CBI Warns Government Budget Must Tackle a Fundamental Inconsistency in its Economic Strategy

The CBI has warned the Government against new business tax rises in next week’s Budget (and Comprehensive Spending Review) or face dampening the economic recovery and undermining its broader strategy.

The CBI Director-General, Tony Danker, spells out the fragility of the recovery and says the Government is ‘betting the shop’ on private sector investment but not doing what it takes to attract it. He states that ‘business shares the Prime Minister’s aims for the economy, but worries next week’s Budget will not do what it takes to realise them.’

Tony says: “This is a defining moment for the Government. We cannot take the economic recovery for granted. If the UK is to break out of a decade-plus cycle of anaemic growth and zero productivity, then the Government has to get serious about what it will actually take to deliver that.

“There is a fundamental inconsistency where the Government wants to unlock business investment, but its tax policies do the opposite. You cannot will the ends and ignore the means to turbocharge the economy. Every economist and business leader knows it.

“This is the Government’s first Spending Review since the pandemic hit and Brexit kicked in. It must choose: Are we going for growth? Or going back to tax and spend?

“Business and Government is united in its ambitions for the country. But it will take more working hand-in-glove to actually achieve them.

“The Government shouldn’t be complacent about growth. It’s true that we have rapid recovery currently, but everyone knows that will soon flatten out. The bigger question is whether the economic strategy gets us back to solid underlying GDP growth that we saw before the financial crisis, and a clear path to lifting productivity? Or are we going to continue the low growth and flatlining productivity we’ve had since 2008?

“The Prime Minister calls for a high wage, high skill, high investment, high productivity economy. And he’s totally right. But wage growth without productivity growth is a recipe for higher inflation. And tax growth stunts investment.

“UK taxation is already set to reach its highest sustained level in peace time. Corporation Tax will soon jump a stunning six percentage points. National Insurance is set to increase to its highest rate ever. Fundamental reform of business rates has been delayed too long – with property tax levels the highest in the OECD, and four times higher than Germany, as a percentage of GDP. Now there are rumours that Cabinet Ministers want bigger budgets and therefore we may be headed for even higher taxes.

“This week the Government ran a superb global investment summit and set out a holistic net zero strategy and plan. The message from both was very clear: only private sector investment can realise Britain’s ambitions. But lift the bonnet and what we have is a tax regime that penalises investment, a regulatory model that does the same, and little clarity on the new green business models that investors are supposed to be backing.

“Two weeks ago, the private sector was blamed for everything: fuel shortages, labour shortages, immigration, wages, skills and productivity. This week it was wined and dined and asked to multiply its investment.

“Rhetoric aside, the reality is that economic confidence has dipped since the summer and next week has to change that. Rather than more business taxes let’s have investment incentives – building on the excellent but time-bound super-deduction.

“Rather than a levelling up plan that builds more tennis courts, let’s have one that regenerates Britain’s high streets and industrial heartlands.

“Rather than a regulatory ethos that curtails investment, let’s use new post-Brexit freedoms to do the opposite. And on top of a very promising net zero strategy, let’s have the Government now make the bets needed to underwrite the most ambitious green investment in the world.

“Let’s seize the moment, do what it takes and do it in partnership. Let’s go for growth that lasts. And let’s start at next week’s Budget.”

CBI key asks of Government next week include:

  • End the repeated increase of business taxes that are stunting investment
  • Stimulate longer-term business investment building on the super-deduction by committing to maintain more generous capital allowances beyond 2023
  • Fundamental reform of the business rates burden, better reflecting falling property values and removing disincentives preventing green improvements.
  • Require all regulators to prioritise investment, net zero and innovation as part of their core remits.
  • Focus on delivering a flexible apprenticeship system, turning the apprenticeship levy into a lifelong learning levy.
  • Improve people’s life chances by giving them the skills they need to succeed through individual training accounts for unemployed individuals and those with the biggest retraining needs.
  • Designate energy efficiency and heat decarbonisation as an infrastructure priority by providing a comprehensive long-term package of funding for the ‘able to pay’ market.
  • Develop and invest in the decarbonisation pathways required to reach net zero across transport.
  • Deliver on the Plan For Growth and Innovation Strategy, including front-loading the commitment to invest £22bn direct domestic R&D funding by 2024-25.
  • Enable business to help level-up across the whole of the UK by commissioning the CBI in the Levelling-up White Paper to write the playbook for successful economic clusters.