Businesses declare themselves relieved but wary as tax burden stays unchanged

Business Reaction

Business organisations, with the exception of the generally more right-wing Institute of Directors, found something to welcome in the Chancellor's speech yesterday, while the Trades Union Congress gave it unstinting praise.

The main employers' organisation, the Confederation of British Industry confined its reaction to "relieved but wary".

The CBI's director general, Digby Jones, said: "There will be relief that Mr Brown has not sought to ratchet up further the business tax burden, which is doing so much to damage competitiveness. The increase in the number of small businesses eligible for the zero rate of tax is welcome. But we will remain on our guard for signs of further tax surprises in the next Budget."

But the Institute of Directors (IoD), which broadly represents directors of smaller and medium-sized companies, insisted that the pre-Budget report continued the Government's gamble with the economy, warning that because there was "little or no slack" in the public finances, taxes could rise further.

George Cox, the institute's director general, said: "The Chancellor's weaker GDP forecasts reflect what the IoD has been saying about the economy for many months. Similarly, our concerns remain that if the Chancellor's long-term growth prospects are not met, he will turn to increases in the tax burden on businesses. That will further impede economic growth."

The leader of the British Chambers of Commerce, David Frost, said: "The Chancellor's pre-Budget statement is a mix of sweet and sour. He has again proposed to give with one hand and take away with the other. We are concerned that the decision to revise borrowing figures upwards may well put pressure on the Bank of England to increase interest rates. This would have a grave effect on manufacturers, given the current tough economic climate. Higher borrowing costs is the last thing that they need."

On behalf of the big manufacturers, the Engineering Employers' Federation, welcomed the fact that the Chancellor had responded to companies' pleas for no further substantial increases in tax. The federation's director general, Martin Temple, said: "Manufacturers will be relieved that they have been allowed some breathing space."

For leading banks and building societies, the Council of Mortgage Lenders broadly welcomed the report. Jennet Vass, its senior economist, commented: "For the housing and mortgage markets, the Chancellor's statement brought some good news – or rather, the absence of any bad news in the form of increased stamp duty rates. On balance, the statement reinforces our central forecast that the housing market remains set for a relatively soft landing."

The former Conservative treasury minister Angela Knight, chief executive of the Association of Private Client Investment Managers and Stockbrokers, said: "The statement was another opportunity missed. We know that Gordon Brown had to raise money but he failed to take some cheap measures to help savers to help themselves."

But the TUC's general secretary, John Monks, said: "It is a tribute to the Chancellor's stewardship of the economy as it faces real difficulties that he is able to stay on track with sustained increases for public services and real boosts for those on low incomes. The prudent thing to do at this stage of the economic cycle is to increase borrowing. Suggestions that interest rates need to rise in order to meet inflation targets are absurd."