Tories warned to avert civil war over tax cuts

Britain has more urgent problems as it lags behind competitors on growth and investing, says the CBI

THE Conservatives need to focus on boosting growth rather than arguing among themselves over tax cuts, the head of British industry warns today.

Tony Danker, director-general of the Confederation of British Industry, will weigh in on the escalating tax row in a speech today. “This is undoubtedly the wrong time for a new Tory tax war. There are other big economic decisions needed now for the UK to catch up with international rivals in some areas,” he is expected to say.

The comments come after a week of intensifying quarrels over tax cuts.

Leading businessman Sir James Dyson has branded the Government’s tax policies “stupid” and “short-sighted”.

The Prime Minister in turn sparked fury by suggesting only “idiots” fail to understand why it’s too early for cuts.

The UK’S tax burden is at its highest level since the Second World War. This is not the time for such discussions, however, according to the CBI, which represents 190,000 businesses. It cited serious concerns that the Government could “shy away from the hard decisions that can reverse the UK’S trajectory with a general election on the horizon”.

It warned that “growth still matters” and the UK has more urgent problems to address around business investment, labour shortages and green growth.

Mr Danker will say today: “Our international competitors in Europe, Asia and the US are going hell for leather on green growth and getting firms investing. We are behind them now and seem to be hoping for the best.”

The CBI is calling for more generous tax relief for businesses to be set out in the spring Budget. Companies should be allowed to offset half and eventually all investment costs against their taxable profits, says the CBI.

“Across the country, I’m speaking to firms putting their investment plans on ice because they need to divert cash to deal with higher energy costs, higher wage bills and higher tax rates,” Mr Danker will say.

The appeal comes as Rishi Sunak’s pandemic super deduction policy runs out and corporation tax is set to rise from 19pc to 25pc in April. The CBI predicts that business investment will slip this year and remain 9pc below pre-covid levels by the end of next year.

The comments come as a leading forecaster doubled its prediction for how much the UK economy will shrink in 2023.

The cut to the Energy Price Guarantee, spring tax rises on high-earners and a deteriorating housing market are all weighing on growth, the EY Item Club said.

The group now believes the economy will contract by 0.7pc this year, up from 0.3pc forecasted in October.

“The UK’S economic outlook has become gloomier than forecast in the autumn, and the UK may already be in what has been one of the mostly widely anticipated recessions in living memory,” Hywel Ball, EY’S UK chairman, said. The forecaster has also downgraded the growth outlook for 2024 from 2.4pc to 1.9pc.

Yet inflation is expected to fall back fast and the externally driven nature of the recession means it should be shorter and less damaging than other downturns, the group said. “The economy is still expected to return to growth in the second half of 2023,” Mr Ball said.

There are also tentative signs of improving sentiment among households. Consumer confidence improved slightly in the final three months of last year after 15 months in decline, figures from Deloitte show.