IoD advocates temporary £20 billion fiscal stimulus through 3p cut in income tax and 4p cut in corporation tax.

As the economic crisis intensifies, and as business leaders wait for details of the Government’s fiscal plans, the Institute of Directors (IoD) has published its representations for the Pre-Budget Report. The IoD calls for a large temporary fiscal stimulus, to be given through tax cuts financed by borrowing, but also emphasises the need for a clear route back to balanced public finances in the medium term. They claim that a fiscal stimulus is necessary because reductions in interest rates will not in themselves turn the economy round. The British and world economies are experiencing a once in a generation financial crisis where monetary policy is potentially pushing on a string. The stimulus should be given through tax cuts and not through increased spending, aside from one-off infrastructure projects which can be brought forward.

The recommendation is that taxes should be reduced by £20 billion for 2009-10 and the IoD proposes a 3p cut in the basic rate of income tax and a 4p cut in the main rate of corporation tax. They say that the Government should plan to phase out tax cuts over a five-year period, in order to bring the public finances back into balance. However, the IoD also indicates that it is essential to control public spending growth, both to minimise the risk that taxes will need to be put up again and to restore the credibility of the UK’s fiscal position with international investors. The IoD is calling for a strict new rule, limiting the real growth in public spending to 2 percent a year over any five-year period.

Miles Templeman, Director General of the IoD, said: "The British economy is facing a unique set of once in a generation challenges. In response to these threats we need to see an aggressive use of both monetary and fiscal policy. The Bank of England has stepped up to the plate and now 10 and 11 Downing Street must follow."

"Whilst the IoD continues to advocate a significant medium to long-term reduction in the size of the state we also recognise that extraordinary times call for extraordinary measures. Crucially however, our fiscal stimulus focuses on lower taxes and productive infrastructure investment. Almost the opposite of fiscal policy in recent years."