The CBI message to the new government is clear: there must be a credible plan to return the budget to balance by 2015-16. More of the same is not an option. The Treasury expects public borrowing to exceed 11% of GDP for a second year in 2010-11, and debt remains on course to peek just shy of 80% of GDP. So action is needed in the first 100 days, and public sector reform is at the heart of the CBI’s call to action.

Spending control is the most effective way of bringing down the deficit, protecting those areas of spending that have a positive impact on economic growth, such as capital investment in areas such as transport and energy infrastructure, innovation and R&D. However, spending cuts do not mean cutting public services. Waste and inefficiency can be taken out, and outcomes can be maintained or improved while using fewer human and other resources. The CBI has set the actions that need to be taken in the immediate, short and medium term. Our report ‘Time for action: reforming public services and balancing the budget’ identifies savings that could be achieved if good practice were adopted more widely and if the government challenges the status quo.

Firstly, the public sector needs to apply the brake by immediately freezing its labour costs, learning lessons from the way the private sector responded during the recession, when employers and employees worked together to provide the breathing space to cope in the face of challenging conditions. In 2008-09 the public sector pay bill was £160bn (source: PESA 2010, HM Treasury/ONS), and a two-year freeze on labour costs (starting in 2010-11) would save £18bn. This would be achieved by a selective application of pay and recruitment freezes. In addition, discretionary spend on advertising and consultancy should be reduced.