LONDON (Reuters) - Britain’s chancellor may have to apply shock treatment to the country’s economy, including the controversial option of new borrowing to fund investment, if there is no sign of growth in six months’ time, a business leader has said.
This month’s budget announcement by George Osborne must include several measures to boost the economy which could be funded by cuts to welfare and other spending, said John Longworth, director general of the British Chambers of Commerce.
But if growth prospects remain elusive, more radical options will be needed, he said.
“If within the next six months there is no prospect of growth ... you might have to consider actually borrowing more money but you should only do it to fund areas that the market would forgive,” he told reporters.
As well as taking on new debt to fund more infrastructure spending, the government may also have to consider big cuts in corporate and capital gains taxes to kick-start growth.
“It would be a sort of defibrillator approach to the economy,” said Longworth, whose organisation represents more than 100,000 British businesses.
Osborne and Prime Minister David Cameron have ruled out any shift from their plan to rein in Britain’s budget deficit, even as the economy runs the risk of falling into its third recession in four years. Cameron said last week that the country would plunge “into the abyss” if he changed course.
But signs have grown of differences within the ruling coalition ahead of the March 20 budget statement. Business minister Vince Cable suggested it might be possible for the government to borrow to fund more spending without spooking financial markets.
The BCC and another leading employers group, the CBI, both said on Monday that they backed the government’s focus on tackling the budget deficit but said there was room for measures to boost growth too.
Those measures included moving ahead with the government’s long-delayed business bank which would help provide credit to companies struggling to get loans from commercial banks.
The two employers groups called for more investment in housing and road repairs as quick ways to spur growth, and a freeze in business rates - the taxes companies pay based on the value of their properties.
The BCC estimated the measures it was proposing for Osborne’s budget this month would cost 29.6 billion pounds over three years, it said could be found by cutting benefits for people who do not need them and through other savings.
The CBI’s proposals would cost 2.2 billion pounds in the 2013 fiscal year which could be funded through savings in central government spending and the sale of public land and property, said the CBI’s chief policy director, Katja Hall.
The CBI represents around 240,000 British businesses.
Editing by Toby Chopra