For every pound of tax raised there should be four pounds of expenditure cuts, according to the CBI.
With the Emergency Budget just five days away, the business group has written to the Chancellor, George Osborne, with advice on how to tackle the deficit. The government, it suggests, will need to undertake a root-and-branch examination of all spending needs and priorities, similar to that undertaken by Canada in the 1990s.
The government will need to undertake a root-and-branch examination of all spending needs and priorities, similar to that undertaken by Canada in the 1990s
And the emphasis, says the CBI, should be on delivering efficiency savings in the public sector rather than slashing capital expenditure. In fact, the CBI believes, spending on capital infrastructure should be returned to its previous level of 2.25% of GDP, as soon as conditions allow.
The government should use the Emergency Budget to announce a faster reduction in the structural deficit, based on more rigorous economic assumptions and backed by more detail on spending plans, suggests the lobby group, to reinforce the UK's fiscal credibility in the eyes of the markets.
John Cridland, CBI deputy director-general, says: "This needs to be a bold and ambitious Budget, with a credible pathway for restoring sound public finances and a convincing narrative for growth.
“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 strongly supports the coalition Government’s ambition to simplify the corporation tax regime, but has expressed major concerns over the government’s proposed reform of Capital Gains Tax (CGT). The group wants to see a broad definition of business assets so that entrepreneurship is not disincentivised and penalised, and a restructuring of the tax to minimise the impact on long-term investment.
“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,” says Cridland. “But any changes to CGT must recognise the importance of incentives for wealth creators and the value of business investment.
The government’s decision to extend the loan guarantee scheme is welcomed by CBI. However, the range of funds that aid SMEs should be combined into a single, streamlined fund, thus cutting administrative costs.
In a recent document, Time for Action: Reforming public services and balancing the budget, the CBI set out three key ways in which savings can be made across public services:
- Controlling workforce costs and reducing unnecessary spending
- Eliminating waste and duplication, such as by sharing payroll and human resource functions
- Re-engineering public service delivery, for example treating more patients in their homes and in the community could save the NHS £8bn by 2015-16
The letter to the Treasury has also urged the government to endorse the recommendation made by the Dyson commission to retain the R&D tax credit, which helps the manufacturing sector in particular.
And changes to the tax treatment of pensions scheduled to come into force in April next year will repel global talent, the CBI states, because they are unnecessarily complex and expensive to administer.
