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Emergency Budget should minimise tax rises, says CBI

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In its submission to the Chancellor ahead of the emergency Budget, the CBI has called for the government to focus on spending cuts rather than tax increases as the best way to bring the public finance deficit under control.

But business group warned that, along with a radical re-engineering of public services, the government should seek to protect spending on capital infrastructure.

For every pound of tax increases, the CBI said it wants to see four pounds of expenditure cuts.

While welcoming the measures introduced so far by the government, the CBI wants the Budget to announce a faster reduction in the structural deficit, based on more rigorous economic assumptions and backed by more detail on spending plans.

John Cridland, the CBI’s deputy director-general, said: “This needs to be a bold and ambitious Budget, with a credible pathway for restoring sound public finances and a convincing narrative for growth.

“A radical re-engineering of public services is a must if damaging tax rises are to be avoided. Only an effective cost reduction strategy can safeguard future growth.”

Certain areas of public spending, vital to promoting future economic growth, should be safeguarded as much as possible. In the CBI’s view, capital expenditure on infrastructure needs return to its previous level of 2.25 per cent of GDP as soon as conditions allow.

There was backing for government proposals to continue with a business loan guarantee scheme, with a recommendation that the range of funds for SMEs be brought together into one pot as a way of cutting administrative costs.

On taxes, the submission urged they be kept to a minimum, while those that pose a threat to economic recovery should be avoided altogether.

The business group expressed worries over proposed reforms to capital gains tax, arguing that a broad definition of business assets – those to be exempt from higher rates of CGT – is essential to making sure that there are no disincentives to investment or start-ups. The tax should also be structured to minimise the impact on long-term investment.

The CBI reiterated its support for the R&D tax credit and asked the government to keep it in its current form.

Government plans to simplify the UK’s corporate tax system won the business group’s approval.

Less attractive though, the CBI added, are the changes to the tax treatment of pensions, planned to come into force from April next year. Describing them as unnecessarily complex and expensive to administer, the CBI said they would make it harder for UK businesses to attract and retain global talent.

Mr Cridland added: “The UK’s future economic prospects depend on the ability of firms across the country to create new jobs and win orders. Increasing taxes makes this more difficult.

“The prospect of a new 5-year corporation tax framework, allowing business to plan with certainty, will bring some relief. But any changes to capital gains tax must recognise the importance of incentives for wealth creators and the value of business investment.”