The CBI today warned the Chancellor that the dire state of the public finances leaves him no room for further major fiscal stimulus measures and that next month's Budget must set out a strategy to get the books back in balance.

More spending to boost the economy would prompt businesses and consumers to rein in investment and spending in fear of higher future taxes, the CBI said in proposals to Alistair Darling. Instead, the Chancellor should target measures to support confidence, boost employment and investment, and get the public finances back on track, the business group said.

John Cridland, the CBI's deputy general secretary, said: "The Chancellor needs to let the considerable stimulus in the pipeline take effect and deliver a clear and credible plan for restoring the public finances."

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The CBI's views echo analysis from the Ernst & Young ITEM Club, which predicted on Saturday that government borrowing would hit £180bn next year, hugely more than the Chancellor's £118bn forecast.

The CBI called on Mr Darling to delay the planned half-point rise in 2011 of employer national insurance contributions to cut the cost of employing people, freeze business rates for two years, and reduce empty property rates by at least 50 per cent to ease pressure on the building sector.

The business lobby also wants the Government to introduce a scrappage scheme to encourage consumers and businesses to replace old vehicles, fridges and washing machines with new, efficient models. The move would bring forward spending to support the economy and reduce carbon emissions, the CBI said.

The budget could be broadly balanced in six years if public spending were frozen at £587bn from 2011/12, the CBI added. The move should be combined with measures to increase contracting out of public services, make public pensions more affordable, and a pledge to give equal preference to business, public sector and voluntary organisations in providing public services.

Ian McCafferty, the CBI's chief economist, said: "The Bank of England is now providing further monetary stimulus through the policy of quantitative easing easing and, on top of the sharp interest rate cuts of recent months, this is a preferable route to stimulate activity."