Business Reaction: Industry leaders criticise unchecked spending and 'worrying' borrowing

Business groups led by the Confederation of British Industry criticised the pre-Budget report as a "missed opportunity" by Gordon Brown, failing to rein in government spending and relying too much on higher borrowing and business taxes.

Sir Digby Jones, the CBI's director general, said: "Business is disappointed that instead of easing back on public spending growth, the Chancellor has opted to increase borrowing to worrying levels."

Sir Digby added: "The Chancellor's predictions are totally dependent on strong growth in the economy generally, yet he has failed to provide any significant and immediate productivity incentives to ensure that this growth is delivered."

The British Chambers of Commerce (BCC) and the EEF manufacturers' lobby group also viewed Mr Brown's growth forecasts as over-optimistic and worried about the prospect of tax hikes in next year's Budget.

The BCC said the Chancellor was right to halve his growth forecast for this year to 1.75 per cent, but expressed surprise that for 2007 and 2008 he is still predicting strong growth of 2.75 per cent and 3 per cent respectively. The group said this did not tie in with evidence of worsening business confidence.

Bill Midgley, the BCC's president, said: "The pre-Budget report has not addressed the serious concerns that public spending and borrowing remain too high - the Chancellor has raised his borrowing forecasts every year until 2010. Looking at 2006 and beyond, businesses are very concerned that excessive spending and borrowing may necessitate damaging tax increases."

The Institute of Directors called on Mr Brown to restrain public spending growth to 1.5 per cent annually in next year's comprehensive spending review. Its director general, Miles Templeman, said: "If growth does not materialise, taxes will have to rise unless the Chancellor takes an axe to public spending. The Chancellor can't guarantee economic growth, but he can cut public spending in order to keep the public finances under control."

The EEF criticised the continued flow of anti-avoidance measures, which is adding to the tax burden on business. Its director general, Martin Temple, said: "Time would be better spent simplifying the existing tax system rather than papering over its current complexities."

On the other hand, the business groups welcomed the freeze in fuel duties and various measures to boost skills and innovation.

The Federation of Small Businesses was generally happy with the small business measures and the simplification they will offer, in particular the increase in capital allowances that can be claimed by small firms on investment in factories and machinery. It also lauded the more flexible VAT payment schemes for small firms.

By contrast, the Forum of Private Business attacked the Chancellor's plans as a big let-down for Britain's smaller businesses, and said they condemned the country to be the poor man of Europe.

The BCC voiced concerns that getting rid of the zero per cent starting rate of corporation tax would harm the growth of small firms, adding it had hoped for more tax incentives to help small businesses.

The pound pared some gains against the dollar after the Chancellor cut his 2005 growth forecast, with traders speculating that the downgrade would increase the chances of another interest rate cut from the Bank of England.