A leading business lobby group has urged Jeremy Hunt to resist calls for large-scale tax cuts in his budget next month, saying the government needs to avoid “short-termism” and devote spending to projects that boost the economy.
Adding its voice to a growing clamour for green investment, the Confederation of British Industry said pre-election giveaways at the budget should be kept to a minimum to allow for a surge in spending to achieve net zero.
Speaking on Thursday at a conference in Westminster, the CBI boss, Rain Newton-Smith, said the government should increase spending on green targets from £10bn a year to £50bn a year by 2030.
“There is a need for growth that is sustainable, not fuelled by pre-election giveaways,” she said.
“That is predicated on a bedrock of stability. That focuses on the UK’s amazing capabilities and sets out a clear, long-term plan to make the most of them. Which we stick to. We can even call it an industrial strategy.”
The Treasury is expected to have about £20bn extra to spend over the next five years when Hunt delivers his second budget on 6 March.
Economic growth is expected to improve in 2024 as inflation and interest rates fall and consumer and business confidence improve, lifting tax receipts and boosting the government’s finances.
Hunt could use this “headroom” to reduce government debts, offer tax cuts or ease a planned austerity drive that the Institute for Fiscal Studies has said would be “more painful” than during the decade of belt-tightening under George Osborne.
Conservative backbenchers have lobbied strongly for Hunt to devote any spare funds to support tax cuts in order to close a 20-point polling gap with Labour, which on current trends is on course to win majority at the next general election.
Cuts to inheritance tax, national insurance, income tax and stamp duty are among the pre-election giveaways Hunt has been urged by Conservative MPs and backers to consider. However, polling suggests there is little support for tax cuts paid for by inflicting further damage to public services.
Last month, the International Monetary Fund said Hunt should focus on repairing the public finances in the wake of the pandemic and the war in Ukraine to free-up funds to meet growing spending pressures, including on health and the climate crisis.
Hunt has refused to back higher investment spending, though he said the IMF was right to say “untargeted tax cuts that are just crowd pleasers” were not a good idea, in a thinly veiled reference to Liz Truss and Kwasi Kwarteng’s disastrous mini-budget in September 2022, when unfunded tax cuts panicked financial markets and sent UK borrowing costs surging.
In recent interviews with business leaders, the CBI found that one-third of firms believed their investment plans had foundered “because of UK-specific factors”.
It also found that 90% of UK-owned firms “expressed a negative view about the UK as a place to invest”. Newton-Smith said: “There was a sense that without bold action, the UK’s competitiveness is slowing drifting away.”
Keir Starmer has pledged to increase spending on green infrastructure, including investments in car battery plants, renewable energy and home insulation.
However, he is expected to ditch a commitment to spend £28bn by the end of the next parliament.
Newton-Smith’s intervention comes as the CBI attempts to reassert itself as the voice of British business after a year of turmoil. The lobby group suffered an exodus of members after revelations about sexual misconduct were published in the Guardian last spring.
Newton-Smith said: “As one business leader told me, they don’t want to see tax cuts driven by short-termism, which leads to higher interest rates. They want stability so they can invest for the future.
“To fund our public services with an ageing population, we must keep large-scale tax cuts off the table.
“We must build resilience in our economy and society, while enabling us to play our part in mitigating climate change. And that takes investment – both public and private.
“Above all, it must come from real investment in people’s skills and capabilities, in infrastructure and innovation.
“In other words, it can’t come from short-termism or tinkering around the edges.”