SME Business News

In a letter to the Chancellor of the Exchequer ahead of the emergency Budget, the CBI has urged the Government to increase confidence in the public finances by bringing the deficit rapidly under control in a way that does not undermine the economy’s ability to grow.

The UK’s leading business group argues this should be done by controlling spending rather than increasing taxes. The Government should focus on current spending, with a radical re-engineering of public services to deliver more with less, rather than reducing spending on capital infrastructure.

The CBI suggests that for every pound of tax increases, there should be four pounds of Government expenditure cuts. The business group welcomes the action taken so far by the Government to tackle the deficit and urges it to use the Budget to reinforce the UK’s fiscal credibility by announcing a faster reduction in the structural deficit, based on more rigorous economic assumptions and backed by more detail on spending plans.

John Cridland, CBI 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.”

The Government will need to undertake a root-and-branch examination of all spending needs and priorities, similar to that undertaken by Canada in the 1990s, where the administration successfully overcame a large government deficit by going back to first principles and looking at all its spending programmes.

The CBI therefore welcomes the spending review framework announced by the Chancellor.
Some areas of public spending are vital to promoting future economic growth and should be a priority. In particular, the CBI would like to see capital spending on infrastructure return to its previous level of 2.25% of GDP, as soon as conditions allow.

Small and medium-sized enterprises (SMEs) will play a vital role in growing the economy, and the Government’s proposals for continuing with a loan guarantee scheme are welcome. The range of funds that exists for SMEs could be brought together into one fund, cutting administrative costs and creating one national operation.

The CBI believes that tax rises should be kept to an absolute minimum. Moreover, there are certain taxes that would be particularly damaging to economic growth were they to go up:

The business group has major concerns over the Government’s proposed reforms to capital gains tax (CGT). It also wants to see a broad definition of business assets to prevent disincentives to investment or start-ups, and the tax should be structured to minimise the impact on long-term investment.

It is encouraged by the Dyson commission’s support for the R&D tax credit and urges the Government to retain it in its current form. Changes to tax treatment of pensions, planned to come into force from April next year, are unnecessarily complex and expensive to administer, and in their current form would make it harder for UK businesses to attract and retain global talent.

The group strongly supports the coalition Government’s ambition to reform the UK corporate tax system, by simplifying it to make it more certain.

Mr Cridland said: “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.”