Page last updated at 18:05 GMT, Monday, 24 November 2008

Business welcomes pre-Budget report

By Jorn Madslien
Business reporter, BBC News, CBI conference

The business community has broadly welcomed a pre-Budget report that included a broad range of economic measures funded by the government to curb the economic downturn.

David Cameron addressing the CBI conference
The CBI listened carefully to the political debate.

"There are a number of measures in this report that we have asked for that will help cash flow in small businesses and business overall by reducing cost," said Richard Lambert, director-general of business body CBI, pointing to how small firms would receive help from a special finance scheme and get loans from the European Investment Bank.

A deferment of a planned 1% rise in the corporation tax was also welcomed, as were other measures aimed to help companies reschedule tax payments.

The current turmoil has as its background a fundamental shift in the world's economic centre of gravity
Stephen Green, HSBC Holdings

Mr Lambert also welcomed a decision not to introduce an aviation duty, in contrast with environmentalists who criticised the decision.

Broad welcome

Judging by initial reactions, both investors and workers have also welcomed the measures set out in the pre-Budget report.

The FTSE index of leading UK shares rose almost 10% on Monday, its greatest gain yet, and the general secretary of the TUC Brendan Barber, said "the chancellor was right to inject this extra money into the economy".

Though some early responses were trickling in soon after Mr Darling's speech, there was no absolute consensus.

"It will take time to see how business reacts to these changes," said Barry Marshall, UK head of tax at consultancy PricewaterhouseCoopers.

"The VAT rate reduction will save the average customer little more than 1 per week on a 100 supermarket shopping bill," according to Marc Welby, VAT Partner, BDO Stoy Hayward, who described the measure as "too small to influence consumer spending".

However, the British Retail Consortium's director general, Stephen Robertson, said it was a "welcome boost for hard-pressed households", while Mr Lambert said it was too early to say whether it would lead to more spending on the High Street.

Sending a signal

Business leaders were less happy with the plans to raise taxes on the rich.

But with regards to the Chancellor's plan to raise the top level of income tax to 45% for those earning more than 150,000 per year, there was broad agreement that the psychological impact was the most important one.

Simon Atkins, managing director of Biz Wiz Books, which advices sole traders and other very small firms with a turnover of less than 100,000 described it as a "dreadful mistake" as it would reduce people's aspirations and hopes.

Perhaps more importantly, the chancellor "has changed the political debate by breaking the taboo that the super-rich should never pay more tax" according to TUC's Mr Barber.

Anglo-American chairman Sir Mark Moody-Stuart pointed out that the rise would be "small beer in the greater scheme of things", but that it was nevertheless an important "signal that we are moving in another direction from other competitive economies".

Long-term challenges

But British business is not merely focused on the pre-Budget's responses to the current economic crisis.

Whatever the troubles of this year and next, we are in the midst of a transition to a truly global economy, which in 20 years is likely to double in size
Prime Minister Gordon Brown

At the CBI conference, some of the greatest challenges that remain ahead were highlighted by some of the biggest beasts in business.

Royal Dutch Shell chief Jeroen van der Veer pointed out that "the problems of the financial crisis are huge, but they are not as big as the problems awaiting us if we fail to build a cleaner energy system".

Stephen Green, group chairman of banking giant HSBC Holdings observed that "the current turmoil has as its background a fundamental shift in the world's economic centre of gravity" away from established industrial nations towards China and India and others - a trend, he predicted, that would not be "derailed by the current crisis".

Against such a background, Sir John Rose, of the aerospace giant Rolls-Royce, spoke of a need to develop a national industrial strategy.

"The debate has to focus on how the UK can become the favoured choice for our investment," he said.

Dual objectives

The government insists it is no stranger to the challenges mentioned by business leaders.

"We are trying to prepare ourselves for the future at the same time as we try to give real help to families and business to deal with the downturn we're facing now," said Prime Minister Gordon Brown in an earlier speech.

"Whatever the troubles of this year and next, we are in the midst of a transition to a truly global economy, which in 20 years is likely to double in size."

The message was reinforced by Lord Mandelson, business secretary, during a speech that coincided with Chancellor Alistair Darling delivering the pre-Budget report in parliament.

"That means double the opportunities for Britain to seize if we are well prepared," he said.

Conservative opposition leader David Cameron insisted the UK will struggle to seize any such opportunity.

"Far from being well prepared for the storms that lie ahead, we're facing a deeper and longer downturn than any other industrial nation," he said.

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