CBI asks for one-year delay on capital gains tax changes

With less than two weeks to go before the toughest Budget since the 1980s, the Confederation of British Industry (CBI) has called on the Chancellor to cut spending, "reengineer government" and keep tax rises "to an absolute minimum".

An "early commitment" to abolishing the 50p rate of income tax is also called for, as well as a year's delay on altering capital gains tax.

In a letter to George Osborne from CBI director-general, Richard Lambert, the employers' organisation says that for every pound of tax rises imposed to reduce the deficit there should be four pounds of public spending cuts. This ratio was Conservative policy, but has yet to be endorsed by the coalition Government.

The CBI urges the Government to use the emergency Budget to increase confidence in public finances by "bringing the deficit rapidly under control in a way that does not undermine the economy's ability to grow".

While not explicitly mentioning a widely anticipated hike in VAT from 17.5 per cent to 20 per cent, the CBI says it would prefer public spending to be tackled before such a decision is taken.

The organisation also expresses concern about rumoured reforms to capital gains tax, with a substantial increase in the current 18 per cent rate for non-business assets to 40 per cent. The CBI joins Conservative backbench critics in arguing for "a broad definition of business assets to prevent disincentives to investment or start-ups".

Mr Lambert's letter asks the Chancellor to provide another year for consultations on CGT to avoid "unintended consequences and undue compliance burdens".

The CBI's deputy director-general, John Cridland, commented: "A radical re-engineering of public services is a must if damaging tax rises are to be avoided. This needs to be a bold and ambitious Budget."

The Government is looking to plug an estimated £71bn a year black hole in the nation's finances.