Business chiefs back spending cuts

The Yorkshire and Humber Chambers of Commerce are backing a letter sent by joint chambers nationwide urging Mr Osborne to drop pre-election pledges to ring-fence spending on health and foreign aid when he unveils next week's emergency Budget.

Yorkshire business leaders believe protecting health and foreign aid budgets, as promised in the Tory election manifesto, will inevitably lead to drastic cuts elsewhere and are concerned capital investments they believe are essential for the region's long-term economic recovery will be dropped as a result.

The chambers have also expressed concern over rumours Mr Osborne is intending to raise capital gains tax to raise much-needed extra funds for the Treasury – a move they fear would hit businesses hard.

Today's warning comes as Deputy Prime Minister Nick Clegg is expected to set out the need for large cuts in public expenditure in order for the Government to retain the ability to protect those most in need.

The Liberal Democrat leader went into the General Election with a manifesto pledge to delay spending cuts until the time was right, but signed up to immediate reductions totalling 6.2bn as part of the post-election coalition agreement with Tories.

Today he will tell the Institute for Government in London, that the crisis in the eurozone and the spectre of increased interest rates in the bond markets means the debt has to be brought down now.

A new fiscal watchdog will also warn that the former Labour's Government's predictions for economic growth were too optimistic.

The Office for Budget Responsibility is expected to downgrade former Chancellor Alistair Darling's 2011 forecast from 3.25 per cent to 2.5 per cent and pencil in lower figures for the following three years.

As the new Chancellor prepares to unveil his emergency Budget, business leaders are urging the new Government to recognise that capital investment is crucial to the economy.

The director of policy at Yorkshire and Humber Chambers of Commerce, Nick Pontone, said: "As well as setting out a clear plan to control public spending in all departments, the Government must lay the foundations for future business growth.

"Mr Osborne must therefore prioritise the capital investment in infrastructure for Yorkshire and Humber which is the foundation for a successful regional economy.

"Immediate changes to corporation and capital gains tax must not damage the ability of our manufacturers and entrepreneurs to drive forward Yorkshire's future growth."

Last week the Yorkshire Post revealed a raft of regional projects which had previously been approved by Government could fall by the wayside due to forthcoming cuts. They include flagship schemes such as Bradford City Park and the Spa redevelopment in Scarborough and major transport projects such as the Leeds trolley bus scheme and an expansion of York's park and ride network.

Mr Pontone said transport schemes in particular must be protected in the region.

Nationally, the British Chambers of Commerce (BCC) is also calling for the Chancellor to introduce an immediate two-year freeze on the total public sector wage bill and to commit to a full reversal of the employer National Insurance rise.

The measures form part of an 11-page letter outlining suggestions for the Budget.

BCC director-general David Frost said: "The Chancellor faces a difficult balancing act next week. The right choices would put business growth at the very heart of Government policy. But short-term moves on tax or infrastructure spending could hurt business confidence and economic recovery."