The CBI at Harrogate: Taxes / Clarke dampens Budget hopes: Michael Harrison and Mary Fagan round up developments at yesterday's conference

THE CHANCELLOR of the Exchequer, Kenneth Clarke, yesterday dampened industry hopes that his forthcoming Budget would stimulate investment and keep tax increases to a minimum.

Mr Clarke told the CBI conference that the economic recovery was 'very real and is being sustained'.

Most economic indicators, from inflation and manufacturing output to housing market figures, gave a picture of steady, restrained growth, he added.

On this basis the Chancellor may calculate that he can afford to raise taxes, defer further interest rate cuts and resist industry pressure for higher investment allowances without jeopardising recovery.

Mr Clarke's comments did not prevent him being deluged with calls from the conference floor for Budget measures to aid business. Sir David Lees, chairman of GKN and chairman of the CBI's economic affairs committee, opened the debate on the economy by warning: 'Further tax increases will send negative signals to both consumers and business at a time when recovery is still fragile.'

Sir David said the Chancellor's priority should be to make his first Budget a Budget for investment. This meant higher capital allowances for investment in plant and machinery, priority for capital expenditure programmes within a tightly controlled public spending budget and lower interest rates. The recovery, he said, was fragile and patchy and not apparent at all in some sectors of the economy.

'The issue now facing the Chancellor is sustaining recovery while maintaining a tight grip on inflation,' he said.

Speaker after speaker rammed home the message that, with capital expenditure down 24 per cent from its peak, continued tax breaks were essential. John Carruthers, chief executive of Metcon, said: 'It is imperative capital allowances are maintained at present levels or improved.'