The UK’s huge deficit should be tackled with £4 in spending cuts for every £1 in tax hikes, the CBI business group has said.
In a letter to Chancellor George Osborne ahead of the emergency Budget on June 22, the CBI warned that the public finances should be repaired without damaging growth prospects.
It called for a shake-up of public services provision to save money through moves such as job cuts and sharing back office functions.
CBI deputy director-general John Cridland said: “A radical re-engineering of public services is a must if damaging tax rises are to be avoided. Only an effective cost reduction strategy can safeguard future growth.”
The CBI has “major concerns” over proposals to hike capital gains tax to similar levels as income tax and wants a broad definition of business assets to prevent deterring start-ups.
It also wants tax credits for research and development protected as well as capital spending levels to be restored as soon as possible.
“The UK’s future economic prospects depend on the ability of firms across the country to create new jobs and win orders. Increasing taxes makes this more difficult,” Mr Cridland warned.
Prime Minister David Cameron has warned this week of “painful” cuts ahead to bring the public finances under control, although public sector unions are gearing up for a fight as the axe is sharpened.
According to April’s Budget, borrowing is set to reach £163 billion in the current financial year, although this will depend on forecasts from the newly formed Office for Budget Responsibility (OBR) next week.
Last year’s borrowing figures have been revised lower, but this could be offset if the OBR also trims growth forecasts seen as optimistic by most experts.
The coalition Government has announced £6.2 billion in spending cuts so far - with much deeper reductions to follow in a spending review later this year. VAT is seen as the most likely candidate for a tax rise, with an increase in the rate from 17.5 per cent to 20 per cent.