The clear message has been that job of reducing the deficit will be a significant one. The forecasts for the economy and the public finances from the Office for Budget Responsibility will provide the detail on the degree of magnitude.
Publishing its budget submission ahead of the OBR economic forecasts, EEF called for the Chancellor to produce a clearly defined plan with realistic, achievable targets to reassure business and the markets. While the proposed 80:20 split between spending cuts and taxes is laudable, the restrictions that government has given itself by ring-fencing some department budgets means this is unlikely to be achievable. At least 60% of the job of reducing the deficit needs to come from lower spending if significant cuts to capital budgets, which are vital to long term competitiveness, are to be avoided.
In addition, the Budget must give business the whole picture of the deficit reduction plan in one go rather than raising fears that further measures may be over the horizon.
Immediate action is needed in the Budget to reform the elements of UK’s tax system which are hindering the investment necessary to rebalance the economy. In particular, modernising the capital allowances regime to reflect the true cost and shorter lives of modern machinery and increase the rate of VAT to 20%.
It should also set our a road map to create a more competitive corporation tax system in line with the government's ambition to show that the UK is open for business. This includes a commitment to cut the headline rate of incomes and corporation tax when public finances allow.
Commenting, EEF Chief Executive, Terry Scuoler, said:
"The Budget will be the first definitive test of the government’s ability to deliver both fiscal consolidation and the conditions needed to rebalance the economy. Industry recognises the remedy will not be pain free but will want to see a clear plan with all the bad news out of the way now. We cannot have five years of a dripping tap of measures which will damage confidence and investment.
Manufacturers will also be looking for immediate measures to encourage the investment vital to rebalancing our economy and a longer-term plan to create a corporate tax system that is competitive and fit for purpose."
In its submission, EEF has called for the following:
1. The balance of fiscal consolidation should be weighted towards spending
reductions rather than tax increases, though vital capital spending must be protected. An achievable balance is for at least 60% to come from spending cuts, with the remainder through taxation increases to raise revenue.
2. Modernise the capital allowances regime to reflect the true cost and shorter
lives of modern machinery.
3. Increase the rate of VAT to 20% from January 2012.
4. A commitment reduce the rate of corporation tax to 25% within 5 years
5. Signal an intent to reduce the top rate of income tax to 40% when public finances allow
EEF also believes there are a number of areas within the tax system that are in need of reform. However future changes will require consultation. These include Capital Gains Tax; broadening the VAT base; the introduction of General Anti-Avoidance rules; and new environmental taxes, including a carbon tax.
ENDS