07 March 2008
Councils and industry leaders have both urged the Treasury to deliver a business-friendly Budget next week to stave off a potential economic downturn.
Chancellor Alistair Darling will have to weigh up often competing demands from local government, business and trade unions as he prepares for his first Budget on March 12.
Town hall leaders are calling for the restoration of Local Authority Business Growth Incentive Scheme funds. Almost £1bn has been distributed since 2005, but councils are due to receive no funding next year, and only £150m over the following two.
Local Government Association leaders warned that this decision had not only left a hole in council budgets, but threatens to have a negative impact on businesses.
LGA chair Sir Simon Milton said: 'It makes little sense for the government to cut back on a scheme to bolster local business at a time when the local economy needs all the help it can get.
'The decision to cut £850m of funding for this scheme will put the brakes on much-needed local projects to promote economic development. If the chancellor is serious about promoting business, creating jobs and ensuring Britain's economy remains buoyant, then he should commit to a substantially improved scheme in next week's Budget.'
An LGA spokesman told Public Finance that the association also wanted the Budget to widen the eligibility criteria for council tax benefits and start a drive to ensure more eligible people sought their share of the £1.8bn that goes unclaimed each year.
The LGA is also seeking clarity on the return of landfill tax. 'Councils pay £2.5bn in landfill tax and the government has said the vast majority would make its way back to local authorities. At the moment we're not convinced that has happened and we want to make sure that will happen over the next spending review period,' the spokesman said.
Business leaders, too, said the prospect of an economic slowdown should prompt a rethink of tax changes that they say will hit business hard, including a hike in capital gains tax from 10% to 18%, and ending empty property rate relief. The British Chambers of Commerce has estimated these changes will cost business an extra £3.4bn in taxation next year.
BCC director general David Frost said: 'The economy is set to slow down considerably this year and the last thing business needs is to be squeezed further by the government. The Budget gives the government the chance to regain the initiative and show that it still can lay claim to being on the side of entrepreneurs.'
The CBI business lobby demanded that Darling break with tradition and do as little as possible. It prepared a pithy 'alternative Budget speech' in which he would admit that economic uncertainty made it impossible to make 'credible judgements' and promise to re-visit the government's three-year public spending plans.
A short Finance Bill would be all that would be needed to meet minimum legislative requirements, the CBI said.
Director general Richard Lambert added: 'Our suggestion, made more in hope than expectation, reflects turbulent times both at the Treasury and in the UK and wider world economy.
'With the Treasury seemingly creaking at the seams as it grapples with nationalising Northern Rock and reforming bank supervision, the sensible decision would be to slim down this year's Budget to the bare necessities.'
But the Trades Union Congress struck a very different note, saying it wanted Darling to use the Budget as an opportunity to make a fresh start on public sector pay. The current policy is 'unfair', the TUC stated in its March 4 Budget submission, and based on arguable assumptions.
The TUC wants Darling to admit that the 2% pay cap has little to do with keeping inflation down, as ministers have consistently maintained, and everything to do with complying with rules on government borrowing.
General secretary Brendan Barber said: 'The government's public sector pay policy is causing much pain but very little gain. The chancellor should use next week's Budget to tell the nation that the government intends to honour the recommendations due to be announced by the public sector pay bodies over the next few months.
'Where public servants are not covered by pay bodies, in local government and the civil service for example, employees should at least enjoy pay rises no less than [the Retail Prices Index].'
PFmar2008
