Gordon Brown should cut the equivalent of £8 billion out of his already tough public spending plans for the next three years to make room for cuts in business taxes to bolster Britain’s faltering competitiveness, the CBI is to tell the Chancellor.

As Mr Brown prepares for an expected move to No 10 over the summer, the CBI today uses a submission on this autumn’s Comprehensive Spending Review to urge him to combine still-tougher curbs on future spending growth with radical public sector reforms.

In his March Budget, the Chancellor announced that, after inflation, growth in public spending from 2008-09 to 2010-11 will be cut to just under 2 per cent a year, sharply down from the 4 per cent a year pace enjoyed since 2000.

Today the CBI urges Mr Brown to turn the screws yet tighter, curbing spending growth to just 1.6 per cent a year in real terms. Compared with the Chancellor’s plans, the CBI’s proposals would mark an effective cut in cash terms of £8 billion by 2010.

The leading employers’ organisation argues that this even tougher public spending plan would allow Mr Brown as prime minister, along with his successor as chancellor, to cut the overall tax burden as a share of national income and to create scope to cut business tax. It insists that reducing the corporate tax burden is essential in the face of growing competition from low-tax economies in the developed world and in emerging markets.

“Increasing global mobility of capital and labour will place more pressure on government to limit and ultimately lower the tax burden,” Ian McCafferty, the CBI’s chief economic adviser, said.

Under the CBI’s spending programme, tax as a proportion of GDP would drop to 37.6 per cent by 2010-11, against the 38.1 per cent set out in the Budget.

With ministers already likely to struggle to work within the Chancellor’s more generous spending plans, the CBI’s proposals are unlikely to find favour with Mr Brown.

The business group’s detailed breakdowns of its preferred spending priorities show that its plans imply, for example, spending growth for the NHS of just 2.4 per cent a year in real terms over the three-year period. That is far below the 4.4 per cent minimum pace envisaged by the Wanless review and something that Mr Brown is likely to see as politically untenable.

The CBI wants the Chancellor to prioritise spending on the environment; education and skills; science, technology and innovation; and defence and policing.

It tells Mr Brown that, by combining tough spending constraints with more far-reaching public sector reform, he need not compromise front-line services while leaving Britain better placed to cope with global economic and strategic challenges.

Today’s submission calls for the Government to provide far fewer public services directly and instead commission them from private sector groups, while introducing greater competition and market forces into key public services.

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