All public spending should be under scrutiny, says BCC

17 June 2010

No government department budgets should be firewalled against spending cuts, the British Chambers of Commerce (BCC) has argued.

In its pre-emergency Budget submission, the BCC claimed that safeguarding some areas of spending, such as health and overseas aid, could mean that more drastic cuts will have to be imposed on capital expenditure, which is key to the long-term recovery of the economy.

The business group also wants the Chancellor to introduce an immediate two-year freeze on the total public sector wage bill, as well as committing to a full reversal of the employers' National Insurance rise, paid for by using a portion of any increases in VAT.

Other key points in the BCC's submission included a simplification of corporation tax, but only after a careful study of how any scrapping of allowances could affect business investment.

Capital gains tax should not be raised to a level closer to higher rate income tax, but if an increase is unavoidable, the BCC wants clear and concrete exemptions and reliefs for business activity, along with taper relief and indexation

David Frost, the director general of the BCC, said: "The Chancellor faces a difficult balancing act. The right choices would put business growth at the very heart of government policy. But short-term moves on tax or infrastructure spending could hurt business confidence and economic recovery.

"The government must avoid punishing new taxes that negatively affect private sector growth. Short-term revenue gains would be outweighed by longer-term economic consequences, from reduced business investment to lower rates of job creation. If tax rises are unavoidable, they should be targeted at consumption taxes rather than payroll, income or profits."

Mr Frost added: "As politically unpalatable as it may be, the decision to ring-fence spending on health and overseas aid is unrealistic and unsustainable in the current circumstances. Ring-fencing health will mean deeper and more drastic cuts to important investment elsewhere, without the benefit of clear justification."