THE GOVERNMENT is likely to undershoot its target for reducing the budget deficit by £7bn this financial year, according to PwC which has urged ministers to focus on cutting business regulations and reform taxes in the Budget in an effort to boost growth.
Andrew Sentance, senior economic adviser to the Big Four firm and a former member of the Bank of England monetary policy committee, said: "Supply-side reforms need to take over from the emphasis on demand stimulus we have seen since the financial crisis.
"Supply-side policies supported growth in the UK in the 1980s and the 1990s, and we need a stronger focus on them now. That means simplifying and streamlining regulation so we have a good business climate here in the UK - for small companies and new start-ups as well as large multinationals."
Changes to the corporate tax system should be accompanied by reforms to personal taxes, expenditure taxes and environmental taxation, PwC also said.
PwC predicted that the UK economy would grow by 0.6% and 1.8% in 2012 and 2013 respectively - compared to estimates of 0.7% and 2.1% by the independent Office for Budget Responsibility.
The firm also predicted that consumer spending will grow by around 0.7% in 2012 and 1.3% in 2013 as inflation falls, easing the squeeze on real household incomes that led to a fall in real consumer spending in 2011.
The main source of economic growth in 2012 will be exports, while the London Olympic Games should also provide a temporary economic boost in the third quarter of this year, PwC said.
Business investment may remain "subdued" in 2012 but should pick up in 2013 as long as economic uncertainty in the Eurozone eases, PwC added.
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