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Balanced budget needed by 2015/16

Source: Reuters - Mon 19th Oct 2009

Britain needs to balance its public finances by the 2015/16 tax year to avoid undermining investor confidence, the Confederation of British Industry said on Monday.

The business lobby group urged Chancellor Alistair Darling to deliver a credible plan to balance the budget two years earlier than planned when he unveils his pre-budget report in the coming months.

"The government needs to act now to boost confidence in the longer term outlook for the UK economy and bring forward that date for the budget balance" said CBI chief economic advisor Ian McCafferty.

How to tackle Britain's burgeoning budget deficit - which the Treasury forecasts will hit 175 billion pounds, or 12 percent of gross domestic product, this year - has become a key issue for the main political parties in the run-up to an election expected next May.

McCafferty said credit rating agencies were waiting to see how the current administration or any future government planned to reduce the budget deficit.

"We need to avoid a risk of any downgrade" he said.

Britain has had to ramp up issuance of government bonds, or gilts, this year to a record 220 billion pounds to pay for the stimulus measures and bank rescue packages needed to drag it out of recession.

The high level of debt led rating agency Standard & Poor's to downgrade its outlook for Britain's triple-A sovereign rating to "negative" from "stable" earlier this year.

But last week, rival agency Moody's said the political focus on the health of the public finances had reinforced its stable outlook for the country's top-level rating. 

Prime Minister Gordon Brown recently announced a series of asset sales to help boost government coffers, and has warned that withdrawing economic stimulus too soon could derail Britain's fragile recovery.

The CBI calculates the government will need to find additional savings of 120 billion pounds from now to balance its books by 2015/16, a sum it said could be found by conducting a radical reform of public services.

The CBI also called for the establishment of a "Fiscal Policy Committee" to scrutinise the government's public finance and economic forecasts and which would be answerable to parliament.

The Conservative party have floated a similar idea, while Darling has pledged to make annual budget deficit reduction a legal commitment.

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