Business leaders back Osborne’s cuts plan
The Chancellor George Osborne has won the backing of 35 top business leaders as he prepares to announce where the axe will fall in his comprehensive spending review on Wednesday.
In a letter published by the Daily Telegraph, 35 leading businessmen, including Marks & Spencer chairman Sir Stuart Rose, BT chief executive Ian Livingston and Asda chairman Andy Bond, said there is “no reason to believe” that the chancellor’s plans to wipe the £109bn structural deficit within four years will undermine recovery.
The letter also warned that Labour’s plan to spread the deficit reduction programme over more than one parliament would be a “mistake” which would leave the UK almost £100bn worse off by 2014/15 and increase the risk of interest rate increases.
The letter gives George Osborne much needed support just two days ahead of his crucial CSR, in which he is expected to outline plans to cut £83bn of public spending over four years.
Osborne and Prime Minister David Cameron completed last minute details to the CSR at Chequers over the weekend, following lengthy negotiations with Cabinet colleagues about how deep departmental cuts should be.
The CSR is expected to see controversial cuts in areas of public spending like police, prisons and social housing.
Yesterday George Osborne declined to comment on police numbers and child benefit to be withdrawn from 16 to 19-year-olds.
The Ministry of Justice is reportedly at risk of losing one third of its £9bn budget, forcing Justice Secretary Kenneth Clarke to close prisons and cut more than £2bn from legal aid.
There is also speculation the £8bn social housing budget could be all but obliterated too.
‘Economic masochism’
Yesterday Shadow Chancellor Alan Johnson accused the coalition of “economic masochism” and warned that the pace of cuts is putting jobs and growth at risk.
Today he will set out Labour’s alternative strategy, which would slow the rate of deficit reduction by half and raise more money from levies on banks to pay for increased investment in infrastructure.
Johnson said the coalitions’ plans depend on an extra 2.5 million private jobs being created, and argued there was “absolutely no sign of that momentum developing in the private sector”.
However, the 35 businessmen wrote in the letter that “the private sector should be more than capable of generating additional jobs to replace those lost in the public sector, and the redeployment of people to more productive activities will improve economic performance, so generating more employment opportunities.
“It has been suggested that the deficit reduction programme set out by George Osborne in his emergency budget should be watered down and spread over more than one Parliament.
“We believe that this would be a mistake.
“Addressing the debt problem in a decisive way will improve business and consumer confidence. Reducing the deficit more slowly would mean additional borrowing every year, higher national debt, and therefore higher spending on interest payments.”
Other signatories to the letter include Next Chief Executive Simon Wolfson, GlaxoSmithKline Chairman Sir Christopher Gent and Microsoft Managing Director Gordon Frazer.
The businessmen claimed delaying the deficit reduction would leave national debt £92bn higher by the end of parliament. It said: “In the end the result of delay would be deeper cuts, or further tax rises, in order to pay for the extra debt interest.
“The cost of delay could be even greater than this. As recent events in some European countries have demonstrated, if the markets lose faith in the UK, interest rates will rise for all of us.”
Yesterday Osborne vowed to stand by his plans, which will be the deepest public spending cuts since the Second World War.
‘Reduced confidence’
Shadow Chancellor, Alan Johnson, said today that the government’s current strategy would make it harder to get the deficit down.
In a speech ahead of Wednesday’s comprehensive spending review, Mr Johnson warned that the private sector can’t be expected to “pick up the slack” created by public sector job losses.
Mr Johnson said continuing with the plan to cut the budget deficit by £6bn this year and £20bn next year could result in “reduced confidence, stunted growth and fewer jobs”.
He insisted that there was an alternative and that Labour’s strategy of halving borrowing over four years is the right approach. “We call on the government to think again,” he said.
Bank levies
Mr Johnson said Labour’s alternative strategy, would raise more money from levies on banks to pay for increased investment in infrastructure.
Yesterday he accused the coalition of “economic masochism” and warned that the pace of cuts is putting jobs and growth at risk.
However, the 35 businessmen wrote in the letter that “the private sector should be more than capable of generating additional jobs to replace those lost in the public sector, and the redeployment of people to more productive activities will improve economic performance, so generating more employment opportunities.
The private sector should be more than capable of generating additional jobs to replace those lost in the public sector. Letter by business leaders
“It has been suggested that the deficit reduction programme set out by George Osborne in his emergency budget should be watered down and spread over more than one Parliament.
“We believe that this would be a mistake.
“Addressing the debt problem in a decisive way will improve business and consumer confidence. Reducing the deficit more slowly would mean additional borrowing every year, higher national debt, and therefore higher spending on interest payments.”
Other signatories to the letter include Next Chief Executive Simon Wolfson, GlaxoSmithKline Chairman Sir Christopher Gent and Microsoft Managing Director Gordon Frazer.
Of the signatories, nineteen signed a letter to the Telegraph in April protesting against the Labour Government’s plans to raise National Insurance contributions for both employers and employees in 2011.
Debt interest
The businessmen claimed delaying the deficit reduction would leave national debt £92bn higher by the end of parliament. It said: “In the end the result of delay would be deeper cuts, or further tax rises, in order to pay for the extra debt interest.
“The cost of delay could be even greater than this. As recent events in some European countries have demonstrated, if the markets lose faith in the UK, interest rates will rise for all of us.”
Brent Hoberman, chair of Mydeco.com and co-founder of Lastminute.com, did not sign the letter but said that he would have been happy to add his name to it.
“George Osborne is right to focus exclusively on getting government spending down,” said Mr Hoberman. “The next step will be the growth message.”
Yesterday Osborne vowed to stand by his plans, which will be the deepest public spending cuts since the Second World War.
