City: cuts are a good first step

BUSINESSES applauded George Osborne’s decision to wield the axe on Whitehall spending yesterday, but warned the £6.2bn of savings were a drop in the ocean compared to deeper cuts on the horizon.

The chancellor won praise for his decision to begin belt-tightening early, as he announced he was scrapping the Child Trust Fund, pulling the shutters down on some quangos and cancelling tens-of-thousands of university places. The civil service has also been ordered to stop recruiting new staff.

Liberal Democrat chief secretary to the Treasury David Laws, who is responsible for implementing the cuts, said he would be “draconian” and “inflexible” in an attempt to prepare the public sector for even tougher action down the line.

But despite claims the cuts would send “shockwaves” through Whitehall, they amount to under one per cent of total expenditure?– and the Institute for Fiscal Studies warned their real, net value was just £5bn. Unprotected departments face cuts of up to 25 per cent in the years ahead.

Richard Lambert, director-general of the CBI, said it was “encouraging” the Treasury had managed to find slightly bigger savings that first anticipated, but that there was “considerable scope” to make much deeper cuts by reforming the way public services are delivered.

The British Retail Consortium (BRC) also welcomed the fiscal tightening but warned the government that spending reductions – not tax rises – must be used, amid fears it is planning to raise VAT to 20 per cent in an emergency Budget on 22 June.

“It’ll be growth that gets the country out of the hole it’s in. Private sector businesses are the engine that will drive growth. Tax increases would have a deep and damaging impact on jobs, customer demand and GDP,” said BRC director-general Stephen Robertson.

Baroness Jo Valentine, the chief executive of City lobby group London First, applauded the government’s strategy of “maintaining vital services and supporting economic growth”, but warned there were “much tougher decisions to come”.

She added: “It’s plain common sense to begin by targeting quangos with overlapping responsibilities and paring back spending on programmes with laudable aims but unimpressive returns.”

And the Institute of Directors backed the government’s decision to cut the amount of support it gives to businesses, saying “everyone has to share the pain”.