ALISTAIR Darling should learn a lesson from Labour’s first Budget in 1997 and announce “spending reductions which are faster and deeper than expected by financial markets”, according to the Institute of Directors (IoD).
The group, which represents UK directors from a range of businesses, also want Darling to provide a credible long-term plan to reduce dramatically the public spending to GDP ratio.
The IoD challenges the view that lower public spending will lead to lower GDP, citing evidence from the first three years of the 1997 Labour government.
The body added that from 1997 to 2000, total public spending fell by four per cent of GDP and at the same time the public sector deficit also fell by five per cent of GDP.
Graeme Leach, chief economist and director of policy at the IoD said: “The 1997-2000 period appears to be one when the private sector was crowded-in. Crowding in the private sector – with a faster rate of productivity growth – enabled the whole economy to achieve a higher rate of GDP growth. Recent economic history provides a powerful lesson to the chancellor on what to do now.”