By Daniel Hunter

Whatever the UK Chancellor announces in his Spring budget this week one thing is certain — it will not be enough to prevent the ground opening up over a massive economic sinkhole that successive governments have ignored.

Speaking at a meeting of senior executives from international companies in London this morning Robin Chater, Secretary-General of the Federation of European Employers (FedEE) welcomed the news that the UK Chancellor, George Osborne, will be giving working parents tax-free childcare in his Spring budget this week.

However, asks Chater, “It is one thing to encourage both parents to work, but quite another to guarantee that there will be jobs for them - or their children when they need them”.

According to Chater successive governments in the UK have “ been happy to serve up cucumber sandwiches and tea whilst they should be attending to the fundamentals of running a complex, modern economy. What is glaringly obvious - and we could all have seen for a long time - is that the UK is failing to invest in itself. In fact, capital investment is now at its lowest point since records began.

"The question why is employment growing in the UK, whilst economic growth is depressed is so easily answered. As capital equipment wears out or becomes outmoded employers are increasingly trying to make up the productive shortfall by employing more people.

"But the only way that they can therefore stay competitive is to tightly control labour costs — and the resultant reduced purchasing power further depresses economic growth. This is the classic vicious circle — but the Chancellor seems unable or just too feeble to take the drastic steps necessary to resolve it.”

Robin Chater went on to set out a number of priorities that must be dealt with in order to avert a Greek-style collapse.

“The Chancellor is rightly concerned about the rise in public spending, but in doing so he is like a doctor treating the symptoms and not addressing the cure. The solution is elsewhere. The UK needs growth — but it needs the right kind of growth," he said.

"The UK balance of payments has long been its Achilles heel and if the City of London’s financial services did not fill much of the yawning gulf created by Britain’s trade deficit in goods then the sink hole would have opened up long ago. The government needs to focus hard on its manufacturing sector and especially in those areas - such as textiles, clothing and footwear - which the UK gave away to the far east at the end of the last century. “

Chater went on to warn that “a crisis is building across Europe that may already be too late to avert. Politicians talk about it — but their words and actions are far too constrained. A whole generation of people currently aged under 25 are growing up without adequate work experience and, for many, there is little prospect of involvement in the mainstream economy. In the UK young people are suffering over twice the unemployment rate of the population in general and there is every sign that we could end up like Spain where almost 60% of those under 25 are without work.”

So what action could avert the UK’s economic collapse? For Chater the solution could not be simpler.

“I believe there is one approach that would maintain the current level of state revenue whilst, at the same time, reducing the welfare cost burden. That would reduce the number of people in the grey (informal) economy and create over a million jobs in the UK. All the Chancellor needs to do is announce that for every pound Sterling that an employer increases their PAYE tax revenue payments into the exchequer they would receive a reduction in their corporation tax bill by an equal (or near equal) amount — provided that at least 95% of the increased PAYE revenue arose from a rise in the number of jobs.

"Companies would then, in subsequent years, be able to retain half of their corporation tax saving - provided that their total workforce did not decline by more than 1%. In one stroke the UK government would increase capital expenditure at the same time as boosting jobs, youth unemployment would fall dramatically and Britain’s long economic malaise would be over.”

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