Rishi Sunak must avoid ‘doom loop’ of austerity cuts, says CBI boss

New PM must not repeat mistakes of 2010s, says Tony Danker

Rishi Sunak must avoid a “doom loop” of tax rises and austerity cuts to the public sector, said the head of the Confederation of British Industry (CBI).

The incoming prime minister is expected to keep Jeremy Hunt as chancellor and stick to the 31 October date for the government’s debt reduction plan.

Tony Danker, the CBI’s director-general, warned Mr Sunak not to entirely junk Liz Truss’s ideas about economic growth – arguing that a relentless focus on cuts would see a negative spiral.

“Let’s remember, the 2010s began with some austerity and were then ensued with very low growth, zero productivity and low investment, right? It wasn’t a successful strategy for growth,” he told BBC Radio 4’s Today programme.

On the 31 October statement, he added: “If all there is is tax rises and spending cuts and there’s nothing in there about growth, the country could end up in a similar doom loop where all you have to do is keep coming back every year to find more tax rises and more spending cuts because you’ve got no growth.”

Opposition parties, unions and campaign groups have also warned Mr Sunak against swinging austerity cuts to the public sector as he takes offices at No 10 on Tuesday.

The chancellor has said he faces “eye-wateringly difficult” spending decisions, reportedly asking Whitehall departments outside of health and defence to find cuts of 15 per cent.

Economists have warned that he needs to find up to £40bn a year to balance the books, even after reversals on corporation and income tax.

Sunak-backing Tory MP Victoria Atkins said the medium-term fiscal plan is “still in the diary” for 31 October – saying the new PM “will do everything he can to make that happen” – but could not rule out a delay.

Mr Danker’s intervention follows a scathing attack on Tory economic policy from former party donor Guy Hands – who warned the country was “on a path to be the sick man of Europe”.

Mr Hands said the flawed Brexit deal was predicated on a failed “Thatcherite” vision of a low tax high growth economy – and predicated that Britain now may need a bailout from the IMF.

The founder of private equity company Terra Firma said the Tories now had to “own up to the mistake they made and how they negotiated Brexit” and put in place someone with the “intellectual capability to renegotiate Brexit”.

But Mr Danker said Mr Hands was being too pessimistic. “If he is right then here we are [already] in doom loop. I just don’t think he is right,” he told Radio 4.

“We have got in this country the potential to be leaders in the world in clean energy, in life sciences, in AI [artificial intelligence], in fintech. We have got growth potential.”

The CBI chief added: “What we can’t afford this time round is a government that doesn’t do whatever it takes to unlock that potential. That is, I’m afraid, the legacy of Brexit, it is the legacy of Covid, it is the legacy of the mini-Budget.

“Yes, we need to stabilise things first and foremost, but if we don’t have a plan for growth then I’m afraid there aren’t good outcomes in the next decade.”

Meanwhile, a senior government expert warned that Mr Sunak’s campaign pledge to review 2,400 EU laws retained after Brexit within his first 100 days in office is not practical.

Jill Rutter, a former Treasury worker from the Institute for Government (IfG) think-tank, said it would be “impossible” to have “any decent level of parliamentary scrutiny” on changes to the legislation.