The CBI is urging the government to impose an immediate two-year freeze in the public sector pay bill and involve the private sector in reforming public services to get the £163bn budget deficit under control.

Richard Lambert, the director-general of the employers’ group, said that with a public sector squeeze looming, “the new government must also do everything it can to create the right conditions for the private sector to sustain and create new jobs”.

That meant providing certainty on tax and energy policy, sustaining capital investment and strengthening the UK’s skills base. “Above all, we need to send a strong message to the world that the UK is open for business,” he added.

Mr Lambert was giving the CBI’s view of priorities before George Osborne’s keynote speech at the lobby group’s annual dinner this evening. The chancellor is expected to stress his wish to improve the UK’s tax competitiveness and to address proposed reforms to corporation tax, which have stirred concerns among manufacturers.

The CBI chief said the formation of a coalition with a clear majority meant “the cloud of political uncertainty has lifted significantly”.

He admitted that some issues made business “uneasy”, not least how widely proposed exemptions for entrepreneurial activities from higher capital gains tax would be drawn. Other concerns included aviation and nuclear power, although he saw no reason why a Con-Lib compromise on how to proceed on new reactors should not work.

On corporation tax changes, John Cridland, the CBI deputy director-general, said members would look at the tax take rather than the headline rate. The Tories made a pre-election pledge to cut three percentage points from the headline rate, funded by cuts to relief and allowances.

Mr Lambert welcomed the fact that “we have a new government with the determination to get a grip on the public finances and the political will to do it”.

The CBI said freezing the public sector pay bill for two years could save £18bn. Provided the overall bill did not increase, there would be scope to exclude frontline staff and the lowest paid from freezes.

The Conservatives have proposed a one-year pay freeze from 2011 for those earning above £18,000. The coalition promised arrangements to protect those on low incomes from the effect of pay constraint.

Brendan Barber, the general secretary of the Trades Union Congress, accused the CBI of “special pleading” and said public pay cuts would hit the private sector, as public servants would spend less.

Longer term, the CBI said, greater savings could be made by reshaping public sector service provision, using the private and voluntary sectors to achieve outcomes more efficiently.

Treating health and social care patients in their homes and the community could save more than £8bn by 2015-16, it said. That might involve “telehealth” monitors to allow patients to measure their own heart rate and blood pressure.

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