Britain Should Refrain From Further Fiscal Stimulus, CBI Says

By Kitty Donaldson

March 23 (Bloomberg) -- The U.K. public finances are in an “alarming state” and Prime Minister Gordon Brown risks prolonging the economic slump if he embarks on a further budget giveaway, the Confederation of British Industry said today.

More tax cuts and spending pledges may encourage households to save rather than spend in anticipation of future tax increases and undermine the appeal of U.K. government debt, the business lobby said in a submission to Chancellor of the Exchequer Alistair Darling before the April 22 budget.

With the deficit soaring, the 20 billion-pound ($29 billion) stimulus package announced in November and monetary easing being undertaken by the Bank of England should instead be given time to work, the CBI said.

“There is no room for a fiscal stimulus of any kind in this budget,” Ian McCafferty, the CBI’s chief economic advisor, told reporters in London.

The government is receiving less money in taxes and increasing welfare spending as the worst recession since at least 1980 reduces profits and drives up unemployment. The CBI said the budget deficit is set to exceed 10 percent of gross domestic product, higher than Darling forecast in November.

The business lobby urged the government to maintain investment in capital projects such as schools and transport, and minimize the need for tax increases once the recession is over by freezing day-to-day spending at 587 billion pounds for several years from April 2011.

“Significant tax rises would act as a formidable barrier to private sector investment and net exports at a time when these will need to play a crucial role in driving the economy forward,” the business lobby said.

The CBI called on the government to drop plans to raise the rate of national insurance contributions, a payroll tax, on employers from 2011.

It also demanded the restoration of tax relief on empty properties to pre-2008 levels, saying firms were finding it hard to sell properties or find tenants and that there is evidence some were demolishing empty premises rather than pay business rates on them.

To contact the reporter on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net