Brown: Fuel tax cut would push up rates

CBI meeting: Tomorrow's pre-Budget report will contain help for hauliers, but the Chancellor tells business leaders he will not 'squander' surplus
Click to follow
The Independent Online

A massive cut in fuel duty would trigger higher interest and mortgage rates, the Chancellor warned yesterday.

A massive cut in fuel duty would trigger higher interest and mortgage rates, the Chancellor warned yesterday.

Gordon Brown told business leaders at the Confederation of British Industry's national conference in Birmingham that he would not "squander" a short-term surplus in the public finances. But he also indicated that his pre-Budget report tomorrow would contain measures to deal with concerns of fuel protesters.

The Chancellor also dropped a strong hint that the Government is considering extending tax breaks for research and development spending to companies of all sizes.

Mr Brown told the delegates: "While I do recognise - and the Budget will respond to - the genuine concerns of hauliers and motorists, I will do nothing that would risk returning the economy to 1980s boom and bust."

He said that Britain was on the brink of achieving a long-term future of low and stable interest and mortgage rates, which he said was the "great prize that has eluded us for a generation".

But he added: "This would all be put at risk if unaffordable demands such as cuts in fuel duties of up to 26p were met on Wednesday, with interest rates rising soon after."

In the three years since Labour won power interest rates had been 4 per cent below their average for the previous two decades, he said. For the mortgage-holder this meant, on average, an annual saving of more than £1,000 and for the business sector a total benefit of £1.75bn. "The choice is clear," he said. "We can either retreat into old short-termist ways or make stability our platform for building long-term economic strength."

Extended tax credits for research and development are likely to be part of tomorrow's Budget statement, among a range of measures including a simplified VAT regime aimed at business. At present, the tax credit, equivalent to one-third of a firm's spending on research and development, is available only to small and medium-sized companies. But, questioned by delegates, the Chancellor indicated it could be extended to large companies. "It is something worthy of serious consideration," he said.

The director general of the CBI, Digby Jones, said later he was "encouraged" by the tone of the speech. According to the CBI, spending on research and development in the UK is growing at half the rate of international competitors while UK businesses employ half the number of researchers found in Japanese companies.

But Stephen Byers, the Secretary of State for Trade and Industry, received a rougher ride from delegates over the stewardship of the economy.

Stewart Davies, the managing director of the tubes division of Corus, an Anglo-Dutch steel-maker, said the Government had created "destructively unstable conditions" for manufacturing with the pound. "It is becoming significantly more risky for manufacturers to invest in the UK than in Continental European locations," he said.

Mr Byers said the problem was the weakness of the euro not the strength of sterling and said the Government would not intervene to reduce"artificially" the value of the pound.

Comments