Brown urged to spare industry bigger tax burden

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Business leaders will today call on Gordon Brown not to use this week's pre-Budget report to impose additional costs on industry as a survey of manufacturing firms revealed that companies are becoming increasingly worried about the outlook over the coming months.

The Engineering Employers' Federation (EEF) said prospects of slower growth and a continued squeeze on margins in the new year reinforced the need for the Chancellor to avoid imposing additional burdens on industry. Corporation tax receipts are running at a record level and are forecast to hit £49bn this financial year - £5bn up on 2005 to 06.

Looking ahead, companies have become less optimistic, the EEF said. Forward-looking responses on output and orders had fallen substantially, while responses on total orders were the weakest since the end of 2005. All sectors, except electrical equipment and electronics, expect some weakening of trading conditions in the next three months.

Steve Radley, EEF's chief economist, said: "Manufacturers have enjoyed a strong year based on significant increases in exports. However, signs of a slowing world economy are making prospects look less certain for 2007.

"It is vital that the Chancellor does not increase the tax burden in his pre-Budget statement. If the recovery in investment is to be sustained he must signal his intention to improve our tax competitiveness over the rest of this Parliament."

Mr Brown is widely expected to announce higher green taxes, including an increase in air passenger duty on all flights leaving the UK and above-inflation increases in fuel duty.

The EEF survey showed continued growth in the final quarter of the year. The balance of responses on output and orders in the past three months was in double digits for the fourth consecutive quarter.

Despite some softening in the eurozone and US economies in the third quarter, the survey pointed to continued robust export orders. Compared with the previous quarter, there was a pick-up in the domestic order books balance from zero in the third quarter to plus seven.

All sectors except motor vehicles saw a balance of companies increasing output. In line with the previous quarter, balances were strongest in basic metals and electrical equipment.