Dated: 8 March 2010

Launching its Business Manifesto 2010 for the general election, the Institute of Directors (IoD) calls on the next Government to take measures to cut the deficit as soon as it takes office.

• The IoD believes that provided fiscal tightening is based on lower public spending and not higher taxation, tightening will be good for growth and will actually help kick start the recovery.
• The often repeated argument that lower public spending in the short term will threaten the recovery seems persuasive because it’s so straightforward. The reality is more complex because a fiscal tightening based on lower spending now is likely to trigger a whole series of positive developments that will assist growth.
• There is a big risk that the longer the debate over ‘sooner rather than later’ continues, spending restraint of any kind will become harder and be seen as damaging the economy. The implications for higher taxation are deeply worrying.

Business leaders strongly support public spending cuts in 2010

In an IoD Policy Voice survey of 1,500 IoD members (conducted from 26 February until 4 March):

• 86 per cent said that current levels of public sector spending need to be reduced
• 72 per cent said that the cuts should start in 2010
• 71 per cent said that addressing the deficit was a top priority of the new Government in its first 100 days

6 reasons why cutting spending now is likely to boost growth

• Lower spending to reduce the public sector deficit should lead to lower gilt and bond yields – good for business investment
• A fiscal austerity package with credibility will help reduce the economic uncertainty for companies and households
• Tighter fiscal policy will permit a looser monetary policy – than otherwise would be the case
• Given the risk of weaker GDP growth, financial markets will be boosted by measures to prevent a further increase in the deficit
• The size of the budget deficit risks households saving more now because they fear higher taxation in the future
• The longer the debate about when to cut public spending continues the more likely the fiscal adjustment will fall on taxation – and the bigger the increase will be

The one area of public spending which should be ring-fenced is infrastructure spending. Unfortunately the Government proposes to halve this spending over the next few years – precisely the wrong thing to do.

Where should the cuts fall?

• The IoD has made 34 suggestions to save £50 billion a year, including a one year public sector pay freeze, the abolition of child benefit for better off families, and a 10 per cent reduction in the size of the Civil Service. For full details see: How to Save £50 billion

Commenting, Miles Templeman IoD Director-General said:

“We are convinced that we need swift action to tackle the budget deficit. This means making significant spending cuts in 2010. The argument that early cuts would jeopardise the recovery is mistaken. We believe that lower spending is likely to trigger a whole series of positive developments that will assist growth.”

Commenting, Graeme Leach, Chief Economist and Director of Policy at the IoD, said:

“The IoD election manifesto sets out an ambitious plan to transform the UK’s competitiveness. If implemented in full the UK could become the best place in the world to do business by 2020.”

In the IoD Business Manifesto 2010 for the general election we also call for the following:

In the first 100 days of a new Government we need:

• Emergency budget and a deficit reduction plan – enacting a new fiscal target to reduce spending to 35 per cent of GDP by 2020-21
• School Reform Bill – introducing greater competition into education provision
• Regulatory budgets in all Government Departments – capping and then reducing the total cost of regulation to businesses year on year

Over the rest of the next Parliament we need policies that deliver:

• Corporation tax reductions progressively to 15 per cent (by 2020)
• Higher public sector productivity
• Simplification of the publicly-funded skills system
• New Civil Service incentives to reduce the flow of regulation
• A strong defence of the UK’s financial centre in Europe
• A radical overhaul of the current pension saving architecture
• Secure energy supplies that do not threaten carbon targets
• Retention of a planning system that fast-tracks projects of strategic national importance
• A third runway at Heathrow
• More investment in the UK’s road network
• More professionalism on company boards through better training
• £500 minimum deposits in employment tribunals to deter weak cases