Business anger at Blair reaches the 'tipping point' - CBI chief

Relations between the Government and the business community have deteriorated to such an extent they are now close to the "tipping point", the director-general of the Confederation of British Industry warns today.

Sir Digby Jones says corporate Britain has rarely been more disillusioned with ministers and takes the Government to task over a range of issues from pensions and energy policy to taxation and workplace legislation.

His criticisms will ensure a lively welcome for Tony Blair when the Prime Minister addresses the annual conference of the employers' organisation in London next week. Three other Cabinet ministers, including the Chancellor, are also scheduled to appear.

"As I sit here after six years reflecting on the relationship between business and government I am very, very sad," says Sir Digby, who is in his final year as the voice of British business. "In all the time I have been in this job, businesses have never been as frustrated and annoyed with government as they are today. We are at a seminal moment for the relationship between government and business. Is it the tipping point? I don't know. What I do know is that it feels like it is."

Sir Digby says through a combination of "complacency and amazing reluctance to tackle the big issues," the Government is in danger of failing to deliver on job and wealth creation in the private sector. "We don't want fine talk. We want positive action."

He concedes that the Government's stewardship of the economy cannot be faulted. "We can withstand global shocks, the markets are up, we are dealing with impact of globalisation, inflation is low and we have some good growth. That is a fabulous achievement."

But he says the Government has failed business badly when it comes to the implementation of policy. "The general rhetoric about backing enterprise and a skill-based economy and European economic reform is good but if you look at specific areas the policy does not match the rhetoric."

Sir Digby says business is perhaps angriest about the Government's handling of the pensions crisis, and in particular, the way it "caved in" to union pressure over plans to raise the retirement age in the public sector from 60 to 65.

As if Gordon Brown's raid on pension funds in 1998 was not bad enough, private sector employees are now faced with further difficulties, he says. "You have got a pensions regulator who has to give his consent if you want to buy or sell a business - that's about as near to nationalising M&A activity as you can get. You've got the Pension Protection Fund which was designed to help people who might lose their pensions but which is actually making people unemployed. And then if you look at Turner, everybody going to have to work until they are 67, they are going to have to take less benefit and pay more."

But it was the decision of the Secretary of State for Trade and Industry Alan Johnson, to continue to allow every worker currently in the public sector to retire at 60 on a final-salary pension, that has provoked most outrage. "Over 40 years this will cost the country £750bn which is three-quarters of annual GDP. The anger this has caused is amazing and interestingly the real anger is from employees - they are seriously angry. It has set the most appalling example. How on earth we are going to get private sector employees to work until 67, I don't know."

Energy policy - and in particular the threat of gas shortages this winter - is also high on Sir Digby's list of gripes. When he warned of some big industrial users being forced on to a three-day week, he was accused by the Government of scaremongering. But Sir Digby is unrepentant. "It is not scaremongering to point out how inadequate the system is. We have been warning for at least three years of a crunch this winter. If we get just a 'one in 10 winter', not even a one in 50, then high-energy users are going to be sending people home. We are at five to midnight on this. What does it take to get action from this government? British industry is paying a fortune for its energy and continental competitors are not, and one of the problems is shortage of supply."

Pensions and energy are very much at the top of the political agenda - the long-awaited but much-leaked report of the Pensions Commission chaired by Lord Turner, himself a former director-general of the CBI, is published the day after the conference ends, while Downing Street has now taken direct control of the gas crisis.

But beyond these two immediate flashpoints, discontent simmers over other issues. One, a perennial bugbear for the CBI, is taxation. "In 1996/97 for every hundred pounds of income generated the Government took £34.80 in taxes. In the current year it is £37.30 and by 2007/08 it will be £38.50," says Sir Digby, leafing through his briefing notes. "If you take £50bn more from business in tax over eight years, which is what this Government has done, then at some point, we lose our reputation as a tax-efficient country and overseas investment will dry up. Those who can go elsewhere will do so.

"I wouldn't mind settling for being in a medium-tax club if we had world-class transport and education and a drive to improve productivity in the public sector. But do we see that? No we don't. We have an education system where half the kids who take GCSEs still don't get grade C or above in English."

And then there is workplace regulation. Sir Digby praises Mr Blair and Mr Brown for fighting to keep Britain's opt-out from the working time directive. "And then we see them give £10m of taxpayers' money to something called the union modernisation fund They don't give £10m to Friends of the Earth or the British Chambers of Commerce or the CBI for that matter. The unions only represent 17 per cent of the private sector workforce so to 83 per cent therefore they are irrelevant and yet this government gives taxpayers' money to its union paymasters. It is completely unfair and cynical. The CBI would never take the king's shilling."

Sir Digby says he was even more amazed to then be asked to help the Government implement the Warwick Agreement it struck with the unions before the last election, covering areas such as rights for striking workers, holiday entitlement and redundancy pay. "I am not going to sit as part of a corporatist social partnership in Downing Street and come out with a piece of paper declaring peace in our time. Businesses in Britain which have nothing to do with trade unions will ask what on earth I'm doing there."

Sir Digby's term with the CBI expires at the end of next year, but if Virginia Bottomley, the former Tory minister turned headhunter, finds a replacement sooner then he will leave earlier. For all the fun poked at him from some quarters for his David Brent-like utterances, there can be no doubting that Sir Digby has put the CBI on the map in the past six years, raising its profile in Whitehall, Westminster and the country at large.

Given his long list of grievances against the Government it is scant surprise that Sir Digby, a lawyer by training, doesn't foresee himself working for it when his time is up at the CBI, unlike predecessors such as Sir Howard Davies and now Lord Turner. "I am not interested in Blair's patronage," Sir Digby says. Clearly, he won't take the king's shilling any more than the organisation he works for.

What's eating Sir Digby Jones?

WORKPLACE RIGHTS

He is flabbergasted that the Government has given the trades unions £10m of taxpayers' money to modernise computer systems when the CBI gets nothing. He is even more amazed at being asked in for "beer and sandwiches" to help ministers implement the Warwick Agreement, giving new workplace rights to unions, many of which the CBI is opposed to - such as protection for striking workers.

PENSIONS

Sir Digby is angry that the Government has abolished the tax break enjoyed by pension funds. He is also upset about the sweeping powers of the new pensions regulator and the way the employer-funded Pension Protection Fund will work. Above all he is incensed that the Government "caved in" to public sector unions when everyone else faces the prospect of working until 67.

ENERGY

Fears that Britain will run out of gas this winter, forcing parts of industry on to a three-day week. Either that or UK companies will be left uncompetitive through high energy costs. Ministers have accused Sir Digby of "scaremongering" - but he is unrepentant. "What does it take to get action from this Government?" he asks.

TAX

Sir Digby calculates that by 2007-8 the Government will take £38.50 in tax for every £100 of wealth generated. It wouldn't be so bad if this was paying for world-class transport and education systems, but it's not. He warns that overseas investment into Britain will "dry up" if we lose our reputation as a tax-efficient place to do business