CBI urges spending cuts to meet 'golden rule'

According to the Confederation of British Industry (CBI) major cuts in spending or a sharp increase in taxes will be mandatory for the next Government if it is to meet Chancellor Gordon Brown's strategy for the economy.

The CBI issued the warning ahead of Mr Brown's Pre-Budget Report on Thursday. The thrust of the message to all parties was to concentrate on cutting public spending and reducing waste. It further warned of the damaging prospects for British industry, particularly in the global market if tax rises were to follow.

CBI chief economic adviser Ian McCafferty said: "The Chancellor's management of the fiscal position has so far been very sound. But there is a significant problem brewing for the next cycle and for after the general election, if there were one next year.

"The Government will have to pull in its horns and business cannot be expected to dig it out of a hole when profits and investment are under so much pressure.

"British business currently faces increasing competitiveness in the global arena, due to prices, expensive regulation, competition from emerging countries like India and China and wage pressures due to high employment. Treasury receipts from Corporation Tax have so far increased by 14.8% this year, compared to a whole-year projection of 21.3%."

The CBI is worried that if the government fails to curb spending sufficiently a £34 billion deficit is forecast together with reduced public finances at the start of the next business cycle in 2005-2006.

In the months leading up to the next general election the CBI is expected to continue to highlight the plight caused by Britain's declining tax competitiveness and campaign for £21.5 billion in various "efficiency savings" identified in the Gershon Report into public sector waste earlier this year.

(mmcg/sp)