CBI calls for public sector pay freeze in blitz on spending

THE CONFEDERATION of British Industry yesterday called on the Government to freeze public sector pay and begin targeting social security benefits as part of a package of measures to cut public spending by pounds 10bn over the next three years.

In a formal submission to Kenneth Clarke as he prepares to embark on this year's spending round, the employers' organisation warned against tax increases, instead urging the Chancellor to tackle the burgeoning public sector deficit.

According to the CBI, cutting the projected pounds 274bn public spending bill for 1996-97 by pounds 10bn would reduce government borrowing to 3 per cent of gross domestic product - the target Britain is obliged to achieve under the Maastricht treaty.

Pointing out that the Government had already announced tax increases of pounds 10.5bn over the next three years in the last Budget, Howard Davies, the CBI's director-general, said: 'Unless spending can be reduced we will either face more tax increases or unsustainably high government borrowing. Both would hinder recovery.'

The mechanism for achieving this pounds 10bn reduction would be to cut the contingency reserve - the fund used by the Government to meet special or unplanned spending needs - by a half to pounds 2bn this year and by pounds 5bn next year and pounds 6bn in 1995-96.

As far as the pounds 68bn social security bill is concerned, the CBI said that spending needed to be targeted to those 'genuinely in need'.

On public sector pay the CBI said the Government should abandon any specified ceiling and aim to freeze the overall pay bill in the 1993-94 settlement year.

In contrast, Mr Davies called for a pounds 2.8bn increase in capital expenditure over the three years, with transport projects given priority. The CBI would also like to see stimulus given to attracting private sector finance into public projects.

Britain's poor infrastructure and weak skills base could deter further inward investment and threaten its position as Europe's number one location for overseas companies, according to a report yesterday by the management consultancy Ernst & Young.