Osborne urder to protect programmes to boost growth

In a pre-review submission to the Treasury, the CBI accepted that cuts were necessary to tackle the deficit in the public finances, even though they would have a short-term impact on economic growth.

However it told the Chancellor said that the impact could be mitigated if priority was given to investing in programmes which would stimulate growth in the private sector.

"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," said CBI deputy director general John Cridland.

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

In particular the CBI called for existing transport assets to be maintained and work to continue on Crossrail and the London Underground upgrade, while it suggested that savings could be made by cutting concessionary fares.

It said that the Government should also seek to prioritise "knowledge assets", such as research and development, and "human capital" through education and skills training.

The CBI's chief economic adviser Ian McCafferty said: "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."

The CBI's submission was broadly welcomed by the Treasury which said that it endorsed the Government's strategy of taking decisive action to deal with the deficit.

Treasury sources emphasised that Mr Osborne had already given an assurance that there would be no further cuts to capital spending beyond those announced by the previous Labour government.

"The plans announced by the Government will support growth and jobs while rebalancing the UK economy away from an over-reliance on public spending through targeted support and no further cuts in capital spending," a Treasury source said.

"The independent Office of Budget Responsibility shows stronger growth in the years ahead and employment rising. Not taking action to deal with the deficit is the biggest threat to these prospects."