More massive spending cuts could threaten the North East’s economic recovery, employers have warned.
They urged caution after Chancellor George Osborne revealed plans to cut spending by another £60bn - including £25bn in the two years following a general election.
Much of the cuts would come from the welfare budget, with housing benefit for the under-25s likely to be hit, Mr Osborne said.
But business leaders expressed concern, after the North East Chamber of Commerce (NECC) published its Quarterly Economic Survey showing that the region’s firms were reporting increased sales and significant growth in the recruitment of full-time and permanent staff.
Ross Smith, NECC director of Policy, said: “We recognise the importance of balancing public finances, but the Chancellor must be careful that continued spending reductions do not choke off the slow but steady growth North East businesses have achieved over the past three years in the face of major public sector funding cuts.” Labour accused the Chancellor of making “unfair” cuts which hit the poorest hardest - but said it would also be forced to reduce spending if it won the next election.
Mr Osborne confirmed that he planned to cut spending by a total of £25bn in 2016 and 2017, on top of cuts of £17bn this year and £20bn next year.
And setting out arguments likely to form a key part of the Conservative message going in to the General Election expected in May 2015, he said much of the burden would fall on the welfare budget.
He also stressed that the Government was acting to create jobs, and highlighted plans to make it cheaper for firms to employ young people.
In the Autumn Statement last year the Chancellor announced that National Insurance contributions would be abolished for young people earning up to £42,285.
And the Chancellor attempted to counter Labour’s argument that the Government had failed to deal with a “cost of living crisis” by saying that only his policies could ensure economic growth continued, leading to higher living standards.
He said: “As a result of the painful cuts we’ve made, the deficit is down by a third and we’re borrowing nearly £3,000 less for every one of you and for every family in the country.
“That’s the good news. The bad news is: there’s still a long way to go.
“We’re borrowing around £100bn a year – and paying half that money a year in interest just to service our debts.
“We’ve got to make more cuts. £17bn this coming year. £20bn next year. And over £25bn further across the two years after.”
He added: “Welfare cannot be protected from further substantial cuts.
“I can tell you today that, on the Treasury’s current forecasts, £12bn of further welfare cuts are needed in the first two years of the next Parliament.”
In an interview with the BBC, he pointed to housing benefit for the under-25s as a candidate for the axe and indicated the Government could means-test social housing provision but ruled out cuts in benefits for pensioners.
He said: “If you were going to be looking for savings in welfare, pensioner benefits is not the place I would first turn to. I would look at housing benefit for the under-25s.”
Labour said the speech was an admission of failure because the Chancellor had originally promised to eliminate the deficit by the next election.
Catherine McKinnell, MP for Newcastle upon Tyne North and a Shadow Treasury Minister, said: “Working people in this region are on average £1,200-a-year worse off thanks to the Chancellor’s failed policies and the Government’s cost of living crisis.
“Yet, whilst people are struggling to make ends meet, David Cameron seems to be planning to give millionaires yet another top rate tax cut. This shows how totally out of touch the Tories are with the lives of ordinary working people here in the North East.
“Deep spending cuts have hit this region hard and the reason the Chancellor is being forced to make more cuts is because his failure on growth and living standards since 2010 has led to his failure to balance the books.
“The Chancellor should be taking real action to ensure we can earn our way to higher living standards for all and to tackle the cost of living crisis.”
The Chamber’s survey found confidence spreading across many industries and particularly among firms affiliated to oil and gas supply chains and business services.