Pre-Budget Statement: Brown hopes enterprise will boost productivity

THE CHANCELLOR, Gordon Brown, unveiled a sweeping programme of measures yesterday to boost productivity and tackle long-term weaknesses in the economy.

Declaring that "what makes for a good economy also makes for a good society", he outlined proposals to ease the tax burden on business, encourage innovation, bolster small firms and cut red tape and unnecessary regulation.

The wide-ranging programme of reforms and initiatives made clear that the Chancellor regards a big change in productivity as essential if the Government is to honour its wider pledges to cut unemployment, spend an extra pounds 40bn on health and education and offer a fairer deal for the disadvantaged in society.

The aim of the measures will be to close the 40 per cent productivity gap that exists between Britain and its most successful competitors, Mr Brown said.

He intends to achieve that through a mix of better education and innovation and encouragement of competition and enterprise. But there was also a sting in the tail in the shape of a consultation paper proposing an energy tax on business, which could cost industry up to pounds 2bn a year.

The Chancellor identified productivity improvements as one of the three core foundations for long-term economic strength. On business taxes, he is considering reducing the rate of corporation tax for small businesses below the current level of 20 per cent and turning temporary capital allowances on plant and equipment into permanent tax cuts.

Small firms could also qualify for enhanced tax credits for spending on research and development, while the pre-Budget statement held out the prospect for tax breaks for all employers who second staff to schools and colleges.

The Government is also considering a range of measures to stimulate investment in industry and ease regulatory burdens. Don Cruickshank, former head of the telecommunications watchdog Oftel, will lead a taskforce examining ways of making it easier for small firms to get bank finance, while the Government has set itself a target of doubling employee share ownership.

The Government also intends to examine whether the planning system can be speeded up by easing planning regulations and fostering high-tech "clusters" similar to those that have built up in the United States. Other measures to ease the burden of regulatory compliance for business include a merger of the Inland Revenue with the Contributions Agency and a new one-stop shop service for firms to save on costly and time-consuming book-keeping.

The Office of Fair Trading, meanwhile, is being given a 20 per cent increase in its budget to help it to crack down on cartels and break down barriers to competition in markets.

The details of how the new arrangements will work are to be contained in a White Paper on Competitiveness, which will be published shortly by Peter Mandelson, the Secretary of State for Trade and Industry. "Our policy is pro-small business, pro-share ownership, pro-tax simplification and pro-competition," Mr Brown said. He also pledged it would be pro-skills and pro-science and to demonstrate this he announced eight new Institutes of Enterprise in British universities to turn the "genius of British invention into the engine for British growth and jobs".

The Chancellor made it clear that he was not content with raising productivity in private industry. The Government will next month publish performance targets for all Whitehall departments, to be monitored by an advisory panel drawn from business. The public sector has also been set a target of reducing absence rates by 30 per cent by 2003 to cut its pounds 6bn-a-year bill for absenteeism.

The business community welcomed many of the measures. Adair Turner, director- general of the Confederation of British Industry, said: "We are pleased by the encouraging moves towards creating the right environment for innovation and growth for small firms, which are closely in line with our own recommendations."

The Liberal Democrats sounded a note of caution over the Chancellor's measures to boost productivity. Malcolm Bruce, the party's Treasury spokesman, said that the tax breaks envisaged by Mr Brown could easily become the unproductive tax loopholes that he had attacked so violently in opposition. He also warned that "tax tinkering" was unlikely to make much impact given the scale of industry's present problems.

Retailers, meanwhile, argued that not only had Britain's leading stores groups bridged the productivity gap despite problems with planning regulations but they had gone on to beat the levels achieved by competitors in Europe and the US.

On energy taxes, the Chancellor said he would give "full consideration" to the recommendations set out in a report by the chairman of British Airways, Lord Marshall, as part of the Government's wider strategy on climate change.