CBI calls for caution on Budget tax cuts

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The Confederation of British Industry yesterday urged caution in November's Budget, warning that the temptation to go for popular tax cuts ran the risk of higher interest rates.

In its Budget submission to Kenneth Clarke, the Chancellor, the CBI held back from calling for an immediate cut in rates until the length of the current slow-down becomes clearer.

Andrew Buxton, chairman of the CBI's economic affairs panel, said there was room for modest tax cuts but the best way to restore the feel-good factor was to "continue the current steady course".

Tax reductions must not jeopardise the fight to cut official borrowing and should be aimed at removing the poorest from the tax net altogether rather than at more headline-grabbing cuts in personal rates.

Any reductions should be funded by "credible" cuts in public spending, but this should not take away resources for the priority areas of transport, education and training and export support. The cash for these should be found from savings by putting more public sector services out to competitive tendering and speeding up the introduction of the private finance initiative - where the private sector provides funding for large public sector projects.

Sir Bryan Nicholson, CBI president, said there was concern whether the Government would achieve its target of a low fiscal deficit through the economic cycle, given that public borrowing was ahead of the official target in the first few months of the 1995-6 financial year.

"However, a modest package for business aimed at the twin targets of jobs and investment could be funded through using part of the contingency reserve," Sir Bryan said.

The economy grew by 3.9 percent in 1994, well above the 2.25 per cent trend rate of growth over the past 40 years and the CBI foresees growth of 2.9 per cent this year. It expects consumers to spend more freely in 1996 as their confidence grows.

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