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FULL CBI REACTION TO EMERGENCY BUDGET

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Press release

Reacting to the Chancellor's Budget speech, Richard Lambert, CBI Director-General, said:

"The Chancellor has achieved his twin objectives of setting out a credible plan for the public finances and producing a convincing growth strategy for the longer-term.

"Mr Osborne is close to achieving his 80:20 ratio of spending cuts to tax increases, which is so important to sustaining long-term growth. He has struck a sensible balance on Capital Gains Tax, limiting the impact of the increase on entrepreneurial activity and business investment.

"The 5-year road map for Corporation Tax provides much-needed consistency and certainty. Taken together with consultation on foreign profits and intellectual property, these will help prevent and could even reverse the flow of companies overseas.

"There was clear recognition in the Budget of the role that business needs to play in getting the economy back into shape, and generating the jobs and wealth needed to sustain economic recovery.

"The Chancellor has sensibly taken measures to secure public support by offering extra help to cushion the impact on low-income families.

"This Budget is the UK's first important step on the long journey back to economic health. The autumn spending review, and the re-engineering of public services, will be equally challenging."

Commenting further, Mr Lambert added:

The Government finances:

"In closing the structural deficit by 2014/15, primarily through reductions in public expenditure, the Budget has provided the much-needed credibility sought by the markets.

"Protecting capital expenditure from further cuts will prevent the damage to the economy's long-term growth potential that was the mistake of previous cycles. Prioritising those projects that sustain both regional and national growth will help rebalance the economy.

"The somewhat sharper cuts in departmental budgets further underline the need for a root and branch re-engineering of the delivery of public services, in order to obtain high-quality public services at lower cost and greater efficiency."

Corporation Tax (CT)

"We strongly welcome the road map for medium-term reform set out by the Budget. This should deliver a corporate tax regime fit for a globalised world, in which the UK is more competitive and the system more simple and stable. The staged introduction of the changes to CT will allow businesses to plan ahead, and avoid unnecessary disruption.

"Business strongly commends the new and refreshing approach to tax policy-making which should help ensure that the UK tax regime returns to the forefront of international competitiveness. We look forward to working closely with the Government on reforming the key elements of business taxes."

Capital Gains Tax (CGT)

"The Chancellor has balanced the need for fairness in CGT with a recognition of the need to support entrepreneurship and keep the system simple. Raising the entrepreneurs' relief will help those who create and build small businesses, and maintaining the threshold should avoid hurting small investors in company savings schemes. It is good that the Chancellor has recognised that the rate at which capital gain is taxed needs to be internationally competitive and avoid penal rates that harm revenue."

VAT

"While any tax rise is always unwelcome, the needs of the deficit required some tax increases, and this is the least damaging to investment, employment creation and growth."

Employer National Insurance Contributions (NICs):

"We welcome the planned increase in the threshold for employer NICs in 2011, which reduces the overall burden of the increase in the rate from around £4.5 billion to around £1.4 billion."

Help for smaller businesses:

"The reduction in the small firms rate of corporation tax to 20% and the extension of the Enterprise Finance Guarantee is to be welcomed."

The R&D Tax Credit:

"We support the Government's decision to leave the R&D tax credit unchanged until it has undertaken a wide consultation with business. This presents a major opportunity to design a system that will keep the UK competitive for the future."

Banking levy:

"Banks recognise the need to contribute to the restoration of the public finances. But in choosing to impose the levy on balance sheets rather than profits, the Government must take great care over the detailed implementation so as not to inhibit the ability of banks to finance the recovery."

Public sector pay and pensions:

"Freezing public sector pay for two years for all but the lowest paid will go a long way towards containing spiralling labour costs. Given that most private sector firms froze pay during the recession and are continuing to take a cautious approach to wage settlements, it is right that the public sector shows similar restraint.

"We believe the Government can avoid a slash-and-burn approach to reducing departmental budgets by opening up more services to greater competition between public, private and third sector providers. This will drive up efficiency and deliver value for money for taxpayers.

"We warmly welcome the new public sector pensions commission. Public sector workers deserve a good retirement, but the gap between the contributions paid and the pensions accrued is £10bn a year and rising, with taxpayers left to make up the difference. This is clearly unsustainable. For many public sector employers shifting to a notional defined contribution pension could be the best way forward."

Tax treatment of pensions

"The move to an annual tax relief allowance for higher earners' pension saving is a big step forward for business and savers, and we welcome it. While retaining the revenue-raising goals of the previous regime, the new approach, suggested by the CBI, will cut £400m of bureaucracy for firms and make it easier for savers to know where they stand."

Measures to promote a low-carbon economy:

"The UK urgently needs to upgrade its energy infrastructure in order to shift to a low-carbon economy and meet emissions reductions targets. The Government is right to explore ways of incentivising investment in low-carbon generation. The consultation should consider alternative equivalent measures alongside a carbon floor price.

"A green investment bank could also significantly help to leverage the necessary private finance to deliver emissions savings across the economy."

Aviation:

"The decision to consult fully before making any changes to aviation taxation is welcome. We believe a per plane tax could damage competitiveness without having the desired impact on cutting carbon emissions."