Business jitters at CGT plans

Thursday, 10 June 2010 12:01 AM

By Alex Stevenson

George Osborne must avoid tax rises in the coming emergency Budget, the CBI has demanded, as it piles pressure on the government's capital gains tax plans.

A letter from the business lobby group to No 11 calls on the chancellor to stick to the four-to-one ratio of spending cuts to tax rises when it comes to dealing with the deficit, as promised in the Conservatives' manifesto.

Now the Tories are in coalition with the Liberal Democrats the Treasury could prefer to increase the tax burden, perhaps through the increase in capital gains tax which will help finance the Lib Dems' income tax threshold increase demand.

The CBI fears the government may stall when it comes to re-engineering public services by removing "unnecessary overlaps" in service delivery.

It wants to see a greater focus on current spending rather than reducing spending on capital infrastructure, which is only being temporarily sustained by the Labour government's spending plans.

"This needs a bold and ambitious Budget, with a credible pathway for restoring sound public finances and a convincing narrative for growth," the CBI's deputy director general John Cridland said.

"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 CBI says it has a "good dialogue" with the government and its director general is known to have a strong relationship with Mr Osborne.

It is seeking to ensure the Tories' original plans to keep spending cuts dominant over tax increases become reality in the emergency Budget.

On capital gains tax, it hopes to see a broad definition of business assets so that the rise will not act as a disincentive to investment or start-ups.

"Any changes should be subject to advance consultation to prevent both unintended consequences and undue compliance burdens, with implementation no earlier than April 2011," director-general Richard Lambert wrote in the letter to Mr Osborne.

Another 'unintended consequence' could spring from the government's approach to ringfencing the NHS and international development budgets, Mr Cridland warned.

"We need to avoid subliminally a feeling by public sector managers that they don't need to go the extra mile," he warned.

The CBI acknowledged that making large spending cuts apart from those affecting capital investment in a bid to draw down the deficit by 2015/16, not 2016/17, would present a "headwind" to the economy.

But its chief economist Ian McCafferty argued the positive impact of its "confidence effects on the private sector" would prevent a double-dip recession.

The letter concluded: "The new government's fiscal strategy needs to maximise the UK's economic growth potential, supporting a strong private sector recovery and delivering an efficient public sector.

"Through a growth-focused approach to fiscal consolidation, the burden on future generations can be minimised."

Tags:
• business and industry
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• economy
,
• taxation