City welcomes tax measures but warns against optimistic forecasts

Business Reaction
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The Independent Online

Business leaders welcomed a "sensible", no-frills package of measures that would support enterprise during the economic slowdown, although there were fears that the Government's proposals could fall apart if its rosy forecasts for the economy proved over-optimistic. In the City, economists said the ambitious public spending commitments sounded the death knell to any further cuts in interest rates.

The Confederation of British Industry led applause for proposed tax credits on research and development and training. "Gordon Brown has delivered a sensible and supportive package. Even though he may turn out to be somewhat optimistic about economic prospects for next year, he has avoided a damaging increase in taxes," said Digby Jones, its director general. "We still hope [the Chancellor] will consider a contingency package of special tax measures for worst-affected businesses in case the economy deteriorates significantly."

John Monks, general secretary of the Trades Union Congress, praised measures to encourage investment in research and skills, but added: "Manufacturing is in recession. We would have liked to have seen special measures today for sectors and regions that are most vulnerable."

Representatives of small businesses were less enthusiastic. The British Chambers of Commerce said moves to slash capital gains tax would boost business confidence in the short term, but voiced concern at proposals for a statutory right to time off for training.

The Federation of Small Businesses said the proposed simplifications to the VAT regime could net businesses an annual saving exceeding the £1,000 forecast by the Chancellor. However, it voiced disappointment over the Chancellor's refusal to cut taxes on energy and lend support to the haulage industry. David Evans, chief executive of the Retail Motor Industry Federation, said: "The investment in transport is paltry and woefully inadequate – a drop in the ocean compared to what is really needed."

There was also concern that the self-employed had been left behind. The Institute of Chartered Accountants accused the Chancellor of forcing entrepreneurs to run the tax system rather than their own business. "This still leaves a complex tax system that small businesses struggle to operate. There appears to be no further progress in the Government's 'radical simplification' of small business taxation," it said.

The Institute of Directors stated: "It would be better to have a simpler tax system, without special concessions, and to concentrate on reducing tax rates overall."

City economists said the spending commitments removed scope for further rate cuts by the Bank of England's Monetary Policy Committee.

Richard Iley, UK economist at ABN Amro, said: "The prospects for rate cuts are now very limited. If you believe the Chancellor's growth forecasts, the MPC has done enough."

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