Economy needs more than ‘pain today, growth tomorrow’ Budget, warns CIPD

George Osborne’s Budget might have the best interests of businesses at its heart but it runs the risk of hampering the country’s prospects for growth, warns CIPD experts.

Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development (CIPD), said: “Set alongside the Office for Budget Responsibility (OBR) figures, Mr Osborne’s ‘pain today, growth tomorrow’ budget reads like a long-term fitness plan for an economy whose immediate pressing need is for more sensitive intensive care than the Chancellor is prepared to provide.”

The Budget aims to provide some stimulus to the economy by encouraging private sector growth. However, at a time when GDP forecasts are being upgraded elsewhere in Europe, the chancellor has revised his 2011 GDP forecast downwards from 2.1% to 1.7%, which puts the UK economy on an improving but not particularly dynamic trajectory for the year.

Dr Philpott continued: “If the economy remains robust enough in the short-term to take full advantage of the Chancellor’s battery of mostly sensible micro measures, this year’s budget might in time come to be viewed as a milestone on the road to supply side reform.

“But the risk remains that by applying too much short-run fiscal pain to a still ailing economy the Chancellor will at best reduce the effectiveness of his long-term plan for growth and at worst inflict chronic damage that might take a decade or more to recover from.”

Amongst the measures announced in the Budget to “create the most flexible workforce in Britain and make Britain the best place in Europe to start, grow and finance a business” were:

– A review of the 50% income tax rate, the current rate to be regarded as a “temporary measure”.

– Creation of 21 new Enterprise Zones.

– Foundation of 24 New Technical Colleges.

– 40,000 new Apprenticeships for young unemployed.

– Funding for 100,000 new work experience placements.

– Establishment of new automatic mechanism for future increases to state pension age.

On the provisions to deal with youth unemployment through increased Apprenticeship funding, creation of technical colleges and more investment in the work experience scheme, Katerina Rudiger, skills adviser at CIPD, said: “CIPD is already working with government to facilitate HR professionals playing an active role in making a reality of these ambitions.

“It is more important than ever for the Government to invest in the right skills to aid economic recovery. The focus on highly skilled trades, through the creation of 24 new technical colleges, is a welcome step in the right direction as more needs to be done to improve the quality and reputation of the vocational education on offer for young people.”

CIPD also expressed concerns about the moratorium on all new employment regulation for small firms for three years, and the universal flat rate pension of £140 per week.

Mike Emmott, CIPD employee relations adviser, commented: “The onus should be on government to bring forward only light-touch employment regulations, irrespective of company size.

“A moratorium for the smallest firms is a dangerous precedent that risks creating a two-tier labour market, and could even at the margins act as a perverse disincentive for growth amongst firms considering employing the extra staff member that would bring them into the ‘regulated tier’ of the labour market.”

In regards to the new flat-rate approach to state pensions, Charles Cotton, CIPD reward advisor, said: “This will make it far easier for employers to communicate the value of their workplace pension provision, which in turn should nudge employers with weaker pension arrangements to improve what they offer.”

Aastha Gill