TUC urges Brown to deliver £900m aid package

Trade Union leaders will today urge the Chancellor of the Exchequer to include a package of measures for industry worth almost £900m in his April Budget.

The recession-hit manufacturing sector, which is haemorrhaging 150,000 jobs a year, must be reversed, the Trades Union Congress will say.

In its official submission ahead of the Budget, which will be delivered on 17 April, the TUC says the Government must help businesses to weather the downturn.

It says Gordon Brown can increase spending without breaking his fiscal rules that prevent the Government running a deficit over the economic cycle.

John Monks, the TUC general-secretary, will say there is scope for a "modest increase" in spending in the coming financial year.

"To maintain improvement in our public services we need long-term commitments to extra investment," he will say.

The TUC has drawn a list of proposals that would deliver targeted aid to boost productivity without resorting to "old style" subsidies.

They include a £500 package of aid distributed through the Department of Trade and Industry and the Regional Development Agencies; an extra £200m for the R&D budget to fund the large firm tax credit that will be introduced in April; a new system of training credits, proposed by the TUC and CBI, with funding of £150m; an additional £40m funding for the Start UP project aimed at the inner city unemployed to double the number of places.

"These recommendations look to the future," Mr Monks will say. "We want to see a world-class British industry created through effective and targeted investment to tackle our productivity gap.

"Old style subsidies and setting an objective of simply treading water will result in us slipping further behind."

According to official figures, manufacturing contracted by 2.3 per cent in 2001, the largest annual fall since 1991 when the UK was in the grips of a recession.

The Chancellor may have even more room for manoeuvre, according to a firm of analysts, which predicted the public finances would look rosier than the official Treasury forecasts.

The Centre for Economics and Business Research said public sector net borrowing in 2001-02 would be minus £4.7bn – a surplus – instead of the £2.5bn deficit projected in the pre-Budget Report. The deficit in 2002-03 is likely to come in below forecast as well.

The resilience of consumer demand in the face of the world downturn last autumn has helped to buoy up tax revenues and slow down the erosion of the surplus, it said.

But the report's author, Angus McCrone, said the public finances could deteriorate more quickly if the Chancellor delivered a big boost to Government spending in April, without corresponding tax rises.

"Just because both figures are working out better in the short term than the Treasury expected a few months ago does not mean that they can be ignored," he said.

He added that a fall in sterling, which was flagged up by the Bank of England as a key risk last week, would jeopardise the outlook for inflation and interest rates.

"All the more reason for Mr Brown to think about a tax rise in April to dampen domestic demand," Mr McCrone said.

Last month the Institute for Fiscal Studies, an independent think tank, said the Chancellor would have to raise taxes by £7bn if he wanted to maintain current levels of growth in public spending and retain his reputation for extreme prudence.

It suggested raising the ceiling on National Insurance contributions or hiking VAT rates.