The Confederation of British Industry, has warned Alistair Darling that economic uncertainty means he should keep public spending and tax changes to a minimum when he delivers his first Budget next week.
Richard Lambert, the director-general of the employers' organisation, wants the Chancellor of the Exchequer to pledge to revisit the government's three-year spending plans next year, arguing that the short-term is too unpredictable, and has called for a "stripped-down" Budget.
He is also worried Treasury officials are overstretched having to deal with the nationalisation of troubled mortgage bank Northern Bank.
Lambert's warnings about the Chancellor's problems were echoed by Roger Bootle, economic adviser to accountant Deloitte, who thinks Darling has little room for manoeuvre but should still be able to muster a tax cut when he gets to the Despatch Box on Wednesday, March 12.
Lambert said: "Firms have had enough unexpected change to the corporation tax system. Consumers, meanwhile, are already struggling with significant reductions in their disposable incomes, so further constraints would only make matters worse.
"Faced with these realities and with the Treasury seemingly creaking at the seams as it grapples with nationalising Northern Rock and reforming bank supervision, the sensible decision would be to slim down this year's Budget to the bare necessities."
Rather than calling loudly for tax cuts, Lambert is urging the government to revisit recently-announced tax changes and for public spending cutbacks to save the state upping taxes in future.
He wants Darling to postpone plans for an annual £30,000 charge on UK employees with non-domiciled tax status and the Chancellor to consider retaining capital gains tax as it is rather than introducing an 18% flat rate that will likely make little allowance for the time assets have been held. The CBI also wants the small firms' corporation tax rate retained at 20% instead of the planned 22%.
"The only worthwhile tax changes Darling could make would be to postpone for a year ill-considered and rushed changes to capital gains and non-doms tax, to give the many affected individuals a decent period to plan," he said.
Lambert warned that government borrowing will hit £45bn in the 2009-10 financial year and wants public spending cutbacks from 2009. He called for the government to cut £6bn from public spending next year and £9bn in 2010-11.
The CBI reckons this can be achieved by tackling benefit fraud, savings in government procurement, low public sector pay rises and the use of government reserves so frontline services are not affected.
Bootle, on his part, believes Darling will be forced to acknowledge that the outlook for the economy has weakened since October's pre-Budget report. He said that Darling should acknowledge that economic growth could slow even more sharply and that the recovery anticipated for next year is looking increasingly unlikely.
Bootle said: "January's timely surge in corporation tax receipts has probably made room for a small package of net tax cuts. A further cut in income tax is a possibility, as is a reduction in stamp duty to help the ailing housing market.
"He could also suspend the planned rise in fuel duties although this would not help the government's environmental credentials."
Bootle reckons this could boost the economy and stop a slide into recession but he acknowledged that, particularly given the constraints placed on the government by taking on ownership of Northern Rock, there is likely to be little radical action proposed in the Budget.
"The Budget is unlikely to set the world on fire and certainly won't emulate the US government's forthright action to support its beleaguered economy with a major fiscal stimulus."
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