Business taxes pose threat to UK economy, says CBI

In its submission today, in the run-up to the 22 March Budget, the UK's largest employers' group said the Chancellor could fund a £5.5bn tax cut by reining back on the growth of government spending. It said the Government was adding to business costs at a time of increased global competition, when it should be reducing the burden. The CBI said the cumulative effect of business tax increases since Labour won power in 1997 was expected to hit £80bn by 2010. It said the growing tax burden was partly to blame for the slump in business investment as managers had to divert resources to meet their tax bill as well as pay for higher energy costs and fill in pension deficits.

John Cridland, the deputy director-general of the CBI, said: "With a staggering £80bn in extra tax expected to have been levied on companies by 2010, plus spiralling energy and pension costs, it is hardly surprising that business investment has hit a record low."

The CBI said its plans would pay for a reversal of the unpopular 1 per cent rise in National Insurance contributions imposed in 2002. "It would send a very important signal," Mr Cridland said. "Business has seen a steady and relentless increase in tax so even a small move in the opposite direction would be significant."

It said the Treasury could save £10bn a year by limiting the planned growth in government spending over the next two years from 12 per cent to 10 per cent. The CBI said the savings could be achieved without hitting front-line services. It said the Government should: ensure public sector pay grew in line with the private sector, saving £4.25bn; curb absenteeism rates in the public sector to save £1.75bn; tackle fraud and error in benefits payment to save £2.5bn; and find another £1.5bn from the resource budget reserve.

In its presentation to the Chancellor, the CBI said the tax burden was forecast to rise from 34.7 per cent in 1996 to 38.5 per cent by 2008. This had seen the UK slip in the Organisation for Economic Co-operation and Development (OECD) league table of tax competitiveness from 12th in 1996 to 16th by 2004, it said, adding that other members of the G7 cut their overall tax take between 1996 and 2004.

Meanwhile the EEF, the manufacturing group, urged Mr Brown not to raise taxes on business and to simplify the existing system. It said businesses already faced "eye-watering" increases in energy costs. Martin Temple, its director general, said: "The Chancellor can reassure business he understands the pressures they are facing by signalling ... that the tax burden will not increase."

A spokesperson for the Treasury said: "International analysis ...shows the UK to have the most stable economic framework with some of the lowest burdens on business anywhere in the world."