Business World

The U.K. government should aim to balance its budget two years earlier than currently planned to calm investor concerns the country could lose its top-notch credit rating, the Confederation for British Industry said.

The budget deficit should be eradicated by March 2016, the London-based employers’ group said in proposals submitted to Chancellor of the Exchequer Alistair Darling before his budget this month. This should be achieved through spending cuts and reforms to public services rather than tax increases, it said.

“There is a need to restore macro-economic stability and that depends on getting current levels of government borrowing down,” CBI Director General Richard Lambert told a press conference in London on March 4. “The government is not ambitious enough on that front. It hasn’t set out its spending plans in enough detail. The 2017 date is too far away.”

With an election due by June, the debate over how to tame a deficit equal to Greece’s has taken center stage as some investors and the opposition Conservatives warn Britain’s credit rating is at risk.

Prime Minister Gordon Brown has pledged to halve the gap, set to exceed 12 percent of economic output this year, by March 2014 and says Conservative plans to begin spending cuts this year risk plunging the economy into a “double-dip recession.”

“The economy is still in a very fragile shape,” Lambert said. While the CBI is not proposing “any silver bullets in the short-term,” the process of cutting the deficit “should get under way seriously in 2011.”

Poll Outlook

Polls suggest Britain may be heading for its first minority government since 1974, sparking concern that efforts to cut the deficit may be compromised.

“The scale of our budget deficit and the likely tightening we are going to need does look a lot more serious than in any other G-7 country,” Lambert says. “We are confident that the U.K.’s credit rating is sustainable. The big picture is to get credibility.”

A survey showed that 86 percent of U.K. business leaders said that current levels of public spending needed to be reduced, while 72 percent said cuts should start this year, the Institute of Directors said in a separate e-mailed report today. The lobby group, which questioned 1,500 people between Feb. 26 and March 4, also found that 71 percent said the deficit was a top priority of a new government in its first 100 days.

Source