CBI: budget must stem erosion of competitiveness

. Mark Fletcher reports In its Budget submission, published today (Monday), the CBI says the business tax burden must not be increased further. It says recent business tax hikes have exacerbated a five-year decline in corporate profitability and helped cut business investment by 15% in just two years. The CBI also urges Mr Brown not to risk the health of the economy by announcing increased spending plans or rises in taxes that would depress demand. But it says that the fiscal rules would not be compromised by measures costing up to £1bn, to ease urgent problems with pensions and employer insurance, as well as boost investment and innovation. Digby Jones, CBI Director-General, said: "We badly need a Budget that gets behind business and maintains the UK's reputation for having the best business environment in Europe. "We cannot risk further cuts in corporate investment or long-term damage to UK competitiveness. Firms are still extremely nervous about the possibility of tax increases. We will be closely watching the stealth tax radar screen on Budget day." The CBI says firms will be particularly on the look out for possible rises in business rates and other taxes and duties on property, green taxes and further increases in employment costs. It says the business tax burden is already set to rise by a cumulative £47bn between 1997 and 2005. The CBI says Mr Brown should use this Budget to address urgent problems of employer insurance and pensions. It says the Chancellor should: give back to business the £2-300 million windfall from insurance premium tax, as Treasury revenues have been boosted by the unexpected dramatic rise in employer premiums offer firms of all sizes incentives to encourage more private pension provision. Recommendations on innovation include changes to the R&D tax credit that could double its value from £450 million to around £900 million. The R&D tax credit currently covers only the cost of staff and day-to-day consumables like laboratory equipment. The CBI wants the credit to cover other R&D costs like power, equipment maintenance and buildings. It also wants a more development work covered in addition to pure research, a shake-up that would encourage bigger firms to invest in Britain and benefit many small firms along the supply chain. Mr Brown should also boost investment by extending smaller firm capital allowances to leased equipment and by redressing the lack of any allowance for commercial buildings. For growing companies, the CBI calls for a new drive to close the finance gap. This occurs because government loans and guarantees typically stop at £250,000 while venture capital funds tend not to look at investments below £3 million. The CBI also urges Mr Brown to announce a series of reviews of tax policies that put UK firms at a competitive disadvantage. These include transport taxes, environmental taxes and stamp duty on shares. Jones said: "Business investment intentions are very weak. The Chancellor must give clear signals about his intentions for the longer term. If the government wants higher productivity, then it must take action now to build for the future." CBI concern about a fragile economy is based on its economic forecast, which is less optimistic than the Chancellor's. It predicts growth of 2.2% this year and 2.4% next, compared with Treasury predictions of 2.5 to 3% and 3 to 3.5%. As a result, the CBI expects government borrowing over the next two fiscal years to come in £13.3bn higher than planned. Jones added: "Neither the Chancellor nor the CBI are talking recession. The UK is still a successful economy, but we must keep it that way. There is not a moment to lose in taking action to strengthen the pro-business environment." MF