The Government is in danger of repeating past mistakes with the Comprehensive Spending Review (CSR) if it fails to give the necessary priority to investment in infrastructure, according to the CBI.
The employers' group believes infrastructure spending is urgently needed to boost the recovery, create new jobs and attract investment into the UK.
In a speech to businesses in the East of England, John Cridland, the CBI’s deputy director-general, said that the UK already lags well behind its competitors in its spending on infrastructure, such as roads and rail.
He pointed out that, in the years when government spending rose between 2000 and 2007, the UK's investment in transport was the lowest of all OECD countries.
He urged the coalition Government to make some “smart choices”, return capital spending to 2.25% of GDP as soon as possible, and “appreciate the consequences of not giving infrastructure the attention it deserves”.
Cridland said: “Reducing spend on transport links might seem a politically saleable option, but it’s just not in the country’s long-term interests.”
The Chancellor plans to reduce annual infrastructure spending by £2bn, including £400m on transport, and bring public sector capital spend down to 1.1% of GDP by 2014-15.
But Cridland said: “An apparent saving today means spending more tomorrow, and fails to recognise the direct and indirect benefits that quality infrastructure can bring in the near term.
“Analysis shows that the ‘multiplier effect’ of investment in infrastructure is much greater than in other sectors. The economic case for targeted new infrastructure remains robust.”
Looking ahead to the forthcoming CSR, Cridland added: “We accept the need for cuts, and we’d expect any special pleading to be given the short shrift it deserves. There needs to be a robust case for spending of any sort, and especially in the current fiscal climate.
“But just as we’re absolutely sure about the need to reduce the deficit, there’s also a certainty that failing to prioritise infrastructure spending in the CSR would be short-sighted in the extreme.
“The UK’s infrastructure is poor by international standards and is a serious barrier to greater efficiency and to economic growth. Put simply, balancing the Government’s books is going to need improved infrastructure, and doing it on the cheap would be a false economy.
"Infrastructure investment can contribute to the urgent task of reducing the deficit if there is a relentless drive for more value for money in the way it is delivered, as is being demonstrated by Crossrail."
Cridland described the Coalition Government's performance so far as “positive” but expressed concern over areas such energy, regional policies and planning, and the new Local Enterprise Partnerships (LEPs).
He said: “Plans for new Local Enterprise Partnerships are a cause for concern. We need assurance that the LEPs should not become too fragmented to offer adequate strategic direction, and as to whether they’ll be genuinely business-led and focused on sustainable economic growth.”