CBI calls for budget to build confidence and fairness

Alistair Darling

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Employers group warns against further significant fiscal stimulus

The CBI is calling on the Chancellor, Alistair Darling, to deliver a confidence-building Budget, shaped around supporting jobs, investment and competitiveness through the recession and beyond. The UK’s leading business group is also urging him to come up with a clear and credible strategy to get the public finances back under control.

Unveiling its Budget submission (177k PDF) today (Monday), the CBI is warning that the alarming state of the public finances rules out the option of a further significant fiscal stimulus, which would undermine business and institutional investor confidence in the UK.

Instead, the CBI is proposing a targeted package of measures that will: under-pin confidence; boost competitiveness, employment and investment; improve the skills base; and bring the public finances back on track, with minimum harm to the social and economic fabric of the UK. The package includes:

  • the reversal of recent decisions adding to business costs and threatening jobs, including delaying the planned rise in employer National Insurance Contributions due in 2011 and smoothing out the volatility of impending rises in business rates.
  • making better use of public sector spending by modernising public services to ensure they deliver both quality and value for money.
  • pushing ahead with public sector building programmes in schools, hospitals, transport and communications to support construction jobs and position the UK for recovery.
  • temporary measures to stimulate demand for low-carbon goods and boost consumer and business spending, including a scrappage scheme for cars, vans and domestic appliances.
  • fast-tracking support for the unemployed through Jobcentre Plus and making the new more flexible Train to Gain programme available to all employers.
  • reducing the impact of the recession on the current generation of graduates and improving the UK’s skills base, by introducing a temporary subsidy for master’s degree courses in science, technology, engineering and maths.

John Cridland, CBI Deputy-Director General, said:

â??The public finances have been battered by the cost of rising unemployment and lower tax receipts during the recession. With economic activity expected to contract by 3.3 per cent and unemployment set to reach nearly three million this year, the outlook for the public finances is already alarming.

â??Against this backdrop, a further significant fiscal stimulus is unaffordable and would lead to businesses and households retrenching in fear of higher tax bills in the future. Instead, the Chancellor needs to let the considerable stimulus already in the pipeline take effect and deliver a clear and credible plan for restoring the public finances to health.

â??We need to see measures to instil confidence by supporting as many businesses through the recession and safeguarding as many jobs as possible. That means not adding to the cost of employing people with business tax rises at a time when companies are fighting for survival.

â??In the face of sharply rising unemployment, investing in skills and training during the recession will help business remain competitive and ensure the UK is in pole position to take advantage of the eventual upturn. So we need action to help firms retain and re-train staff, measures to support the unemployed and to improve our skills base.

â??With several years of belt-tightening ahead, we need to squeeze the value out of every penny of taxpayers’ money, ensuring public services deliver both quality and value for money.â?

The CBI’s proposals to support competitiveness, employment and investment

Looking at the CBI’s proposals to support competitiveness, employment and investment in more detail, the business group has outlined the following tax proposals:

  • delaying the planned rise in 2011 of employer National Insurance Contributions from 12.8% to 13.3% to reduce the cost of employing people.
  • restoring empty property rates relief to its pre-2008 position. With firms demolishing property as they cannot afford to pay the rate, at the very least the government needs to bring in a 50% reduction, as allowed for in current legislation.
  • freezing business rates for two years to iron out the impact of peaks and troughs in RPI inflation.
  • introducing a temporary scrappage scheme to encourage consumers and businesses to replace old cars, vans, fridges and washing machines with the latest efficient models, which would bring forward spending and reduce carbon emissions.

Commenting on the CBI’s tax proposals, Mr Cridland said:

â??Business is the vanguard of the economic recovery and these proposals will ensure firms do not find themselves saddled with extra costs at the worst possible time. They will also have an immediate impact on confidence and the cost of employing people.â?

Measures to safeguard jobs, support the unemployed and improve skills

With unemployment expected to rise sharply, investing in skills and training during the recession will help business remain competitive and position the UK for recovery. In its Budget submission, the CBI is calling for:

  • fast-tracking access and even more flexibility to the Train to Gain programme for firms of all sizes.
  • a temporary subsidy for master’s degrees courses, particularly in science, technology, engineering and maths to minimise unemployment among graduates and boost the UK’s skills base.
  • stepping up support for the newly-unemployed by improving services offered through Jobcentre Plus.

Mr Cridland added: â??The damaging effects of unemployment cannot be underestimated. Rather than being forced to let go of staff, firms need to be given faster and better access to programmes that will allow them to retain staff and enhance the skills base of their workforce.

â??It is essential we do not allow the newly-unemployed to slip into long-term unemployment, nor create a lost generation of graduates leaving college simply to swell the ranks of the jobless.â?

Pushing ahead with public sector building programmes

The CBI welcomed the announcement in the Pre-Budget Report that £3bn of capital spending was to be brought forward from 2010/11, and the recent measures announced to safeguard infrastructure investment. Given evidence of PFI projects stalling in the face of credit constraints, the CBI says:

  • existing plans should be fully and speedily delivered to allow key projects to progress and to protect jobs in the construction and service industries.
  • plans to freeze public sector capital spending at the 2010/11 level should be reversed and the previous policy of holding net public investment at 2.25% of GDP re-established.

Mr Cridland commented:

â??A strong economy requires fit-for-purpose schools, hospitals, communications and transport. A failure to maintain and renew the nation’s essential infrastructure would be short-sighted.â?

A strategy to restore the public finances to health at minimal economic and social cost.

Business, consumers and international investors need reassurance the public finances will get back on track in a timely fashion without undue damage to the nation’s social and economic well-being. The CBI is urging the Chancellor to use the Budget to present a clear and credible strategy to restore the public finances to health.

Avoiding a further fiscal stimulus in this budget

Given the state of the public finances, the CBI is warning against a further significant fiscal stimulus.

Ian McCafferty, CBI Chief Economic Advisor, said: â??There is no room for further fiscal demand stimulus. If automatic stabilisers are taken into account, there is already a very significant amount of fiscal stimulus in place, of over three percent of GDP.

â??A further significant fiscal stimulus risks undermining the confidence of foreign investors in gilts as well as increasing fears about dramatic tax rises in years to come.

â??The Bank of England is now providing further monetary stimulus through the policy of quantitative easing and, on top of the sharp interest rate cuts of recent months, this is a preferable route to stimulate activity.â?

Reining in public sector current expenditure and a renewed emphasis on modernising public services

The CBI estimates the budget could be broadly balanced by 2015/16 with little reliance on further tax rises, but only if public sector current spending â?? excluding investment and interest â?? were frozen at £587bn from 2011/12 (the same level planned for 2010/11). This would need to go hand-in-hand with further reform of public services to ensure they deliver quality and value for money.

Among the measures the CBI is proposing:

  • a more flexible approach to pay and action to address the affordability of public service pensions.
  • stepping up the use of competition and contracting out of services. For example, freeing police officers and teachers from back office functions would improve delivery of service.
  • committing to a level playing field between public, private and voluntary providers.

John Cridland added: â??We need to cut our cloth to reflect these constrained economic times and the public sector will need to share some of this pain too.

â??Given the private sector’s strong track record in delivering public sector projects on time and within budget, one of the most effective ways of ensuring tax payers get value for money as well as high quality public services, is by introducing more competition and contracting.

â??To maximise the potential savings, the government needs to commit to a level playing field between public, private and voluntary providers of services.â?

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