Slash tax burden or leave Britain diminished on world stage, Hunt warned

Jeremy Hunt must cut the tax burden on companies in his Budget next month or leave Britain diminished on the world stage and struggling to attract investment, the country's biggest business group has said.

Tony Danker, the director general of the Confederation of British Industry (CBI), said Mr Hunt's actions would make the difference between growth and recession.

He warned that a planned rise in corporation tax would badly damage investment unless existing exemptions are extended, and said that prosperity is at risk unless the Chancellor acts decisively.

It came as separate data from the Paris-based Organisation for Economic Co-operation and Development (OECD) showed real wages in Britain are still falling even as workers in Germany and France see their wages rebound.

Mr Danker said: “Companies are coming into this year cautiously optimistic that things may not be as bad, but with recession scenarios in their heads.

“People are pausing and waiting to see before investing. And I think that another headwind would definitely make them pause. And I think a tailwind would make them invest.

“If they come away from the Budget thinking that it was all doom and gloom, then I think they'll pause on investment. And that could be the difference between whether or not we have a recession this year or not.”

Mr Danker said that introducing a permanent allowance to replace the so-called super-deduction – which allows companies to cut their tax bill by up to 25p for every £1 they invest – would provide an incentive to spend at a time when corporation tax is due to rise from 19pc to 25pc.

The CBI used its Budget submission to call on Downing Street to encourage more people into the jobs market by expanding childcare support and helping employers to support staff health needs through employee tax breaks.

Labour shortages were effectively leaving businesses with “one hand tied behind their backs”, the CBI said, while measures to boost green growth are also needed “to ensure the country doesn’t fall further behind”.

Mr Hunt has said he will prioritise tax cuts for businesses once the economic backdrop brightens, vowing this week not to borrow to fund a reduction in levies. Treasury sources played down the idea of any tax cuts in the March 15 statement, saying lowering inflation and getting more people working remained a priority.

The CBI said investment incentives were being pulled away “just at the time we need them most”.

Mr Danker added: “We know the economy can – and must – break out of its low growth trap, but we will need action on business investment to achieve it. Firms are seeing the end to the super-deduction with nothing to replace it but a big rise in corporation tax. This will have a huge impact on investment and leave the UK falling behind its global competitors.”

Separately the OECD said that Britain is the only European G7 country where incomes continued to fall last year after adjusting for inflation.

Figures published on Wednesday show average real income in Britain dropped by 0.6pc between July and September as soaring inflation chipped away at purchasing power.

That contrasted with average growth in real incomes of 0.2pc across OECD countries where data is available.

Households in Germany, France and Italy all enjoyed rising real incomes, with French families benefitting from the largest boost in purchasing power, at 0.8pc.

Incomes stagnated in the US and declined slightly in Canada over the period. However, Britain suffered the steepest drop across the OECD.

High inflation was to blame for the blow to household spending power, the OECD said.

In the UK, inflation was 8.7pc in the three months to September, while it was 8.5pc in Germany, 8.4pc in Italy and only 5.9pc in France.

Britain is suffering the largest loss of purchasing power since the oil crisis in the 1970s, according to another analysis published by the Office of National Statistics (ONS) on Wednesday.

The OECD and ONS's findings come during another wave of mass strikes across Britain, as industrial disputes over pay and working conditions, triggered by soaring inflation, continue across the public sector.