CBI warns on tax cuts ahead of election

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The Independent Online

Adair Turner, director-general of the Confederation of British Industry, yesterday warned the Chancellor, Kenneth Clarke, not to plump for a pre- election tax-cutting Budget, claiming that the economy did not need one, anyway.

Mr Turner said that even if the Chancellor were tempted to introduce tax cuts, public borrowing levels were unlikely to allow scope for any significant move in that direction.

"Consumer expenditure has grown by 2.5 per cent over the last year, sales of household goods are picking up, and the housing market is beginning to stir," he told the CBI's South-east region annual dinner.

He added: "We expect further acceleration, with robust consumer spending growth next year, even without any tax cuts. The facts are that public borrowing has not come down at anything like the pace envisaged, and remains high after four years of growth."

He said that the budget deficit was still high, and reduction must be a priority. "Stability and continuity must be the watchwords. Whatever the temptations of a pre-election year, we will be urging the Chancellor to stick to his belief that good economics is good politics."

Mr Turner's comments came as the Office for National Statistics yesterday released figures showing that the UK's global trade deficit in April was higher than expected at pounds 1.322bn, and a 73 per cent increase over the pounds 765m gap recorded in March. Excluding erratic items, the deficit widened to pounds 1.336bn from pounds 1.132bn.

The "mad cow" crisis, which has blocked British beef exports to Europe, was partly responsible for the Britain's exports to EU countries dropping 2.5 per cent in April to pounds 7.83bn.

However, total UK exports in April rose to pounds 13.85bn, a 0.3 per cent increase on the previous month. The improvement in the exports was even more significant in relation to non-EU countries, rising 4 per cent to pounds 6.016bn.

The trade figures released yesterday exclude so-called "invisible earnings" from services, interest earnings and dividends.

Alex Garrard, an economist at Swiss banking group UBS, said: "The rising domestic demand has resulted in a pick-up in imports and this trend is going to continue for the foreseeable future. Weak European markets will mean that the UK manufacturing sector will find it hard to expand in the near-term," he said.

Mr Garrard added that the EU component of the deficit could be the cause of "some concern" towards the year-end.

The trade deficit with EU countries reached pounds 527m, the highest since October last year, in part reflecting the economic slowdown taking place on the Continent.

The shortfall with countries outside the EU also widened to pounds 834m.

In the three months to April, total exports rose 3.1 per cent compared with the previous six months, while imports were up 3.8 per cent in the same period.