November 23, 2009 12:04 am

Employers’ group warns on squeeze

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A squeeze on public spending should not start until there is “demonstrable evidence” that economic recovery is secure, the EEF manufacturers’ federation says.

In a submission to Alistair Darling, the chancellor, before the pre-Budget report, the EEF said there would be “clear risks” in reversing support for the economy before recovery has taken root.

Failure to maintain a stable business environment would risk “pulling the rug out from companies just as growth looks set to return”, said Steve Radley, the EEF’s policy director.

The EEF’s stance on when spending cuts should begin is more cautious than that of the CBI business lobby group, which last week backed Conservative plans to cut the budget deficit swiftly and sharply, rejecting Gordon Brown’s eight-year timetable to reduce the national debt.

Labour said recovery would be jeopardised by the Tories’ pledge of faster action to tackle the deficit than the Treasury plan for a gradual fiscal tightening until 2017-18.

Mr Radley accepted that the budget squeeze needed to be done quickly – and that eight years was too long – but said it should not start until recovery was well established.

“That isn’t just one quarter when gross domestic product has increased. It’s looking a bit more beneath the surface. Is bank lending showing signs of returning to something close to normal? Is the money supply growing?” he said.

The EEF, in a joint submission with other bodies for industries such as steel, chemicals and food and drink, urged the government to keep the “supportive policy measures” that have helped “put a floor under the recession” but which have yet to deliver the confidence manufacturers said they needed to start investing.

It urged Mr Darling to extend 40 per cent first-year capital allowances for another 12 months, until April 2011. The EEF wants the small companies’ rate of corporation tax frozen until the same date.

To assist exporters, it called for talks with the European Union to allow the government to extend its letter of credit guarantee scheme to developed economies. Currently this applies only to emerging markets, which account for a small proportion of UK exports.

The EEF wants Revenue & Customs to reverse its more restrictive guidelines on eligibility for the research and development tax credit. “Changes to the interpretation of the rules to exclude any R&D that results in the production of goods and services would rule out eligibility for most manufacturers,” it said. The EEF called for clarity about funding for skills programmes, particularly ap-prenticeships. The Learning and Skills Council will be replaced in April by a Skills Funding Agency and a National Apprenticeship Service but the EEF said in the interim companies were coming up against uncertainties about the availability of funding for some training. It called for various venture capital and enterprise funding schemes to be brought together in a “Bank for Industry”.

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