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The business lobby said its version of Alistair Darling’s announcement is stripped down to the bare necessities to reflect the government's lack of room for manoeuvre in troubled economic times.

In the six-paragraph alternative speech drafted by the CBI, the Chancellor would say that pronounced economic uncertainty means it is impossible to make "credible judgements based on the near-term outlook", and that there will anyway be a need to revisit the Government's three-year spending plans next year, given the continued deterioration in the public finances.

Minimum legislative requirement 

With the UK economy facing leaner and more uncertain times, the draft speech states that "this is no time to be imposing tax increases affecting business".

It goes on to say that the Chancellor has therefore decided to postpone controversial Capital Gains and non-doms tax changes for one year.

"Nor is it a time to be making other complex changes to the tax system or to constrain consumer demand," according to the CBI text.

A minimal six-page Finance Bill, the Chancellor would say, will be published to meet the minimum legislative requirement to set allowances and other rates.

This would compare favourably with the 305-page Bill that marked the end of Gordon Brown's ten year term as Chancellor. 

A further reason not to deliver the traditional Budget report is that "the capacity of HM Treasury has been stretched in recent months by the problems at Northern Rock and by work on essential reforms to the banking system", creating a risk that any new proposals would not be have been subjected to a thorough impact assessment.

The speech concludes: "In these unusual circumstances I have decided to keep this year's Budget statement to the bare minimum. I commend this approach to the House."

Capital Gains and non-doms tax 

Richard Lambert, the CBI's Director-General, said that calling on the Chancellor to set aside the normal Budget theatricals in favour of a slimmed down, practical statement may seem fanciful.

“Our suggestion, however, made more in hope than expectation, reflects turbulent times both at the Treasury and in the UK and wider world economy,” he added.

The CBI said that the only worthwhile tax changes Darling could make would be to postpone for a year ill-considered and rushed changes to Capital Gains and non-doms tax, to give the many affected individuals a decent period to plan.

It said that the Chancellor had virtually no room for manoeuvre beyond that slight relaxation of the fiscal position, either to raise taxes to repair the gaping hole in the public finances, or to cut them to stimulate the economy as it faces a sharp slowdown.

“Firms have had enough unexpected change to the corporation tax system. Consumers meanwhile are already struggling with significant reductions in their disposable incomes, so further constraints would only make matters worse,” Lambert explained.

“Faced with these realities and with the Treasury seemingly creaking at the seams as it grapples with nationalising Northern Rock and reforming bank supervision, the sensible decision would be to slim down this year's Budget to the bare necessities," he concluded.

In case the Chancellor chooses to press on with a full-blown Budget speech regardless of CBI advice, the business organisation has hedged its bets and also made a more conventional submission to the Treasury. This calls for:

1)    Tightening public spending from 2009 to start to repair the public finances

The CBI forecasts that contrary to the Treasury's optimistic projections, and on current spending plans, government borrowing will actually hit a high of £45bn in 2009/10, and the current account would not move out of deficit until 2011/12 as opposed to the forecast 2009/10.

Reflecting the fact that "the present fiscal arithmetic is not achievable", and that raising taxes on individuals or businesses would dampen economic growth at exactly the wrong moment, the submission calls instead for the Government to tighten public spending by £6bn in 2009/10, building to £9bn in 2010/11.

The CBI argues that this fiscal tightening should not kick in heavily during 2008/9, avoiding unnecessary disruption to Departmental planning and a squeeze on spending when the economy is particularly weak.

This belt-tightening would cut borrowing by £5bn and £7bn in subsequent years, whilst leaving room for targeted tax reforms to revive the Government's enterprise agenda.

The CBI calculates that the savings required can be achieved without impacting on front-line services by tackling benefit fraud and error; shrinking the benefits bill via greater private and voluntary sector involvement in getting claimants into work; making savings in the government's procurement budget; maintaining a tight grip on public sector pay; and drawing on currently unallocated government reserves.

2) Measures to rebuild the Government's enterprise credentials

Following a series of tax measures that have hit entrepreneurs and small businesses and damaged the Government's enterprise credentials, the CBI believes a small proportion of the above efficiency savings should be focussed on stimulating this vital part of the economy.

The CBI would prefer that the Government held the small firms corporation tax rate at 20 per cent instead of the planned 22 per cent, and extended the benefit of the proposed Capital Gains Tax entrepreneurs' relief beyond the currently proposed £1m limit.

If this is not delivered the CBI wants minimum changes including:

• The incidental costs of raising equity finance made tax deductible for companies seeking to raise up to £20m;
• 'associated companies' to be allowed to allocate small firms' corporation tax profit limits between themselves in the most beneficial way;
• Lifting thresholds on a range of tax measures affecting SMEs to adjust, belatedly, for inflation over recent years;
• A delay or major amendment to current plans to prevent 'income shifting' between husbands and wives who own small companies.

3) Improvements to the Government's fiscal policy

Describing the real life implementation of the golden rules, Pre-Budget Report and other fiscal rules introduced over the past decade as "a disappointment" that has still allowed the public finances to deteriorate and failed to deliver the promised transparency, openness and consultation, the CBI submission calls for:

Reform of the fiscal rules to make them less dependent on subjective assessment of the economic cycle;

Treasury forecasts relating to these rules to be subject to independent scrutiny by the NAO or Bank of England;

A return to proper advance notice and consultation on all tax matters;

A longer term tax strategy to be established, with an ambition to bring the overall tax burden down over time, and to simplify and modernise business taxation in the face of globalisation and the growth of multinational companies.

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Related links

• CBI
• CBI Alternative Budget
• CBI proposals for 2008 Budget