01/12/08 Pre Budget Report Gets 5 Out Of 10 - CBI

The CBI in the South East has given the Chancellor’s Pre-Budget Report a score of 5 out of 10 after it compared it with its own ten-point plan to keep business working, safeguard jobs and position the economy for recovery.

Before the Chancellor Alistair Darling got to his feet in the House of Commons, the CBI, the UK’s leading business organisation, called upon the government to take immediate action to help struggling businesses, in particular the small and medium size companies, to improve their cash flow, or risk healthy firms going under and unnecessarily prolonging the recession.

With credit markets still paralysed, and consumer and business confidence at a low ebb following the banking crisis, the CBI has identified a series of actions it believes are needed to give business and the economy an immediate boost.

Malcolm Hyde, CBI South East Regional Director, said: “The 2.5% cut in VAT as a way of stimulating consumer spending may have got the headlines, but only time will tell if it works. The Chancellor’s focus on the business community does have to be welcomed though. The biggest threat hanging over businesses is cash flow. If they cannot get their hands on the cash and credit they need to go about their day-to-day business, there is a real risk we could see healthy firms going under.

“The £4 billion deal struck with the European Investment Bank to provide lenders with money to pass on to small to medium-sized businesses is a step in the right direction.

“The Government’s proposals to offer credit through a Small Business Finance Scheme is timely, as is the apparent proposal which would allow small businesses to spread all business tax over a period they can afford ‘for as long as they need’, the Chancellor’s words not mine, whether it’s VAT, corporation tax, income tax and national insurance.”

Malcolm Hyde added: “While the Chancellor’s announcement to defer the corporation tax increase to 22% was widely expected, his decision to extend the carry back of losses rules for companies’ accounting periods ending in the period 24 November 2008 to 23 November 2009 was unexpected. As a result, the carry back of losses will be extended from one year to three years, with a £50,000 limit for carry back of losses beyond the first year.”

Also well received was the announcement that the Chancellor was to extend the thresholds in tax relief for empty commercial properties with a rateable value below £15,000 for 2009 and 2010. Also welcomed as a much needed fillip for the construction industry was the decision to bring forward of the timetable of £3 billion capital expenditure projects, such as road, school modernisation and energy efficiency measures.

The Chancellor also heeded the CBI’s call to help UK exporters by offering time-limited support for both existing customers and the wider export community as companies face difficulties in accessing bank finance. As a result of the Pre-Budget Report, businesses will gain £1 billion in export guarantees from the Export Credit Guarantee Department to help smaller exporters.

Malcolm Hyde concluded: “On the downside, the next six months will be critical and the most effective way of supporting economic activity and keeping people in jobs would have been a temporary reduction in employer National Insurance contributions. Unfortunately the Chancellor has not taken this step – indeed, the reverse is planned.

“Given the poor state of public finances, and the Chancellor’s acknowledgement that his tax revenues are 40% down, his fiscal stimulus package will need to go hand-in-hand with a credible framework for getting back on track – details of which are noticeably absent. His target’s are arguably very optimistic and if his stimulus package fails to deliver it could leave future generations burdened with huge levels of debt.”

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