Chancellor told not to ‘handcuff’ business sector

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Ahead of the Pre-Budget Report, the British Chambers of Commerce (BCC) has called on the Chancellor to resist any temptation to further tax Britain’s business sector.

Presenting the BCC’s latest economic forecast, director general David Frost said: “We need a thriving business sector to drive the UK’s recovery, so it’s vital that the Chancellor’s PBR avoids new business taxes, higher National Insurance contributions, or any measures that might damage investment, growth and job creation.

“Given the perilous state of the public finances, we cannot afford any sacred cows when it comes to making spending cuts – no matter how politically desirable it may be.

“Reform of the public sector must be the cornerstone of a credible plan to reduce spending. Freezing public sector pay and reforming pensions must be part of that plan, and action in these areas should start now.”

In its forecast, the business group has made downward revisions to its GDP expectations for 2009 and 2010, but is more optimistic about the number of job losses the country will experience, reducing its prediction for peak unemployment to below 3 million.

The main features of the report:

  • Unemployment will continue to rise over the next 6 to 9 months but at a much slower pace. Our new forecast is for unemployment to increase from 2.46 million to a peak of 2.7 million, or 8.6% of the workforce, in mid-2010. In September we forecast a jobless peak of 3 million.
  • BCC now forecasting a large decline in UK GDP of 4.6% in 2009, followed by positive growth of 1% in 2010 and 2.3% in 2011. In our September forecast, we predicted a 4.3% GDP fall in 2009, followed by increases of 1.1% in 2010 and 1.9% in 2011.
  • Britain’s fiscal position is unsustainable in the medium-term. Public borrowing is forecast to total £175bn in 2009-10 and £188bn in 2010-11, before easing to £169bn in 2011-12. Public debt is set to increase to dangerous levels, in excess of 90% of GDP. This debt can only be reduced through fiscal tightening, such as spending cuts and tax increases.
  • Despite a £200bn Quantitative Easing programme, growth in money supply and bank lending has been disappointingly weak. Given the risk of a double-dip recession, additional monetary stimulus and measures to boost lending are needed to sustain a recovery.

Martin Follett, chairman of the Cornwall Chamber of Commerce and Industry, added: “What our members tell us, time and again, is that they need direct action to help them to keep growing their business. Times are tough and relatively small changes in taxation and regulation can have a disproportionate impact.

“For example, the changes to business rates set for April next year will have a particular impact in the South West as they relate to historic increases in property values. Increases in National Insurance will add pressure to small companies considering whether they can keep staff in difficult trading conditions. At a time when confidence is fragile such cost increases inhibit growth.

“We agree with the BCC that the Chancellor needs to recognise that small businesses will be the driver of recovery in places like Cornwall. We would urge him to think very carefully before ‘handcuffing’ business rather than taking difficult political decisions.”