Brexit latest: CBI urges Philip Hammond to borrow to increase infrastructure spending

The business lobby group says the Government should raise public sector net investment to 2 per cent of GDP, rather than the 1.7 per cent in the existing forecasts

Carolyn Fairbairn, head of CBI. (Reuters)

The CBI is urging the Chancellor to ratchet up government infrastructure spending by £6bn in next month’s Autumn Statement to help the UK through the economic turbulence created by June’s Brexit vote.

In its submission to the Government, which was published today, the influential business lobby group says Philip Hammond should put public sector net investment on course to average 2 per cent of GDP over the Parliament, rather than the 1.7 per cent in the existing plans.

This implies a £6bn a year boost to investment (£4.4bn in 2017/18 and £1.5bn in 2020/21), which the CBI argues should be spent on social housing investment and road and rail improvement projects.

“With interest rates at rock bottom, now is the time for the UK to put serious effort into improving our creaking infrastructure,” said the CBI Director-General Carolyn Fairbairn.

“These measures can provide meaningful support to the economy in the short term without substantially adding to the challenge of deficit reduction over the longer term.”

The call in favour of additional spending, funded by borrowing, marks something of a change for the CBI.

The group was a reliable supporter of George Osborne’s austerity programme and shared the former Chancellor’s aversion to discretionary increases in government debt, despite ultra-low government borrowing rates for most of the past six years.

The CBI is likely to be pushing on an open door as the Chancellor has already said the Government is planning a discretionary increase in infrastructure spending in the Autumn Statement and has said that he will not chase Mr Osborne’s target of hitting an absolute budget surplus by 2019-20.

The deficit is already closing less rapidly than ministers hoped at the last Budget, with borrowing for 2016-17 on course to breach the Office for Budget Responsibility’s March forecast by around £17bn.

Specifically, the CBI said the Government should proceed with upgrading the A303/A30/A358 corridor to Land’s End into an Expressway and dualling the A1 between Newcastle and Scotland.

The Government recently announced it would make the National Infrastructure Commission an executive agency of the Treasury, drawing criticism that it would not be properly independent.

The CBI today calls on the Government to put the commission on a statutory footing to guarantee its independence of Ministers.

Other CBI proposals for the Autumn Statement include increasing the annual investment tax-offset allowance for mid-sized firms to £1m by the end of 2018 and doubling funding for Innovate UK, the innovation quango.

The CBI has 190,000 firms as members. The lobby group strongly backed the UK’s continued EU membership and has been repeatedly attacked for this stance by the Brexit-supporting media.

It has also warned about the negative impact of the referendum vote on business investment and the harm that will be experienced by exporters if the UK crashes out of the EU single market.

“Rarely has there been a more important Autumn Statement,” the CBI said today.