CBI seeks raid on ringfenced budgets

Business groups have urged George Osborne not to hamper Britain’s fragile recovery by cutting back “growth-enhancing” areas of spending, calling on the chancellor to raid his ringfenced NHS and aid budgets instead.

John Cridland, director-general of the CBI, has told the chancellor that the Treasury should find a big chunk of its £11.5bn spending cuts target for 2015-16 from ringfenced departments rather than chopping away at Vince Cable’s business department.

In a 45-minute meeting on Tuesday, the employers’ organisation urged the chancellor to use his spending announcement on June 26 to galvanise infrastructure investment as he sets out an extra £15bn of capital funding over the next five years.

The CBI wants Mr Osborne to commit to flagship schemes such as the expansion of the A14 road to Felixstowe port, while also giving the economy a short-term boost by giving local councils money to spend on new housing and road repairs.

The submission comes as the chancellor reaches the closing stages of his spending review, with big departments such as business, the home office and the ministry of defence still yet to settle on budget cuts with just two weeks to go. One government official said yesterday that Philip Hammond, defence secretary, was likely to strike a deal early next week, which would take the number of departments settled to eight.

Mr Cridland’s submission will strengthen Mr Cable’s hand with Danny Alexander, chief secretary to the Treasury. The pair have been locked in tense negotiations as the business secretary resists heavy cuts to his department, instead using the spending round negotiations to pitch for more capital funds.

This is a position supported by the CBI, which has called on the chancellor to deploy “several hundred million [pounds] more” to support the technology strategy board, the UK’s innovation agency, and energy intensive industries.

The CBI has also identified over £3bn of savings that could be found from “aligning” NHS spending with health related spending from other departments, and overseas aid spending with the defence budget. The CBI wants £2.5bn of social care spending to be funded by the department of health as well as £700m of medical research funding currently paid out of the business department’s coffers.

“I express scepticism [about at 10 per cent budget cut] because such a lot of the business department’s budget is capital, I am not sure how much the department can really achieve,” said Mr Cridland.

As the CBI takes aim at the NHS ringfence, Theresa May separately signalled her unhappiness over the decision to ringfence the schools budget during comments made at a private dinner.

Addressing an invitation-only event at Reform, a pro-market think tank on Tuesday night, the home secretary cited two pieces of research – one commissioned by the department for education – which had suggested that there was no correlation between the level of funding and educational outcomes.

She added: “The message, even from the protected departments, is clear: spending more money alone doesn’t improve performance – but reform does.”

Arguing that it was often “the need to make savings that drive innovation and change for the better”, Ms May went on: “Even in the departments that have enjoyed protected budgets there is evidence of the need for reform.”

Home Office sources rejected the idea that Ms May was trying to safeguard her own budget. One said: “It is not about resisting cuts to the Home Office budget. Her point is about the way the cuts are distributed across the different services.”

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