Continent may hold back UK: Small businesses lobby Chancellor for help in Budget

THE Continental European recession could hold back the UK recovery, Oxford Economic Forecasting warned yesterday as two small business lobbies urged the Chancellor to help the sector become an engine of expansion in the 30 November Budget.

In its latest assessment of international prospects, OEF said Continental Europe is likely to grow by less than 1 per cent next year 'and the risks are on the downside'. That is expected to continue undermining the UK expansion, although prospects for the US and Japan are likely to improve.

Despite the gloom in Continental Europe, OEF believes the US employment cycle has turned. Borrowing rates are at record lows and many consumer durables are reaching the end of their life-span. 'The prospects are for more tenacious domestic demand growth in the rest of 1993 and in 1994.'

Some grounds for hope also exist in Japan, despite a continued slump throughout the summer. OEF points to record low rates, the eventual impact of the three fiscal stimulus packages and the continued readiness of the government to maintain a flexible fiscal policy.

The Chambers of Commerce and the Federation of Small Businesses are both pressing for Budget measures to help the small firm sector underpin the long-term growth prospects of the economy.

The BCC shopping list includes a more favourable loan guarantee scheme, a restructured Business Expansion Scheme aimed at helping the sector and broadening the eligibility of investors, reduced export guarantee scheme premiums and extended capital allowances at a 40 per cent write-off rate.

It emerged over the weekend that the Chancellor is seeking to announce a replacement for the Business Expansion Scheme next month in the Budget. It would put capital into small companies but avoid the wide tax loopholes of the present scheme, which ends in December. Banks and business lobbies have been calling for a 'son of BES'.

The Federation also wants a single payroll tax, a fee for small business for tax collection, and improved tax treatment for the sector.