North West comment on Budget Predictions from IoD
As part of its Budget submission, the Institute of Directors (IoD) is warning the Government that U.K. economic policy now stands at a “fork in the road’ and we now face a clear choice. Continue along the current path and the UK economy will mirror that of other EU economies with large Governments. Alternatively, pursue global best practice and aim to reduce the size of the state towards the levels seen in the US, Australia, Ireland and Switzerland, where public spending is between 34 per cent and 37 per cent of GDP.
In the UK, the government’s fiscal position is exposed in the event of a sharp economic slowdown. There is no buffer in the public finances to absorb the impact of such an event, given that the surplus on the current budget is a mere 0.1 per cent of GDP.
Laura Wolfe, North West regional director, said:
“We live in a global market. If the North West is to continue to compete in a global economy, we need to have global objectives & measures. Government is concentrating too much on short term gains. It should focus more on reducing the tax burden and monitoring public spending more carefully, driving more productivity from what is now a major factor in the UK economy, the public sector.
Regulation simplification & transparency are key to success for North West plc allowing us to create more for everyone.”
Chairman of IoD North West Ann Jordan added:
“We will be looking carefully at budget implications affecting the North West; support for business such as investment in transport infrastructure, initiatives for education, tax reduction & measures to increase trade for the region.”
Miles Templeman, Director General of the IoD said:
“There is nothing inevitable about a rising burden of public spending and taxation. Other countries have achieved huge reductions in the spending to GDP ratio. The U.K. should take Spanish lessons. Since 1993 public spending in Spain has fallen by 10.8 per cent of GDP – from 48.6 per cent to 37.8 per cent of GDP in 2007.
“The optimal size of Government in the U.K. is well below its current size. It will be a huge political and economic challenge to rein back the size of the state, but in the absence of effective action, U.K. competitiveness will be undermined. We hope the next Prime Minister will make the right choice. The Chancellor has stated that: “Globalisation was made for Britain and Britain was made for globalisation’ . Unfortunately, the current size of the state in the U.K. is not globally competitive.”
As part of its budget submission, the IoD calls for:
- Total public spending should be constrained to 1.5 per cent per annum real growth over the period 2008-09 to 2010-11.
- The IoD repeats previous calls to introduce a Third Fiscal Rule, namely a commitment, over the course of the economic cycle, to reduce net taxes and social security costs as a per cent of GDP. The idea of a Third Fiscal Rule has overwhelming support amongst IoD members. More than 8 out of 10 IoD members want the Chancellor to make a long-term commitment to reduce the tax burden as a proportion of GDP.
- The IoD also calls for the introduction of Regional Comprehensive Spending Reviews. The huge regional imbalances in public spending must be addressed – the state share ranges from 31 – 65 per cent of GDP across the UK. In the case of the South and London, there is a danger of killing the goose that lays the golden egg. The problem of an excessive public call on resources needs urgent attention at national level.
Specifically on tax, the IoD budget submission states that:
- The tax system too is at a fork in the road. It has grown more complex, with 400-page finance acts now the norm. The Government could, and should, resolve to pursue this path no longer but to limit change to where it is necessary or is fully justified.
- The corporate tax system must be kept competitive, so as to increase the UK’s prospects of attracting business which might otherwise be located in other developed countries, or indeed in developing countries. The IoD calls for the standard rate of corporation tax to be reduced from 30 per cent to 28 per cent.
- The UK should respond to the pressures of European Court decisions by introducing an exemption for all corporate dividend income, and by reforming the controlled foreign companies regime to make it easier to work with. This would be to choose the business-friendly route, rather than the route of defending every last penny of existing tax revenue.
- The IoD has recently published a proposal to abolish inheritance tax and simplify capital gains tax. We urge the Government to give this serious consideration as a medium-term policy.
- The Government should abandon the proposed planning gain supplement.
Miles Templeman added:
“The Government has rightly focused economic policy towards boosting the key productivity drivers – education & skills, innovation, investment, competition and enterprise. Unfortunately there is a rather large missing-link, namely the impact of Government. The Chancellor needs to add Government to his list of productivity drivers – the missing 6th driver.
“Competitiveness is not a single issue, but when the U.K. is already less than world-class in other areas, such as transport and education, erosion of our previous relative advantage in the burden of taxation, could become hugely significant. In this way tax could become a “tipping-point’ issue for international companies.”
ENDS: 917 words Contact Points:
Notes to editors
- For a copy of the IoD’s full 2007 Budget Submission, please contact the IoD Press Office tel. 0207 451 3278; press@iod.com
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The Institute of Directors is a non-political independent organisation with 55,000 members. In addition to its wide range of business services, the IoD provides an effective voice to represent the interests of its members to government and key opinion-formers. It also brings the experience of business leaders to bear on the conduct of public affairs. More information at www.iod.com/northwest
The North West Region of the Institute of Directors is one of the fastest growing regions of the IoD.
Contact Points:
Jane Harrad-Roberts, Press Officer, IoD North West Mobile and out of hours: 07785 395705 Email: jane@marketingprojects.co.uk
Laura Wolfe, Regional Director, IoD North West Tel.: 0161 209 3152 Mobile and out of hours: 07973 332564 Email. laura.wolfe@iod.com Web. www.iod.com/northwest
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