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CBI director-general John Cridland says unlocking the potential of corporate balance sheets could boost private sector investment and drive economic growth
George Osborne should use next month’s budget to further coax cash-rich big business into investment mode while at the same time ensuring credit is reaching smaller firms, many of which are struggling, according to Britain’s leading employers’ lobby group.
“In the context of constrained government and household spending, economic growth in 2012 and beyond must be driven by the private sector,” said John Cridland, director-general of the Confederation of British Industry in a letter to the Treasury. “In particular, corporate balance sheets hold the potential for much stronger private sector investment, but business confidence remains weak.”
Cridland broadly endorsed a raft of pro-business proposals from the chancellor set out in his autumn statement last year and his budget last March. Osborne has said he wants to make Britain the most competitive tax regime in the G20.
However, the CBI boss added that “targeted changes” to the tax regime could go further to help encourage businesses to release investment required for growth. “While the state of the public finances is tight, the chancellor still has an opportunity in this budget to make sure the UK tax system is as internationally competitive as it can be.”
Cridland’s remarks are in contrast to proposals from Labour’s Ed Balls, who has made a case for significant tax cuts he says are urgently needed to keep the economy from spiralling into a 1930s-style depression. The shadow chancellor has suggested cutting VAT to provide a growth stimulus. Meanwhile, senior Liberal Democrats have called for progressive tax breaks, targeted at less well off groups. Some are pushing for an increase on the minimum threshold for paying income tax to Â£10,000.
Cridland also counselled against loading businesses with environmental taxes at a time when future investment and growth remain uncertain. He urged Osborne to “ensure environmental taxes help to encourage new growth”. The CBI is asking the chancellor to reconsider setting air passenger duty rates at 8%, suggesting 5% would better “balance the amount of tax raised with the value of aviation to the economy”.
One major plank of the CBI’s submission to the Treasury pushes the case for extending new capital allowances to a wider range of infrastructure investments. The employers’ group also wants the Treasury to press ahead with initiatives to allow pension funds to invest more directly in infrastructure projects.
The CBI is backing several other alternative financing initiatives in the face of weakened credit supply from traditional banks. Among them are measures to allow medium-sized businesses â€“ currently dependent on bank financing â€“ to issue bonds in a similar way to larger companies.
Cridland would also like the chancellor to look at ways to incentivise larger companies to assist with the financing of smaller firms in their supply chain.