CBI warns over raising corporate taxes

Michael Harrison

Sir Colin Marshall, president of the CBI, issued a thinly-veiled threat to the new Chancellor last night not to increase corporate taxes in his first Budget.

There is widespread speculation that Mr Brown will take the opportunity to raise corporation tax and cut the tax credits that institutions enjoy on dividend payments.

This would have the short term effect of reducing the amount of advance corporation tax paid by companies. But in the long term, it would increase their cost of capital and might force them to top up their pension schemes from company profits.

But Sir Colin told the annual dinner of the CBI in London last night: "The level of business investment does need to be stepped up but that depends on having economic and fiscal policies which allow commerce and industry not just to build profits but also to retain them. Today's profits are tomorrow's investment."

The CBI chief also cautioned the Government against upsetting the economy and criticised it over the windfall tax and its support for the Social Chapter.

But Sir Colin said he was encouraged by Labour's attitude towards Europe and its promise of co-operation and partnership with business. "The turn of events on 1 May has given us a fresh start in Europe. You could tell that something was stirring from the way Britain won the Eurovision Song Contest for the first time in many years, on Labour's second day in office," Sir Colin joked with the audience of 1,500 business leaders.

He said business looked forward to "a close working partnership of a kind not possible with previous Labour administrations. For us this is very much a case of New Labour- new experience."

Earlier the Chancellor had spelt out how the Government intended to take its partnership with industry forward. He confirmed that Sir David Simon, the former chairman of BP who has been made Minister for European Trade and Competitiveness, will chair a working group when Britain takes over the presidency of the EU next January, examining how Britain will work to complete the single market and promote flexible labour markets across Europe. The CBI will be represented on the group.

This follows a number of other initiatives to bring senior businessmen into Labour's new partnership. Martin Taylor, chief executive of Barclays Bank, has been appointed to chair the working group on reform of the tax and benefit system, while Malcolm Bates, former deputy managing director of GEC and now chairman of the Pearl insurance group, is conducting a review of the Private Finance Initiative.

Mr Brown also outlined his vision for a new University of Industry, which would operate as a public-private partnership providing lifelong learning for everyone through the home, the workplace and the community. "It will do for workplace education in the 1990s what the Open University did for second chance university education from the 1960s onwards," the Chancellor said.

He also pledged that Britain would play a leading role in shaping Europe's future. The idea that Europe could revert to a free trade area as in the 1950s was an illusion, he said. Whereas the debate over economic and monetary union had been "hijacked by extremists - dogma competing to be heard above prejudice" it would henceforth be based on a well-informed decisions about what EMU meant for Britain.