CBI asks Clarke to focus on cuts in public spending

The Confederation of British Industry yesterday called on the Chancellor to deliver a "prudent" Budget in November, putting reductions in public spending ahead of pre-election tax cuts.

The employers organisation said Kenneth Clarke had scope for a pounds 5.3bn cut in public expenditure but could only afford to reduce taxes by pounds 1bn. Tax cuts, it added, should be directed mainly at small and medium-sized businesses and those on low incomes.

Andrew Buxton, chairman of Barclays and head of the CBI's economic affairs committee, said: "What we want is a Budget which delivers a sound fiscal position. The Chancellor should have prudence as a watchword."

What was needed, he added, was not radical action to stimulate the economy but continuity of the stable economic conditions achieved over the past four years.

The CBI said a pounds 5.3bn reduction in spending implied that Whitehall departments needed to settle budgets within existing targets. Further reductions might be achievable but it did not want to see any cuts in education and training or on infrastructure spending.

On taxation, the CBI said within his "very limited scope" the Chancellor should concentrate on measures to stimulate small businesses. These include an extension of the Enterprise Investment Scheme, lower corporation tax and tax breaks on the cost of raising equity and research and development.

Given that growth was expected to accelerate to just over 3 per cent next year, consumer spending to rise by a robust 4 per cent and inflation was under control, there was little need for tax cuts or a change in interest rates, the CBI said.

If Mr Clarke did have room for tax cuts then he should give priority to those on low incomes by, for instance, increasing the basic tax allowance. This, the CBI said, would reduce the disincentive to work.

The CBI restated its support for a review of capital gains tax, including the option of taxing longer-term gains at a lower rate, but it said this should be a longer-term aim.