British Business Group Lashes Out At Tax Policy

By Mike Wendling | July 7, 2008 | 8:12 PM EDT

London ( - Britain's largest business group was locked in a war of words with the government Tuesday over the level of taxation on U.K. companies.

The Confederation of British Industry (CBI) called on the Labor government to halt a "relentless and damaging" rise in taxes that the group says threatens to hurt Britain's competitive advantage over its European neighbors.

But treasury officials denied the organization's claims and said that pro-business policies enacted after Labor came to power in 1997 should be credited for at least a portion of British business success.

In a report submitted to Chancellor (Treasury Secretary) Gordon Brown on Monday, the CBI said increases in business taxes will cost firms a total of more than $70 billion between 1997 and 2005.

The CBI made its estimate by comparing rises in business profits with rises in Britain's gross domestic product.

The group also slammed the government for what it called a "build up of regulation and sluggish economic growth."

"Government ministers cannot keep siphoning off company funds without damaging investment, productivity and competitiveness," said CBI director Digby Jones. "That will reduce the ability for the government to invest in public services - the money will simply not be there.

"The chancellor is rightly leading firms into battle on productivity but wrongly weighing them down with an ever increasing tax burden," he said. "Where taxes go from here could be the biggest test yet of the government's pro-business credentials."

The U.K. government forecasts that the British economy will rise by up to 2.5 percent this year and 3.5 percent next year, but the CBI called the estimates "over-optimistic."

Since taking the helm at the Treasury Department, Brown has restructured the British tax system, winning raves from some businesses and groups and jeers from others.

He cut the overall rate of business tax, but in this year's budget Brown boosted payroll taxes to pay for public services such as health and education.

The government defended its budget plans. Treasury official Paul Boateng said the CBI's charges were "wrong and misleading" and that the net effect of taxation changes since 1997 had lowered the burden on U.K. businesses.

"We now have the lowest corporation tax rates in history," Boateng said. "We make no apologies for investing in public services."

Jones shot back Tuesday, saying that the CBI's projections were based on the Treasury's own statistics.

"There have been some welcome changes in corporation tax but these have been outweighed by other tax changes, including increases in taxes unrelated to profits," he said. "The fact is that the business tax burden has increased substantially and is now a significant threat to the UK's competitive position."

The opposition Conservative Party also spoke out on the debate and backed the CBI's claims.

"Under Labor, Britain is becoming over-regulated and under-competitive," MP Michael Howard, the party's treasury spokesman, said in a statement.

"The tragedy is that Labor's spending hasn't made the improvements to the public services that the British people want to see. Labor is failing the public services and failing British business," he said.

Later this month, Brown is expected to reveal preliminary details of the government's 2003 budget. Reports indicate that taxes to meet environmental targets could be increased as part of the budget report.

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