By Max Clarke

• Coalition’s ruthless cuts have been necessary to restore economic stability.
• More needed from government to support SMEs and bolster private sector growth.

In his last major speech as CBI Director-General, Sir Richard Lambert today (Monday) set out the critical short-term changes necessary to secure economic growth, and gave his assessment of the performance of the coalition Government.

Addressing an audience of business leaders and key stakeholders, Sir Richard said:

"This coalition Government has been single minded - some might even say ruthless - in its approach to spending cuts. Very unpopular decisions are being driven through on the argument that they are essential to the long-term stability of the economy.

"That policy is strongly supported by business, on the grounds that sound public finances are an essential foundation for a sound economy. Spending cuts do less damage to employment and growth over the long-term than do tax increases. And the squeeze on fiscal policy will allow monetary policy to remain looser for longer than would otherwise be the case, and help to rebalance the economy in the process.

"Spending cuts and this month’s VAT increase will fix the structural deficit over time. But to bring the public finances back to full health, they will have to be accompanied by increased output and employment — which bring with them higher tax revenues. The sooner we can get output back up to the levels that were expected before the recession, the quicker government revenues will rise to narrow the fiscal gap.

Sir. Richard stressed that slashing expenditure alone would not achieve necessary results, and that if ill considered, they could make matters worse:

"It’s not enough just to slam on the spending brakes. Measures that cut spending but killed demand would actually make matters worse.

The recession, Sir. Richard noted, has not been felt equally by all businesses:

"Surveys show that smaller companies are under more pressure today than big companies, which is another reason to pay them special attention. Whereas multinationals are benefitting from the recovery in world trade and see the emerging economies as offering great scope for growth, smaller companies are more dependent on a fragile home market and often see countries like China and India more as a threat than an opportunity.

"Credit conditions for big companies have substantially recovered, and they have access to the capital markets when required. Smaller companies are still finding credit difficult and costly to come by, and they have few sources of non-bank finance.

"So what can the Government do to help? The answer is that it should focus on the supply side, and be much smarter in the way that its support is allocated.

"It should not attempt to pick winners, and it should understand that its apparent wish to identify winning sectors makes no kind of sense at all when it comes to encouraging the creation of new jobs.

Sir. Richard concluded this morning’s speech with the words:
"Given the right degree of encouragement and confidence, the private sector can certainly do the job... let’s get on with it."