovery, when it comes, may well have to shoulder both," she said.

"It is important that these cuts in spending don't result in cuts in the quantity or in the quality of front-line public services.

"They don't need to. Expectations will be for smarter, better operations – and often we are all surprised by how results of lower spending are much better than we expected."

She told guests that the next six months will be critical in terms of economic recovery.

"If household spending picks up and if our export markets look a bit more robust, and if there are no more financial horror stories, then we could confidently say the corner has been turned," she said.

Outgoing CBI Scotland chairman David Thorburn warned government ministers of the fragility of British industry as it emerges from recession. He said the CBI had pressed government to respond effectively to the financial crisis.

Thorburn spoke to a packed audience at the Glasgow Hilton ballroom, which included guest speaker Alistair Darling, the Chancellor.

"The main lesson from the past year has to be that, in this global business world, the competitiveness of our indigenous industries is fragile and cannot be taken for granted," said Thorburn. "And that's why CBI has been so active these last two years.

"Overall, I've seen a marked difference in this Scottish Government's attitude to business."

He said the most noticeable recent success for CBI Scotland came when the Scottish Government dropped its plan to introduce a Local Income Tax.