George Osborne has failed to kick-start the economy and must cut taxes, reduce red tape and invest in new infrastructure to boost growth, business leaders have warned.
The Institute of Directors (IoD) says that the Chancellor’s growth strategy is largely “ineffective” and “too little, too slowly”, as demands increase for radical action in the autumn. A survey of more than 1,200 business leaders found they have “serious concerns” that the recession will last throughout 2012 with only a modest recovery next year. Their concerns come as official economic figures showed that the Chancellor has had to increase public borrowing.
The Government is on course to borrow £30 billion more than expected this year, which may lead to a new round of public spending cuts. The Coalition has also been criticised for failing to invest in big infrastructure projects such as expanding Heathrow or building a new airport in the South East. Ministers have delayed launching a consultation on the country’s aviation strategy despite the issue now being seen by business as one of the most pressing problems facing Britain.
Business leaders are now increasingly critical Mr Osborne’s economic strategy, which is based on cutting public spending while encouraging the private sector to take on more workers and support the wider economy. Graeme Leach, the chief economist at the IoD, said: “Business is battening down the hatches in the expectation that the recession will continue for the rest of the year. “That is bad news for the economy at large, because decisions to invest money or take on more staff are being postponed until things look up.
“Low confidence leads to delayed decisions, and delayed decisions further undermine economic confidence – it’s a vicious cycle. “The Government’s reform agenda is pointing in broadly the right direction, but the overwhelming opinion of our members is that they are doing too little, too slowly. If the Coalition wants to break this cycle of low economic confidence, then they need to take some bold steps that will make a real difference to the cost and complexity of doing business in the UK.”
The IoD survey found that 54 per cent of business leaders thought that Government attempts to reduce taxation had been “ineffective”. Sixty eight per cent were similarly critical over attempts to reduce business regulation and 62 per cent were dismissive of attempts to simplify employment law. Almost half of the survey respondents said that they had delayed “investment or employment decisions” this year. On Tuesday night, senior Conservative MPs demanded urgent action.
John Redwood, the former Cabinet minister, said: “Tax revenues from self-assessment income tax and capital gains tax are falling because the Government has set uncompetitive rates. “The Chancellor wisely changed his tax regime for oil and gas in the latest budget, following the fall-off in activity last year from higher taxes. He needs to review all taxes with a view of maximising revenues by setting competitive rates.”
In a statement, a Government spokesman said: “We have set out a comprehensive strategy to achieve strong, sustainable and balanced growth, including important reforms to reduce the burden of regulation. “Since 2011, savings to business from cuts in regulation have outweighed the costs of new domestic regulation by more than £850 million, and a root and branch reform of labour laws has already led to an increase in the qualification period for unfair dismissal and reform of employment tribunals.”
However, ministers have been urged by the Prime Minister to come up with radical new policies to boost growth which will be unveiled in an economic regeneration Bill in the autumn. There are growing fears that ongoing tensions within the Coalition may stop a “big bang” approach to deregulating business, which many Conservatives believe is now necessary. A set of proposals drawn up by Adrian Beecroft, the venture capitalist, to cut employment regulations was blocked by the Liberal Democrats last year.
On Tuesday, economic figures showed that the deficit grew by £600 million during July, as the public sector finances suffered from a dramatic 20 per cent fall in corporation tax from business and a five per cent rise in public spending, fuelled by higher benefit payments. David Kern, the chief economist at the British Chambers of Commerce, said the Chancellor must continue with his “difficult and arduous task” of reducing the deficit. He called on the Coalition to put in place “forceful policies to boost growth”.
Labour seized on the figures to attack the Government, but Treasury ministers insisted the situation would be worse under plans set out by the opposition. David Cameron has privately warned that all British efforts to boost economic growth are being overshadowed by the ongoing crisis in the eurozone. On Tuesday a report from Moody’s, a financial information company, warned that eurozone companies were “at best” halfway through the process of addressing the problems that sparked the crisis in the single currency.
On Tuesday night, Lord Oakeshott, the Liberal Democrat peer who is close to the Business Secretary Vince Cable, said that “lively discussions” were taking place within the Coalition about introducing a so-called “plan A+”, encouraging banks to lend “to small business and for mortgages”, coupled with a “massive house-building programme”. -Telegraph