Policy criticised

CBI chief warns of ‘low growth and high tax trap’

Tony Danker
Tony Danker: current settlement isn’t working

Britain risks settling for a future of “low growth and high taxes” and needs to break conventional Westminster policy to achieve its targets, a business leader has warned.

CBI director general Tony Danker says ministers appear content to settle for a “miserable projected growth rate” over the next four years.

In a speech criticising government policy he will say that unless Chancellor Rishi Sunak, does more to encourage investment he will have no choice but to keep taxes high or cut public spending.

Speaking to business leaders and policymakers at a joint CBI/Centre for Policy Studies event, Mr Danker will challenge the government to set its sights on the kind of growth rates – around 2 to 2.5% – that were once typical in the UK’s recent past. 

He will say that: “The current settlement isn’t working. There are rising spending pressures; too much tax; and too little growth…we’re caught in a trap.

“The Government are in a tough spot in all of this, of course. They say we can’t afford to spend more on growth. But I say we can’t afford not to. Simply put, we will not pay down today’s debt, extend public services and reduce taxes on 1.6%.” 

Mr Danker will say that the super deduction, which ends in March 2023, should be replaced by a permanent 100% tax deduction for capital spending;

He calls for a replacement of the Apprenticeship Levy with a new Skills Challenge Fund to ensure the UK catches up with European average skills investment – one that incentivises more flexible training to meet skill shortages and rewards firms who invest beyond their apprenticeship levy levels.

The government should be doubling-down on green growth, says Mr Danker, and should establish an Office for Future Regulation.

“UK regulation has only aimed to protect low prices for consumers and fair competition. It has completely de-prioritised UK competitiveness, investment and innovation. That needs to change now. We need to focus on regulation that unleashes a fast-growing economy – not the way any government has viewed it before.”  

He says an independent Council for Future Skills would optimise training towards future economic demand. 

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Mr Danker says: “We get a much-needed dose of reality from the independent OBR. Their forecast is their judgement on the UK’s economic trajectory: once the rebound is complete in the next 18 months, we will grow as an economy by 1.3 – 1.7%. For a country that is used to growth at 2 – 2.5% it is simply not good enough. 

“And what’s truly worrying is that the Government has accepted the forecast as the target. “The trajectory as the potential. Everything the Government is currently trying, to get growth going, merely achieves a new normal of low growth. 

“We have lowballed the UK. It’s in our numbers, and it’s in our plans. But at the CBI, we think we can do better.

“Let me be clear why this is such a problem. Today’s high spending, high taxes and low growth is a vicious cycle that’s hard to break.   

“Cutting spending is far from straightforward, which is why no political party wants to do it. 

“The Treasury are naturally turning to taxation. But can we really raise taxes further? The UK tax burden is already at the highest sustained level in peacetime. 

“On corporation tax, analysis by the Centre for Policy Studies and the Tax Foundation shows we’re currently 11th most competitive in the OECD – in part because of the value of the Super Deduction. But when this ends next year and the Corporation Tax rate increases, we’ll fall to 31st place. 

“And before the government says the UK is still competitive on business tax – by looking only at the Corporation Tax rate – it should accept that’s comparing apples and pears. It doesn’t include for example the UK’s eye-watering property taxes – the fourth highest in the OECD.  

“To be clear, we’re not talking growth by any means. We’re talking sustainable, long-term growth that stems from more investment, innovation and productivity.”  

Mr Danker adds: “The Government has a plan today. But it’s a plan for only 1.6%. It’s a plan that increases business taxes massively without reliefs for investment following suit. It’s a plan that funds green investment more than before but less than our competitors.

“It’s a plan that funds a narrow apprenticeship programme while skills shortages continue to hinder growth. It’s a plan that stops immigration for skills we need but offers no alternative to get them.

“There are however plenty of exceptions to this rule – moments where Government really has made bold interventions in pursuit of better growth. The Super Deduction was a super-exception to the normal incremental approach to business investment. It was the boldness we need.  

“The offshore wind market – based on contracts for difference – was the moment UK Government realised they could use their balance sheet to unlock high growth markets while also serving the national and global interest. 

“All these measures have one thing in common – they overcame orthodoxy in public policy. They represented bolder thinking. And that is what we need across government now.”

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