As we look ahead to the autumn statement it is clear progress has been made to restore market confidence, but the Government has to provide a credible plan to reduce debt.
We also can’t forget that markets are also keeping a close eye on our growth prospects.
To close the budget deficit, the Government has three levers to pull: cut spending, raise taxes or achieve higher economic growth. But all three must be carefully balanced – neglect growth and the economy will be caught in a doom loop, where low growth leads to more spending cuts and tax rises.
We at the CBI have a clear vision to make sure we get it right in this precarious situation. First, we need to see a clear fiscal rule to make sure we can stabilise debt to GDP by the end of year five. We can’t run the risk of going too far, too fast – or we might stifle growth. But it’s also crucial to resist the impulse to cut capital spending in order to avoid day-to-day cuts. Thirdly, we have to focus on taxes that help business investment. Business rates and other pre-profit taxes are by far the biggest hurdles to investment. Allowances like the super deduction can make an instant difference, particularly taking into account the announced increase in corporation tax. And lastly, supply side reforms (such as on planning for onshore wind) can’t be discarded – especially at a time when public money available to invest is restricted.
It’s clear that we now have to take advantage of more cost-free growth opportunities available. The most critical roadblocks to growth in the UK right now are labour and skills shortages. Our priority should be to reform our immigration system to get the skills firms need to pursue stalled investment plans. In the long term we need a clear and ambitious skills strategy, including reforming the apprenticeship levy, to support firms in staffing critical roles and upskilling workers here in the UK.
We have to be frontrunners w
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