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The CBI has urged the Government to rethink its plans for economic recovery, saying the UK’s deficit should be brought under control through regulated spending rather than tax increases, which could be ruinous.
Proposals such as the much-discussed reform of the capital gains tax (CGT) system would undermine the economy’s ability to grow, argues the country’s leading business group in its pre-Budget submission to Chancellor George Osborne.
Coalition ministers should focus on current spending, with a radical re-engineering of public services to deliver more with less, rather than reducing spending on capital infrastructure, says the CBI, which goes on to suggest that for every pound of tax increases, there should be four pounds of cuts to Government expenditure.
In its letter to Mr Osborne, the organisation claims certain taxes would be especially damaging to economic growth if they were to go up, and it expresses particular concern about planned changes to CGT.
The CBI wants to see a broad definition of business assets to prevent disincentives to investment and start-ups, and says CGT should be structured to minimise the impact on long-term investment.
The business group has also urged the Government to retain the R&D tax credit in its current form, and it has expressed its support for the ambition to simplify the UK corporate tax system.
However, ‘unnecessarily complex’ changes to tax treatment of pensions, planned to come into force from April next year, have displeased the CBI.
Its deputy director-general, John Cridland, said the Budget on 22 June needs to be ‘bold and ambitious… with a credible pathway for restoring sound public finances and a convincing narrative for growth’.
He added: ‘A radical re-engineering of public services is a must if damaging tax rises are to be avoided. Only an effective cost-reduction strategy can safeguard future growth.
‘The UK’s future economic prospects depend on the ability of firms across the country to create new jobs and win orders. Increasing taxes makes this more difficult.
‘The prospect of a new, five-year corporation tax framework, allowing business to plan with certainty, will bring some relief – but any changes to capital gains tax must recognise the importance of incentives for wealth creators and the value of business investment,’ said Mr Cridland.
