CBI: don't use sell-off cash for tax cuts

THE Confederation of British Industry, the UK's leading employers' body, has warned the Government not to fund tax cuts from privatisations, including last week's pounds 1.8bn sale of British Rail's rolling stock.

It says a return to "boom-bust" policies starting with this month's budget and ahead of a general election would endanger confidence, investment and longer-term growth.

Adair Turner, the CBI's new director-general, told the Independent on Sunday: "You can't use privatisation as a way of cutting taxes because you have not reduced the long-term burden of public expenditure."

At its annual conference, starting in Birmingham today, the CBI's president, Sir Brian Nicholson, will also call for a constructive dialogue in Europe rather than jingoistic appeals to national sovereignty such as Michael Portillo's Conservative conference speech. The meeting is due to be addressed by the Deputy Prime Minister, Michael Heseltine, and Tony Blair - the second time a Labour leader has been invited, following John Smith's debut two years ago. It shows a growing readiness among traditionally Tory business to listen to Opposition ideas.

Mr Turner said priorities should include cutting the public sector borrowing requirement (PSBR) - to under pounds 18bn from a current pounds 24bn 1995 forecast - to make way for cuts in interest rates. But the CBI is strongly against chopping infrastructure spending, including the mooted shelving of the entire road-building programme.

Any tax cuts should also focus on lifting tax allowances rather than reducing basic income tax rates, Mr Turner argues, in a CBI position likely to anger many of its more traditional members.

"[The Chancellor] is unlikely to be able to justify big tax cuts. Our gut feeling is that tax cuts should be modest," he said. "People pay 40 per cent at the upper end. But there are lots of people at the bottom who face marginal tax rates of 60, 70, sometimes 100 per cent. Shifting that balance is a key way of creating incentives for the lower paid to get into work."

The CBI salvo comes amid worrying signs that economic growth, in the short-term at least, is slowing. Last week the CBI's own regional manufacturing survey showed output down for the first time in two years as demand and optimism fall. The Bank of England also said the slowdown might persist next year.