March 19, 2010 - Anonymous
The European Commission's call for further cuts to the UK's budget deficit would make conditions worse for small businesses if introduced, the Forum of Private Business (FPB) has warned.
The Government's plans to reduce the deficit over the next five years are not ambitious enough, according to the Commission. It said that the UK may not be on course to reduce its deficit in line with European Union (EU) rules, which state that the deficit must be below 3 per cent of GDP. This year, the UK's deficit is expected to hit £178 billion, equal to 12.6 per cent of GDP.
A draft of the Commission's report said that "additional tightening measures" beyond those already planned are needed if the health of public finances is to be restored "within a credible timeframe."
The FPB said leaders across all parties needed to show "responsibility" in rebuilding the economy. "Drastic spending cuts could make things worse for businesses," said FPB spokesman, Phil McCabe.
"Firms that operate in the public sector, like many small businesses in the construction industry, could be particularly badly hit if public spending budgets are frozen," he added.
However, HM Treasury defended its position, saying that the budget deficit would be halved within four years and that the Government's plan was the most ambitious amongst leading industrial nations. It also said that the Commission was demanding £20 billion in spending cuts, which ministers said could cause "irreparable damage" to the UK economy.
"The Government is committed to halving the deficit by 2015 and the cut would be the sharpest in the G7," said an HM Treasury spokesman. "The Chancellor's judgment on the pace of this adjustment takes into account the need to support the economy through the early stages of the recovery, as well as uncertainty around prospects for the public finances, resulting from the exceptional nature and strength of the global downturn.
"Withdrawing support earlier and at the wrong pace risks wrecking the recovery process," he added.
The European Commission has also questioned HM Treasury's forecasts for economic growth over the next few years, saying they could be optimistic if the global economy fails to perform as strongly as expected. The Government has forecast 2 per cent growth in 2010-2011, then 3.3 per cent until 2015.
The UK Government has also predicted that borrowing could be less this financial year than predicted, after better than expected figures for February 2010. The Government borrowed £12.4 billion in February, official figures revealed.
Overall borrowing for this financial year has now reached £131.9 billion, but analysts predict the full-year total may be less than the Government's £178 billion forecast.