Budget 2009: The CBI's verdict
Article Date: May 05 2009Richard Lambert, director-general of the CBI, gives his prognosis for the UK economy following Alistair Darling's second Budget.
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Transcript
What did the CBI make of the Budget?
The big question for the Budget as far as CBI was concerned was, would the Chancellor give a kind of credible and rigorous pathway back to sustainable public finances? That’s what we were looking for and we didn’t find it. Our judgement was that he hasn’t presented such a picture.
What does the Budget mean for business?
The Budget for business means... it comes in two halves really. For the short term, there are some micro-measures which are helpful, we’d been lobbying for, we support. For example, doubling investment allowances for this year is a good thing; it’s going to – according to the Budget book it’s £1.6 billion, a chunky, chunky incentive for businesses to get on with investment. There are other things that businesses have been looking for, again we have been lobbying, trade credit insurance, scrappage for motor cars, a number of other measures like that, that firms will welcome. The question they will have in their mind though is what are the implications of this big borrowing that’s going to be rolling over for years to come on the cost of loans, how much is that going to affect long-term interest rates, how much is that is going to affect the way they do business over the long term.
What should the Chancellor have done?
What the Chancellor did on the short-term stuff was appropriate. We’d said don’t go for a big fiscal boost because you haven’t got the firepower in your locker to do it and he hasn’t. He’s added a bit to what he promised last November, a bit of tightening in the following year. What he needed to do was to give a perception of the public finances that was more credible than he’s come up with. His numbers depend on, first economic growth being more positive, stronger than most outside observers including the CBI think is likely in the next two or three years, second on controlling public expenditure with a lot more rigour than the government has done in recent years and he has given no details on how that might work, and third he’s made the books balance by saying well it’s not now going to balance until 2018 which is two years further away than he was talking about in November. So a lot has got to go right in the next eight years. It’s two parliaments for the Chancellor’s numbers to work out and if it does well that would be nice but it’s a risk.
What are the prospects for the economy after the budget?
The Chancellor’s view is that this year the economy will shrink by 3.5 per cent or to magnitude which is roughly what most other people think. He thinks that the recovery will start in the final quarter of this year (the CBI’s latest forecast was that it wouldn’t start until the second quarter of next year) and he thinks that by 2011 we’ll be off to the races with the economy growing at 3.5 per cent and on a long-term sustainable trend of 2.75 per cent. That is noticeably more optimistic than most people think. His forecast for 2010, the one and a quarter, one and a half per cent is a full percentage point higher than the consensus and beyond that there are quite a lot of people who will worry about whether we are going to get back to the rather extraordinary growth rates we had when the economy was being fuelled by debt.
How realistic do you think the Chancellor’s growth forecasts are?
The Chancellor is being a lot more optimistic than outside observers. There’s a huge amount of uncertainty right now. We’re in uncharted territory as far as monetary policies are concerned for example, we’ve never seen the bank printing money in the way that it’s now doing. There are all kinds of uncertainty about how quickly the massive stock liquidation that’s been going on, how that will bounce back. But having said all that the Chancellor’s forecasts for 2010 are as I say a full percentage point more than the consensus. He thinks that in 2011 the economy will be growing at above its long-term sustainable rate. Most people think that’s looking on the sunny side of things.
