YESTERDAY the government's new independent fiscal watchdog, the Office for Budget Responsibility (OBR), confirmed the Treasury expects public borrowing to exceed 10% of GDP for the second year in 2010-11 and debt to rise to 74.4 % of GDP by 2014-15.
It follows publication of the CBI’s economic forecast, predicting GDP growth of 1.3% for 2010 and 2.5% for 2011. The forecasts for economic growth and the deficit are now in line with the CBI’s and confirm the view that the recovery will be slow.
The OBR report injects a welcome dose of credibility and transparency projections and suggests the underlying public finance position is worse than previously thought. The bigger structural deficit will require tougher action at next week’s Emergency Budget.
The CBI message to the new Government is clear: there must be a credible plan to return the budget to balance by 2015-16. More of the same is not an option. We believe this should be achieved through radical public service reform and spending restraint, rather than tax rises which hurt businesses and consumers.
Spending control is the most effective way of reducing the deficit, protecting those areas of spending which have a positive impact on economic growth, such as capital investment in transport and energy infrastructure, innovation and R&D.
But spending cuts do not mean cutting public services. Waste and inefficiency can be taken out and outcomes can be maintained or improved using fewer resources.
If the government can harness the private sector innovation of expertise, that has ensured their businesses survival through the economic downturn, then the drastic cuts to the public sector will be unnecessary.
The CBI has set out actions needed to to ensure a balanced budget while maintaining good public services. In a recent report by the CBI, ‘A time for Action: reforming public services and balancing the budget’, has identified savings which could be achieved if good practice were adopted more widely and if the government challenges the status quo.
Firstly, the public sector needs to apply the brake by immediately freezing its labour costs, learning as has happened in the private sector.
Secondly, every pound must be well spent. Private firms are regularly expected to deliver 5-10% efficiency gains every year and Government should aim to match this.
Duplication and waste can be tackled quickly to cut costs and improve services. Competition between providers should be used across local and central government to flush out wasteful practice.
Thirdly, fundamental re-engineering is required. The biggest prize will be achieved by doing things differently so that good outcomes can be maintained or improve. This will include utilising new technology to improve services, introducing innovative ways of delivering services and cutting unnecessary levels of management.
Sarah Green is regional director, CBI North East