The BCC said the plan must include freezing the total public sector wage bill and bringing public pensions into line with the private sector. The only exception is “key infrastructure expenditure”.
But the body warned against cutting the deficit too early, which could throw the UK back into recession.
“Cutting the deficit too early would be a major mistake that could unleash a new recession,” said BCC chief economist, David Kern. “A credible plan for curbing the deficit is urgently needed.”
The BCC said the upcoming budget was the perfect opportunity to announce a plan, although the issue is likely to be avoided due to its political sensitivity.
It also said the government must use the upcoming budget to create conditions for business growth. This includes avoiding any new business taxes and abandoning the planned rise in national insurance.
“The UK’s economic prospects remain uncertain, our recovery is fragile and risks of a relapse are high. Threats of a double-dip recession are greater in the near future than the dangers of higher inflation,” Kern added.
The BCC has cut its forecast for British growth next year to 2.1 per cent from 2.3 per cent, citing greater obstacles to a medium term recovery such as long-term unemployment. It maintained its forecast for one per cent growth in 2010.