Forum Brief: Pre-Budget Report - Economy

The chancellor is to increase government borrowing to plug the gap caused by a faltering world economy.

Gordon Brown told MPs that he would keep public spending plans on track without a hike in taxes.

But during his Commons statement, Brown announced that borrowing would rise from £11 billion to £20 billion in 2002, and from £13 billion to £24 billion in 2003.

Forum Response: Institute of Directors

George Cox, director general of the IoD, said: "The chancellor's weaker GDP forecasts reflect what the IoD has been saying about the economy for many months.

"Similarly, our concerns remain that if the chancellor's long-term growth prospects are not met, he will turn to increases in the tax burden on businesses. That will further impede economic growth. The last thing we want or need is a repeat of April's rise in employer National Insurance contributions."

Forum Response: The Work Foundation

A spokesman for the Work Foundation said: "We noted that the chancellor has revised down growth forecasts for 2002 from 2-2.5 per cent to 1.6 per cent. This is still higher than average growth in other OECD countries however tax revenues are inevitably affected by lower growth.

"Even so, the chancellor seems optimistic about the future economic performance of the UK economy within the context of global downturn and domestic conditions - such as the housing market and public sector pay settlements - which might cause turbulence."He has committed to public sector borrowing at the upper end of most City forecasts. While the markets may be disappointed by this and be wary of a possible future rise in interest rates, the overall increase in public spending is to be welcomed in the interest of sustaining investment in public services.

"The debt burden that this imposes on government expenditure and the public finances is still lower than elsewhere in the world (including Germany, France, Japan and the US) and is still within the parameters set by Gordon Brown's 'golden rule'.

"Given the need to continue investment in the face of global recession, and given the fiscal surplus which has been built up over the last 5 years, this is to be welcomed. It keeps the British economy on course to meet the Maastricht criteria for public sector borrowing."

Forum Response: Construction Products Association

Michael Ankers, chief executive of the Construction Products Association, said: "We were greatly encouraged to hear the chancellor confirming the government's commitment to its ambitious spending plans and that these will be funded by borrowing within the government's 'golden rule'."We were, however, disappointed that there was no explicit commitment that business taxes would not be increased in next year's Budget."

Forum Response: British Retail Consortium

Bill Moyes, director general of the BRC, said: "The chancellor's key objectives should be maintaining consumer confidence and reducing business costs. The chancellor's pre-budget report threatens consumer confidence and has increased indirect taxation at a time when business costs are rising and margins are under pressure.

"The retail industry - like other major industries - is faced by apparently endless increases in costs generated by Whitehall and Brussels. Increases in National Insurance, environmental taxes and the national minimum wage are all set to have an impact in 2003. We cannot continue to absorb increased costs while investing to provide better services and keeping prices low.

"Yet again the chancellor has failed to grant cost effective tax relief to help retailers tackle the £2.4 billion annual cost of retail crime and failed to deliver on the promise to introduce PayCom - the payments regulator which would save the industry £400 million.

"The pre-Budget report has only added further pressure on the cost base of business and could seriously compromise retailers' ability to keep prices down and to continue to improve value."

Forum Response: Council of Mortgage Lenders

Jennet Vass, senior economist at the CML, said: "For the housing and mortgage markets, today's statement brought some good news - or rather, the absence of any bad news in the form of increased stamp duty rates.

"On balance, the statement reinforces our central forecast that the housing market remains set for a relatively soft landing. At the same time, the risk of a bumpier ride continues to increase - and nothing the chancellor said reduces that risk."

Forum Response: ACCA

Chas Roy-Chowdhury, head of taxation at ACCA, said: "ACCA is concerned that the complexity of claiming the new tax credits announced will act as a deterrent to those for whom the benefit is intended.

"There are already millions of pounds in unclaimed tax credits and benefits, and the government must ensure that these new tax credits do not suffer the same fate.

"The new measures should be accompanied by a public awareness campaign on the credits available and the government must monitor the tax credit system to ensure that it does not add to the current bureaucratic burden."

Forum Response: Chartered Institute of Purchasing and Supply

Roy Ayliffe, director of professional practice for CIPS, told ePolitix.com: "The three CIPS purchasing managers Indices (PMIs) covering the manufacturing, services and construction sectors, are vital tools for the Bank of England and government to help their economic decision making, therefore the chancellor's pre-Budget report is of great interest.

"At this phase in the economic cycle and with the state of the world economy, the chancellor had basically a choice from three unpopular options available to him, increase taxes, reduce spending or increase borrowing.

"Under the current circumstances he made the least worse choice, because if he had

"a) increased business taxes it would have decreased profits and consequent investment, cause more downturns in the stock market etc.

"b) increased personal taxes consumer demand would be reduced, which is the main factor keeping the UK out of recession currently.

"c) decreased spending would have reduced business activity, particularly in construction, therefore pushing the UK towards recession.

"However, the main worry with increasing borrowing is that it adds upward pressure on interest rates, which would hit business directly, particularly manufacturing, and via reduced consumer demand. If the upward pressure on interest rates gets out of hand the chancellor may have made the wrong choice in the long term.

"We will be keen observers and the PMIs will continue to be leading indicators of the effects on the main business sectors."

Forum Response: The Guide Dogs for the Blind Association

Robin Hutchinson, head of communications at the Guide Dogs for the Blind Association, told ePolitix.com: "The extension of the payroll giving scheme offers charities and donors the prospect of further developing this very cost-effective, tax-efficient scheme, the only caveat being the limited time-span of the announced extension."

Forum Response: RICS

A spokesman for RICS told ePolitix.com: ""The government expects a modest slowdown in economic growth this year, due mainly to weakness in global economic activity. However, economic activity is envisaged picking up in 2003, underpinned by strength in business investment spending. Given the sound position of public finances, government spending will also remain on a strong upward path, reinforcing a better economic outlook."