Economy in danger unless cuts continue, IoD warns Osborne

BRITAIN will risk its long-term economic future if the coalition government doesn't hold its nerve and stick to its proposed budget cuts, a business organisation says today.

The Institute of Directors (IoD) says any retreat would rattle financial markets and hit business investment and the mortgage market.

In a paper entitled 'Don't Go Wobbly, George', it urges Chancellor George Osborne to resist "wobbling" over politically- sensitive issues like university tuition fees. It says to do so would increase the risk of it back-tracking on bigger fiscal issues.

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Graeme Leach, chief economist at the IoD, says: "There's a real risk that unless we regain control of public spending now, we could lose it for a generation, as the rising costs of an ageing population add further pressure for tax and spend policies.

"Pressure to change course over the next few months must be resisted by the chancellor. The future of the economy is at risk if the coalition scales back the spending review."

The coalition aims to eliminate the 109 billion structural deficit and get public debt as a percentage of gross domestic product (GDP) falling by 2016.

However, plans to raise tuition fees to 9,000 a year have sparked bouts of protests across the country, aimed particularly at the Liberal Democrats, who made a pre-election pledge to oppose any increase.

In the wake of the Irish financial crisis, any U-turn would send government bonds (gilts) tumbling - and have serious knock-on effects, says the IoD.

"As the political heat rises over the next few months, we urge George Osborne to hold firm," said Leach.

"If any part of the coalition shows even a slight loss of nerve, holders of government debt could lose their shirts.

"The last thing the UK economy needs at present is a spike in gilt yields with negative knock-on effects on business investment and the mortgage market."