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Wednesday, 29 March, 2000, 12:26 GMT 13:26 UK
Budget alienates business
CBI boss Digby Jones: not so close to Labour
CBI boss Digby Jones: not so close to Labour
The 2000 Budget could mark a watershed in the relations between the Labour Party and the business community.

Many key business leaders see the Budget as a betrayal of the party's commitment to business that was a key part of its 1997 manifesto.

"There is a growing disillusionment with this government's pro-business credentials," said Chris Humphries of the British Chambers of Commerce. "Tax benefits are not delivering on the pro-business agenda," he told the BBC.

There is a growing disillusionment with this government's pro-business credentials

Chris Humphries, British Chambers of Commerce
And Digby Jones, the new boss of the Confederation of British Industry, has moved to distance his organisation from Labour.

The CBI has also joined in criticism of the government for boosting taxes on companies' foreign earnings, which some big firms say will cost them billions of pounds.

Although Chancellor Gordon Brown stressed his support for enterprise 12 times in the Budget, and his prudent approach to financial management 10 times, a number of factors are returning business to its traditional stance to Labour.

But junior trade minister Patricia Hewitt defended the government's record.

We've delivered a strong and stable economy (including) tax cuts that business wants and 100,000 more businesses have started.. it's not surprising business confidence is up," she told the BBC's World at One.

Business taxation

It is gradually dawning on the business community that they have been the main victims of Labour's tax hikes, while taxation on individuals has actually gone down.

The government has made great play of its cuts in corporate tax rates and extra allowances to small companies.

But the chancellor's 4bn cut in companies' pension fund income in 1997 is beginning to hurt now that the stock market boom is cooling.

And companies are worried about a number of other "stealth taxes" which will be needed to raise money for Mr Brown's ambitious spending programme over four years to stop the budget plunging from surplus into deficit.

The high pound

Manufacturing industry is suffering from the high pound, which makes exports more expensive and less competitive.

The pound is now worth nearly 3.2 Deutschmarks, higher than when the UK left the Exchange Rate Mechanism in 1992.

Yet the public spending commitments in the Budget are likely to make the Bank of England raise interest rates even more, thus further strengthening the pound.

Business would have liked a tougher Budget, which would have eased pressure on inflation and interest rates.

And many businessmen, especially in multinational companies, believe that joining the euro would eliminate the exchange rate problem entirely.

The CBI's Digby Jones was concerned that the euro did not even rate a mention in the Budget.

"I have to say it is not even on his radar, and that worries me," he said.


The government has also made great play of its sympathy for business in reducing the amount of red tape and regulation, even setting up a Regulation Task Force under the Labour peer and businessman Lord Haskins.

But for small business in particular, the burden of regulation is rising sharply.

The government has decided to pay benefits to low-paid families through the workplace, which many small firms are not prepared for and say will cost them too much to implement.

And there are a number of other new regulations, some as a result of the government's acceptance of European legislation under the social chapter, that are causing concern, in such areas as paternity leave and family leave.

But Ms Hewitt said that Britain was moving to reduce the burden of regulation, and was rated by the OECD to have less red tape than any other major industrial country.

Competition policy

Finally, the government has risked alienating many big businesses by its aggressive pursuit of its competition agenda.

There have been highly critical reports on banks and supermarkets with the car industry expected to follow suit, while the government has extended the remit and powers of the Competition Commission.

While many businesses pay lip service to competition, they are concerned that the government is pushing consumer interests too far, regardless of the reality of business life.

Where are they now?

Many prominent Labour business supporters have now left the government, or their businesses.

The fall of Bob Ayling, the chief executive of British Airways and a supporter of many Labour projects, was just the latest in the series of problems for some of Labour's most important business supporters.

Prominent businessmen Lord Simon of BP, and Geoffrey Robinson have both left the government, while science minister Lord Sainsbury's company is in deep trouble.

And both Martin Taylor of Barclays and Sir Richard Greenbury of Marks & Spencer, who wrote influential reports for Labour, have now been forced out of their respective companies.

The reduction in Labour support can be overdone. Business does believe that so far the government appears to be managing the economy well.

With a Conservative victory at the next election looking unlikely, it is still prepared to work with the government, but the honeymoon appears to be over.

Chris Humphries, Director General of the BCC
"We've seen the cost of business go up"
Junior Minister Patricia Hewitt
"We've delivered a strong and stable economy"
See also:

22 Mar 00 | Budget2000
26 Mar 00 | Business
22 Mar 00 | Budget2000
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20 Mar 00 | Business
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