Gordon Brown accused of 'economic vandalism' over 50p tax rise as IMF issues warning over 'dire public finances'

Enlarge  

Gordon Brown speaks at the Confederation of British Industry's (CBI) annual dinner last night

Gordon Brown was forced to defend his decision to hit top earners with a 50p income tax rate after a business leader branded it an act of 'economic vandalism'.

CBI president Martin Broughton accused him of using the rise to hide a 'failure' to tackle a huge budget deficit as the Prime Minister looked on at the organisation's annual dinner last night.

Mr Broughton issued a direct challenge to Mr Brown to review Government spending priorities and focus on its core activities to bring down the budget deficit.

If business was responsible for the deficit it would reform public sector pensions, tackle the 'mismanagement' of services and discontinue non-core activities, he said.

Mr Broughton made clear that although the government's initial response to the financial crisis had been admirable, initiatives had run well ahead of implementation and much remained to be done.

With the UK in the teeth of a major recession, he described last month's budget as his 'biggest concern'.

He continued: 'The use of heroic growth assumptions, together with a timetable extended to 2018, amounted to a serious failure to address the deficit in a way that gives confidence to buyers of our debt.'

The government's introduction of a new 50p income tax rate was an attempt to 'divert media attention away from this failure', he said.

'Tearing up the manifesto commitment to the country's entrepreneurial class - the major job creators - was nothing short of economic vandalism. What's more - the tax take is likely to be minimal,' he added.

In an unscripted response, Mr Brown said: 'I say to Martin that we are, and have, identified very substantial efficiency savings.

'We are ready to sell off very substantial numbers of assets and have nominated those assets, sometimes controversially.

Incoming CBI President Helen Alexander and outgoing CBI President Martin Broughton

'We are demanding efficiency savings in the public sector. Every minister... will confirm to you that these efficiency savings are real and efficiency savings that have got to made in the interests of the economy.

'But the worst thing we could do at the moment is choke off the possibility of growth. That would mean there would be higher debt and higher deficits over the next few years.'

The PM went on: 'I regret the fact that in our plan for sustainable public finances...we have also had to take decisions on taxation.

'It is not my desire, or my wish, or the Chancellor's desire or wish to raise the top rate of tax. That is not something we wanted to do.

'But we have to have a plan for sustainable public finances and included in that must be decisions we made about taxation.'

Basic rate income tax, corporation tax and capital gains tax rates had all been lowered over recent years, he pointed out.

'But we have to make long-term decisions for our country based on what we believe is both fiscally affordable and necessary to do.'

The Prime Minister told the 1,200 businessmen and women that he believed that Britain could become one of the 'great economic powers' of the next few decades despite the current recession.

Alistair Darling
Victor Blank

Troubled: The Chancellor Alastair Darling and former Lloyds Baking Group chairman Sir Victor Blank

Stressing that he did not have a prepared speech to the event, the Prime Minister said the recession was not caused by high inflation or interest rates and said other countries were suffering just as much if not more than the UK.

He admitted the UK was in the 'eye of a storm' but he said he was convinced that working together with businesses, the difficulties could be overcome.

Mr Brown added that the world was suffering a major trade crisis that had followed the banking crisis.

He told the business leaders: 'The worst thing we can do is choke off the possibility of growth.'

The Prime Minister spoke as fresh evidence of the dire state of the public finances was due this morning when borrowing figures for April are published.

They are expected to show net borrowing of around £8.1 billion for the first month of the financial year - compared with £1.9 billion 12 months earlier - according to consensus estimates.

But the picture will get far grimmer as recession bears down on revenue streams such as corporation tax and stamp duty, while unemployment heading towards three million leads to soaring benefit payouts.

In last month's Budget, Chancellor Alistair Darling predicted borrowing would reach a record £175 billion in the current year - 12.4 per cent of Britain's entire annual economic output - as measures to help the economy, such as the temporary VAT cut, add to the bill.

The Chancellor has pencilled in an extra £700 billion in borrowing over the next five years but faced criticism over his predictions of a rapid economic recovery following the Budget.

If these prove unfounded, the outlook for the public finances will get even worse.

The Bank of England's Governor Mervyn King warned last week of a 'relatively slow and protracted' recovery as rate-setters downgraded growth forecasts after a worse than expected 1.9 per cent output in the first quarter of 2009.

And the International Monetary Fund yesterday said sorting out the public finances was 'not going to be easy' with policymakers needing to target a 'more ambitious' plan to reduce the debt burden when a recovery is firmly under way.

No comments have so far been submitted. Why not be the first to send us your thoughts, or debate this issue live on our message boards.

We are no longer accepting comments on this article.

Who is this week's top commenter? Find out now