MONDAY VIEW: Government must back businesses
The recession of 2008 and 2009 will have long-lasting consequences for the UK economy. The two most fundamental points are how the significant deficit in the UK's public finances will be repaired and how we build a broader base for growth across the economy.
The strong early commitment from government to prioritise rebalancing the economy and deficit reduction has provided a positive signal to business.
But as both these issues are also inextricably linked, next week's Budget statement must set out a plan to reduce public sector borrowing that contributes to the rebalancing of our economy and supports those sectors that can carry the recovery.
Food for thought: George Osborne has to make some tough Budget decisions
For manufacturing, the first half of this year has brought improved
trading conditions, but the uncertainty around the electoral cycle and
around the strength of recovery in the UK's major markets contributed
to a relatively unstable business environment.
The political uncertainty has now been minimised. And the commitment
to make deficit reduction a top priority, together with early
announcements on government efficiency savings, provide some
reassurance to both business and financial markets.
Building on this, next week's Budget must now set out a clear
medium-term plan for the public finances and the economy to give
companies the confidence to make vital decisions on investment.
With public sector borrowing estimated at £156billion in 2009-10,
the scale of the challenge ahead is significant, and manufacturers
recognise that the choices involved do not offer a painfree remedy to
the deficit. nevertheless, the economic impact of deficit reduction can
be reduced if government takes this opportunity to think differently
about how it delivers public services and prioritises public spending.
While the burden of fiscal consolidation must be shared by
households and businesses, a fine balance must be struck to ensure the
sectors of the economy that can deliver sustainable economic growth in
the future are not held back from doing so. over the past year
manufacturers have been preparing for better economic times.
By maintaining a focus on innovation, improving productivity and
efficiency, looking to new export market opportunities and reassessing
supply chains, they have been seeking to secure their future in the UK.
This must not be undermined by tax rises and spending cuts that
limit companies' ability to improve their competitiveness. equally, the
need for longer-term tax reforms that deliver a more internationally
competitive business environment argues for significant progress on
deficit reduction to be made over the next spending review period.
The government must ensure that our economy is prepared for the challenges of the next and future spending review periods.
The challenges will include the pressures an ageing population will
place on the public finances and continued efforts to mitigate and
adapt to climate change.
And This investment will only be possible if there is a clear and
ambitious strategy to put the public finances back into balance. in the
short term, vital capital spending projects must be protected and every
area of government spending examined for resource and efficiency
savings.
This should include all departments, with no ring-fencing. There
should also be specific measures on tax including a rise in VAT to
20pc, reform of the antiquated capital allowances system, and a signal
of intent to reduce the rate of corporation tax and top rate of income
tax as and when public finances allow.
There should also be widespread consultation with business that will
provide the reforms to the tax system needed to support a
better-balanced economy over the medium-term.
Painful though it was, the last recession spurred British businesses
to rethink what they do and to significantly improve their performance.
The government must follow their lead as it addresses the challenge of sorting our public finances.
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