CBI urges "credible" economic plan in budget

The CBI said the Chancellor should use his last Budget before the election to give more details of spending plans for Whitehall departments in a bid to provide economic stability.

In a letter to Alistair Darling, the CBI said "damaging" tax rises should be avoided as the economy is still "fragile."

The business group also called for the planned rise in employers' National Insurance contributions to be reversed, warning it amounts to a tax on jobs.

CBI director general Richard Lambert said the Budget, expected later this month, is coming at a "pivotal" moment for the economy, adding: "Investors are clearly jittery about sovereign debt, but are prepared to give the UK the benefit of the doubt until after the election.

"The UK's deficit, though worryingly large, is still manageable, but the Government must act now to set out a convincing, credible pathway for balancing the books. It is critical that this Budget provides credibility and direction on the public finances, and creates the right conditions for businesses to drive economic growth."

Ian McCafferty, the CBI's chief economic adviser, added: "The Government should aim to balance the books sooner than it currently plans. A target date of 2015-16 for restoring budget balance would send a powerful message to investors about the seriousness with which the UK is tackling the public finances. This medium-term target is much more important for credibility than the exact start date for action.

"However, in our view, fiscal balance should be achieved by curbing spending rather than increasing taxes, and cutting current rather than capital spending. This balance of measures is the most supportive of growth, but will mean grappling with thorny issues such as poor public sector productivity, pay and pensions.

"As well as setting out a more challenging target for the pace of reduction in public borrowing, we would also like to see full details of exactly how the fiscal austerity ahead will translate to departmental budgets."

Liberal Democrat Treasury spokesman Vince Cable said: "This submission highlights how dangerous the Government's position is.

"The country can't afford to have political parties playing politics with the public finances.

"The British people and the markets have the right to know how and when each political party will tackle the deficit."

He added: "The Liberal Democrats have made it clear that the point at which we cut spending will be based on economics and not political dogma.

"While Labour buries its head in the sand and the Tories mire themselves in confusion, only the Liberal Democrats have produced a credible and coherent plan for dealing with the deficit."

Shadow chancellor George Osborne said that the CBI submission, coupled with a call from the Institute of Directors for the next Government to take measures to cut the UK's budget deficit as soon as it takes office, marked "a very significant moment in the election debate".

Mr Osborne said: "The voices of British business are now saying what we Conservatives have been saying: earlier action on the deficit is a key to securing the recovery.

"It is a huge vindication of our approach. There is an emerging consensus that Gordon Brown's economic approach is simply not credible.

"By threatening our credit rating and higher interest rates, it is threatening jobs and prosperity. That is the verdict of the businesses who are actually going to create the jobs and prosperity that Britons need."