CBI urges Brown to stem £15bn slump in company investment

The British economy will suffer "irreversible damage" unless the Government acts to stem the £15bn slump in business investment, the Confederation of British Industry warned today.

It urged the Chancellor, Gordon Brown, to throw business a lifeline in the Budget and hinted it wanted the Government to use its multibillion-pound spending plans to boost UK companies' order books.

The CBI published studies showing business spending on equipment, training and research and development had plunged 12.7 per cent – or some £15bn – during 2001 and 2002. It said this was the sharpest fall of any Group of Seven country and echoed last month's official figures showing a fall of 10 per cent in 2002 that was the worst since modern records began in 1965.

Digby Jones, the CBI's director-general, said he believed the failure to invest was a "long-term endemic problem ... that was particularly disturbing".

He said: "It is clear that this is going to be a tough nut to crack but if we fail, the UK will lose competitiveness and not achieve the productivity gains the Chancellor wants to see. The price will be paid in years to come with job losses, lower profits and therefore less to spend on public services."

The CBI published a six-point plan, which echoes much of its £1bn Budget submission, and said it would update its research every quarter to chart the Government's progress.

Mr Jones acknowledged the fall was in part driven by an investment bubble built up during the dot.com boom and the impact of the economic slowdown on global demand.

But he said the scale of the slump in the UK relative to countries such as the United States showed there were national factors discouraging companies from spending. He blamed "relentless" hikes in business taxation and labour market regulation that, he said, had added £47bn of tax and 16 pieces of legislation since 1997.

Mr Jones said the parlous state of the transport infrastructure was discouraging overseas investors from coming to the UK, while British companies were choosing to invest in factories abroad.

He accused countries such as France and Germany of using their government procurement contracts to support investment. "If you are a French company and you know the government will [give you contracts] you can do enormous things," he said. "You can invest more in people and in markets because you know every 10 years the government will buy off you. The only country where this does not happen is the UK."

Mr Jones denied he taking a "nationalistic stance" and said the issue was how the Government could create more wealth. "Procurement is a big driver," he added.

The Treasury said the UK was governed by EU rules that outlawed such practices. "If there are any examples of member states not obeying the rules then there are procedures for dealing with that," a spokesman said.