BUSINESS organisations have hit out at claims by a leading economist that unemployment benefits should be raised to kick-start the Scottish economy.

The Federation of Small Businesses (FSB) warned that an increase would affect how people viewed employment because it would squeeze the gap between people earning a living and those who were receiving benefits.

CBI Scotland said there was “scant” room for such a measure while the priority should be getting a grip on public finances.

Their criticisms followed a suggestion by Professor Brian Ashcroft of Strathclyde University’s Fraser of Allander Institute in The Herald yesterday.

He claimed the Government should try “through a mixture of increased spending and possibly tax reductions to target those parts of the community that will take the largesse and spend it, and your way to do that would be to boost unemployment benefits because the unemployed spend everything they have got”.

FSB spokesman Stuart Mackinnon said: “This might be an appealing way of trying to get money directly into the economy but it’s not as simple as that.

“If you were to raise unemployment benefit, there would be a knock-on effect. It would tighten the gap between the disposable income of those working and those not working.”

CBI Scotland assistant director David Lonsdale said: “Given the dire state of the public finances and the need to eliminate the deficit, let alone address the ballooning national debt and interest payments, the scope for additional spending commitments of this nature is scant.

“Government needs to focus on improving the conditions for firms to grow and invest by getting a firm grip on the public finances, keeping taxes down and by investing in infrastructure.”

Scottish Chambers of Commerce chief executive Liz Cameron added: “Rather than subsidising economic inactivity, the Government must invest to create jobs and growth.”

Meanwhile, more public sector jobs are at risk because the Scottish budget may not balance, an expert on public finances has warned. Edinburgh University’s Professor Arthur Midwinter says the Scottish Government has failed to target its priorities to support economic recovery, protect frontline services and tackle climate change.

He claims key risks inherent in Finance Secretary John Swinney’s spending plans include unidentified efficiency savings of £800 millon, uncosted savings from a pay freeze, procurement, asset sales and simplification of the public sector, and no assessment of the impact of the reduction in jobs and frontline services.

Prof Midwinter will tell an international seminar at the university tomorrow that, taken together, “the financial risks show it is dubious whether the budget will balance or deliver the strategy”.

He also accuses the Government of exceptional “presentational spin” in a press release claiming the budget would boost growth.