Government urged to cut EBR this year

A STRONG case can be made for a substantial reduction in the Exchequer Borrowing Requirement (EBR) this year, according to Prof Terry Baker of the Economic and Social Research institute.

This might be achieved either through a lower borrowing target in the Budget or by the significant undershooting of cautious Budget targets, he told a Foundation for Fiscal Studies pre Budget seminar in Dublin yesterday.

The overall Budget will remain firmly within the Maastricht borrowing criteria, he said. However, with a high number of once off obligations met last year and the likely reduction in EU funds looming at the end of the decade, "a very strong case can be made for obtaining a substantial reduction in the EBR in the relatively buoyant economic conditions expected in 1996".

Arguing against any radical departures on Budget day, Prof Baker said that "changes should be limited, in that the existing economic strategy has been successful and thus required modification rather than radical overhaul". The aim should be to prolong rapid economic growth.

"I rather hope that the initial reaction to the Budget is one of disappointment," he said. This would mean calls for radical initiatives had been ignored "and that an economic strategy which has proved remarkably successful in recent years is being continued for at least a further year".

The fall in the value of sterling over the past two years and the possibility that this may continue suggests that measures such as employer's PRST cuts to protect vulnerable industries may be appropriate. Contingency plans to react to a sudden severe sterling depreciation should also be considered, he said. "This should enable currency options to be kept open until the likely course of EMU becomes clearer."

The Government should also try to pave the way for another national agreement to follow the current Programme for Competitiveness and Work. "This implies that the process of reducing average direct personal tax rates should be continued, probably through increases in allowances and the widening of tax bands."

On unemployment, Prof Baker said that the reintegration of the long term unemployed into workforce "is likely to prove a long and expensive process." Some measures could be expected in 1996 with the hope that they could be intensified.