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Wednesday, 16 February, 2000, 06:40 GMT
Business warns against budget spending spree

Gordon Brown has built up a 7bn warchest

If Chancellor Gordon Brown wants to spend more on public services, he should raise taxes in the budget, the British Chambers of Commerce said on Wednesday.

He should resist the urge to fund extra spending from his warchest, estimated to be as much as 7bn.

If he did raise taxes, this would help curb inflation, the BCC said, reducing the need for further interest rate rises.

Helping the BOE

Currently, the Bank of England's Monetary Policy Committee has the job of controlling inflation by setting interest rates.

Dr Ian Peters, deputy director general of the BCC, said: "Not enough use has been made of fiscal policy to help the Bank of England control inflation over the past two years. This has led to severe pressure on business competitiveness from high interest rates and the strength of sterling."

"The only sensible way for Gordon Brown to fund additional spending on health and education is through increases in personal taxation. The last thing business needs is a further boost to demand overheating the economy," Dr Peters added.

Brown's warchest

Gordon Brown has built up a huge war chest in advance of the next general election.

According to the influential Institute for Fiscal Studies's Green Budget, the government finances are going so well that the Chancellor could afford to give away up to 7bn in the next budget in March and still meet his fiscal rules.

The IFS has forecast a budget surplus of 7bn for the current financial year, with an even bigger surplus of 10bn in the following year.

That contrasts with the official forecasts of a small surplus this year of around 3bn, and a small deficit in the following years.

Don't raise business taxes

But the BCC warned against raising taxes which could hit business.

Dr Peters said: "Business in the UK has borne the brunt of the growing tax burden since the general election. With business facing severe competition at home and abroad, the Chancellor must seek to stimulate, not stifle, enterprise."

It calls for a cut in the capital gains tax rate to 20% for all individual taxpayers.

It also calls for enhanced capital allowances for small and medium-sized enterprises on a permanent basis.

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See also:
26 Jan 00 |  Business
Brown's 7bn war chest
28 Jan 00 |  Business
UK growth powers on
03 Feb 00 |  Business
Chancellor 'backs rate rise'
07 Feb 00 |  Business
'Outlook rosy' for UK economy
11 Feb 00 |  Business
TUC calls for more spending
21 Jan 00 |  Business
Public sector deficit surges

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