Cuts in government spending will not prevent strong, sustained economic growth, they said.
And government job losses -- currently estimated at 330,000 -- will be far lower than the 600,000 cuts seen in the 1990s, the report states.
Private sector employment is expected to increase by 1.5m by 2015. The Office for Budget Responsibility (OBR) expects this to “more than offset falling public sector employment.”
During the fiscal squeeze of the 1990s the economy grew by an average of 3.5 per cent, the IoD report states.
“Unless we regain control of public spending now, we could lose it for a generation,” warned the group’s chief economist Graeme Leach.
Yet cuts in government departments’ budgets are harsher than previously seen and could harm the UK’s recovery, said Simon Kirby of the National Institute of Economic and Social Research (NIESR).
“We all agree on the need for consolidation,” he said. “But it should only start once the economy can deal with it. This is why I am concerned about the cuts for next year.”