CBI attacks Government's 'backroom union deals'

The head of the Confederation of British Industry last night launched a blistering attack on the Government's public spending plans, accusing it of doing "backroom deals" with union bosses.

Digby Jones, the organisation's director general, said billions of pounds would be squandered if ministers put the interests of the service providers ahead of consumers. "Too much effort is wasted on stage managing political relationships and conference agendas and not enough on delivering a programme of change," he said. "Business is tired of the annual family rows and backroom deals with union bosses that characterise this time of year".

His comments, which were made at a fringe dinner at the Labour party conference in Bournemouth, are a fresh sign the CBI is still smarting from this year's unexpected increase in National Insurance contributions. It is also in stark contrast to the public approval the UK's largest employers' organisation gave to New Labour before and after its 1997 election victory.

Addressing a dinner hosted by the left-leaning Institute of Public Policy Research, Mr Jones said business was losing confidence in the reform programme as ministers allowed pressure from trade unions and other professional groups to hamper change. "Be in no doubt that the clock is ticking on public sector reform," he said. He warned Gordon Brown, the Chancellor of the Exchequer who addresses the conference tomorrow, against hitting businesses with more tax rises. "Budget measures have forced up business taxes alone by an extra £6bn a year... [but] the public finances are in increasingly poor shape," he said.

Higher taxes or lower public spending were inevitable, he said, unless there were a surprise improvement in the financial situation over the next two years. "People are putting their hands in their pockets to get public sector improvements. They will be unforgiving if little has changed and investment is squandered."

Official figures earlier this month showed the public finances were already £16.8bn in the red after just five months - two-thirds of the Government's full-year forecast of £27bn. The shortfall was driven by weaker tax receipts and bigger rises in spending than the Treasury anticipated in its April budget. The vast majority of City analysts believe it will miss its targets for this year and next, making further tax hikes almost inevitable.

Last week the Treasury announced it was implementing an increase in fuel duty deferred from the Budget, which will raise an extra £300m a year. At the same time there is mounting concern the spending drive, which has seen 181,000 new workers recruited and wage inflation break the 5 per cent barrier, will squeeze out the private sector. Stephen Lewis, chief economist at Monument Securities, said: "If private sector employers cannot recruit the workers they need in a tight labour market, they are likely to defer any expansion plans they may have".

Figures from the CBI yesterday showed weak conditions had held back pay in both the service and manufacturing sectors. Service sector pay awards averaged 3 per cent in the three months to July, compared with 3.6 per cent a year ago. Manufacturing deals averaged 2.8 per cent, compared with 3 per cent last quarter.

Meanwhile unions will use the conference to urge the Government to launch a rescue package for Appledore Shipbuilders, which is on the brink of closure.