CBI chief denies rate rise could stifle recovery

John Cridland, the CBI director-general, played down fears that a rate rise would throw a tentative recovery off course as his organisation's lengthy Budget submission also called for a "route map" to get rid of the "damaging" 50p top tax rate.

Cridland, speaking ahead of the Bank of England's decision on rates this Thursday, said the CBI did not expect an imminent hike. But he added: "I don't think a modest increase in interest rates would destabilise an export-led recovery."

His view contrasts sharply with some other business bodies such as the British Chambers of Commerce, which again warned at the weekend of monetary tightening potentially stifling recovery.

In a sign that business leaders are increasingly more worried about inflation than interest rate levels, Cridland said: "We must not allow inflation to get back into the national psyche as a given."

He argued that the 50p tax rate, which goes up to the "psychologically important" 52p with national insurance rises, was damaging Britain. He said employees had a natural resistance to giving more to the taxman than they brought home.

Top earners should shoulder their share of the tax burden amid the deficit crisis, he said, and the CBI was not calling for an immediate cut. But it wanted a clear sign from Chancellor George Osborne that the 50p rate was not permanent.

It was "damaging our attractiveness to mobile talent", Cridland said. "It's damaging the City of London but it's not just a City of London issue. I get this from middle managers in the north of England."

The CBI also urges government encouragement for a new corporate bond market to meet the financing needs of Britain's mid-caps to help them contribute to the economic recovery. Corporate bonds are mainly used by big companies.

"The mid-caps is our forgotten army," Cridland said. "We don't talk about it like the Germans do their Mittelstand, We don't nurture it."

Other proposals from the CBI to Osborne are speeding up the planning system to stimulate infrastructure investment, and encouraging companies to become more energy efficient by restoring the incentive element of the carbon reduction commitment.

The CBI urges the government to press ahead with making the export credit guarantee department more accessible to smaller exporters; avoid relocalising the uniform business rate; promote more competition in public services delivery; and pilot growth zones to attract investment and help Britain deliver what Cridland called "a job-rich recovery".The CBI also tells the Chancellor that it does not want the Bribery Act scrapped, but it could currently mean regulatory uncertainty in key markets and clearer guidance on its scope was necessary.

He said the CBI remained in favour of the "painful, but necessary" public deficit reduction that seeks to slash Britain's fiscal debt from 11 per cent of GDP to 2 per cent by 2014.