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Spending cuts must not hinder growth, says CBI

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The government must ensure that the spending cuts to be announced in the forthcoming comprehensive spending review do not put the brakes on economic growth, the CBI has argued.

Amid worries that the UK economy could face a double-dip recession, the CBI urged ministers to safeguard those areas, such as infrastructure and education, that play a key role in the recovery.

The employers’ organisation made the plea in its submission to the Treasury ahead of the spending review, which will be published on 20 October.

While agreeing that spending must be reined in order to tackle the budget deficit – the coalition is aiming to cut £32 billion of annual public expenditure by 2014/15 – the CBI called on the government to protect investment where it most matters to fostering economic revival.

The CBI submission highlighted spending on infrastructure, knowledge assets, such as research and development, and education and skills.

On the issue of infrastructural investment, the report urged that public sector capital investment to be returned to 2.25 per cent of GDP as soon as possible; that existing transport assets be maintained; that all public sector transport projects undergo more rigorous value for money assessments; and that action be taken to attract more private sector funding for transport.

Recommendations on knowledge assets included co-ordinating research and development spending across the government, shifting the balance towards R&D at a national level, avoiding duplication of schemes to support manufacturing and other growth sectors, and re-focussing general business support through the internet, whilst concentrating face-to-face support on high-growth businesses.

On developing skills and education, the CBI said it wanted to see the encouragement of business-relevant research by maintaining funding for the Higher Education Innovation Fund, the scaling back of the Train to Gain programme for larger firms and the better targeting off hard-to-reach firms, a sharper focus on STEM skills and an increase in the number of employer-led apprenticeship places.

John Cridland, the CBI’s deputy director general, commented: “The government rightly decided to limit public spending. The alternative would have been tax rises and other consequences that would have damaged the economy for years to come.

“Cutting spending means tough choices. We think that the need for economic growth, not the noise of the loudest voice, should determine where cuts are made.

“The government must improve the efficiency of public services and focus the limited public money available on areas that do most to galvanise growth.”

Ian McCafferty, the CBI’s chief economic adviser, added: “Cuts will necessarily affect GDP growth in the short term, but smart choices will give the economy the ability to grow. The government must use its limited resources to support a healthy private sector recovery so it can pick up the slack from the public sector.

“Given the very high returns that new infrastructure offers, the planned cuts to net public sector investment are a concern. We also need to invest in building up our knowledge and skills base as this will help boost our competitiveness.

“At the same time, the efficiency of government must be improved across the board. This twin approach to prioritising public spending will help smooth the path to Budget balance, helping the public finances return to a more sustainable footing.”