Brown: Taxing and spending?

Gordon Brown's "tax and spend" approach is damaging Britain's economy, top bosses have warned.

Publishing its own "pre-Budget report" on Monday, the Institute of Directors said that the long term growth rate of the economy was being hit by the chancellor's policies.

"In an advanced economy such as the UK, extra public spending is unlikely to increase long term growth, but extra taxation is likely to reduce it," said the IoD's Graeme Leach.

The lobby group warned that between 1996/97 and 2008/09 there was likely to be a 3.5 per cent rise in the UK tax to GDP ratio.

Such an increase would reduce trend GDP growth below 2.5 per cent a year, said the report.

Leach added that there could be a "potential double jeopardy" because Treasury projections show demographic changes could also result in a tail-off in GDP growth.

"In only a few years, a combination of tax and demographic influences is likely to push trend GDP growth towards two per cent, unless there is an offsetting increase in productivity," he said.

To prevent the problems from growing, the IoD called for a new fiscal rule, committing the government to reducing the tax burden as a proportion of GDP.

"A new third rule could yield substantial long-term benefits to the UK economy, most notably in faster GDP growth as a result of a lower tax burden," said Leach.