CBI urges Treasury to remain prudent

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The Independent Online

The confederation of British Industry today urged the Government not to heed the siren voices of trade unions and pressure groups and unlock the Treasury's massive war chest in a pre-election spending frenzy.

The confederation of British Industry today urged the Government not to heed the siren voices of trade unions and pressure groups and unlock the Treasury's massive war chest in a pre-election spending frenzy.

Director general Digby Jones called for tax cuts for hard-pressed business but urged the Chancellor not to unveil a "significant loosening" in the form of major tax cuts or spending increases.

"Such a move could well lead to higher interest rates as the Bank of England seeks to guard against emerging inflationary pressures, with unpredictable consequences for [the pound]," he said.

"But there is a strong case for carefully targeted tax cuts, of up to £3bn, aimed at mitigating businesses' cost problems."

The CBI's wish-list includes cuts in the costs to business of road use, such as vehicle excise duty and tax of fuel; tax credits to encourage innovation; greater eligibility for discounts under the Climate Change Levy; and lower Stamp Duty of business property transactions.

The appeal came as an independent economic forecaster predicted the public finances would be in surplus by £10bn more than forecast by the Treasury.

In the run-up to the Budget, Mr Brown will face an increasingly loud clamour to use the cash for extra spending and tax cuts from Labour backbenchers, public sector trade unions and pressure groups such as motorists and pensioners.

Yesterday, the Item Club, an independent forecaster run by accountants Ernst & Young, said the public sector finances were on track to be in surplus by £16bn, £10bn more than the Treasury forecast in March. It said the robust performance was due in part to "stealth taxes" imposed by the Government which were "draining the power out of the economy".

Professor Peter Speeder, Item's economic adviser, said: "The war chest is so brim-full that it threatens to sink the ship of state." He said tax breaks such as raising the threshold on the 40 per cent top rate of tax and giving more money to pensioners would ease Labour's political problems.

It would also aid businesses that are suffering from the impact of the tax burden on household disposable income, he said.

But other economists echoed the CBI warning that massivespending increases and tax cuts would trigger higher interest rates. The Centre for Economics and Business Research today rates would rise as much as a full percentage point to 7 per cent.

It forecast a series of pre-election give-aways including:

* a 4 per cent rise in the state pensions;

* an increase in the Minimum Income Guarantee for poorer pensioners;

* a cut of 2p a litre in petrol excise duty;

* an above-inflation increase in the personal tax allowance; and

* a possible penny cut in the basic rate of income tax to 22p.

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