CBI warns against Budget tax rises

THE CONFEDERATION of British Industry yesterday urged the Government to cut interest rates and warned that Budget tax increases could jeopardise economic recovery. It was echoed by members of the Chancellor's panel of independent economic advisers.

'The spring Budget is not the time to tighten fiscal policy,' said Sir David Lees, chairman of the CBI's economic committee.

Patrick Minford, professor of economics at Liverpool University and one of the Chancellor's 'seven wise men', backed the CBI's view.

'Once again, interest rates are falling too little, too late,' he told a conference organised by the Institute of Economic Affairs. 'Tax rises will only worsen matters.'

Another of the 'wise men', Wynne Godley of Cambridge University, also argued for further rate cuts and a lower pound.

Sir David said that tax increases in March would deal a blow to fragile business and consumer confidence, already under threat from rising unemployment. 'It is particularly important that the Budget does not add further to the burden of business,' he added.

But the CBI conceded that tax increases might be needed once recovery was under way, perhaps as early as the first unified Budget in December.

The CBI urged the Government to extend the temporary increase in capital allowances, reduce the burden of capital gains tax and inheritance tax on small business and reform advance corporation tax to stop the double taxation of British-based companies with significant overseas earnings. The CBI also argued that export credit guarantee rates should be reduced in line with overseas.

The CBI said the Government might have to raise personal tax allowances by less than inflation.