Premiums lifeline for businesses

CHANCELLOR Gordon Brown is set to throw a £200m lifeline to businesses hit by spiralling insurance premiums. He is expected to use his Pre-Budget Report on Wednesday to cut Insurance Premium Tax from 5% to 4.5%.

Intensive lobbying by business organisations has highlighted soaring insurance costs in the wake of the September 11 terrorist attacks and the general rise in the numbers of claims by employees for work-related injuries.

Because employers' liability insurance is compulsory, there are fears that substantial numbers of smaller firms will be driven to the wall.

A cut of 0.5 of a percentage point in the premium tax would cost the Treasury £200m. But because it is levied on the value of premiums, Brown has enjoyed a £300m windfall from the higher rates charged during the past year.

It is thought, however, that the Chancellor has rejected calls for the Government to offer itself as 'insurer of last resort' for firms unable to buy cover in the commercial market. The Treasury is believed to feel such a liability should not become a burden on the taxpayer.

Earlier this month, the British Chambers of Commerce said almost 20% of manufacturers had seen premiums rise by between 50 and 100%. The Confederation of British Industry has also called for action.

Brown will address the CBI annual conference on Monday, and director-general Digby Jones said this weekend: 'This will be a pivotal moment in the Government's relationship with business.' Jones is calling for cuts in business taxation and red tape.

Jones added that he wanted the Government to stand firm on public sector reform and to reject irresponsible wage claims. Were it to weaken, 'the signal to the rest of the world that we are back to the bad old days would be huge', he said.

And he criticised the Trades Union Congress for demanding ever-more employment regulation. 'They tell us they want to be partners,' said Jones. 'But partners do not behave in that way.'

How alrm bells rang to quell Brown's optimism

ON April 17, after five years in office, Gordon Brown finally delivered the Budget he had always wanted to present.

Tight control of public spending ended with plans to lavishbns on the NHS and take total state expenditure to record highs.

Brown raised the estimate of Britain's long-term growth rate from 2.5% a year to 2.75%. But as 2002 has worn on, alarm bells have sounded, warning the Chancellor of danger ahead:

Falling tax receipts. Income and corporation tax revenues for the first six months of the financial year were on the slide.

Britain's trading partners were in deepening trouble, cutting demand for UK goods. In September, Brown admitted Japan and continental Europe were mired in difficulties. The US, he said, needed urgently to restore confidence in its corporate sector with a legal and ethical clean-up.

The International Monetary Fund warned on September 25 that too much money was leaking from the London stock market into house price inflation.

Brown's aides warned that the Chancellor may have to lower his upbeat spring growth forecasts.

By mid-October, it emerged that the stock market slump had cost Brown £4bn in lost tax revenues. The Bank of England warned of 'remarkable imbalances' in the UK economy.

By November Brown's growth forecasts were in tatters. City analysts predicted 1.5% this year and 2.5% next year. Brown is certain to backtrack this week.