The business lobby group has urged the chancellor to adopt an £11.5bn shopping list of measures in the autumn statement.
The CBI’s call for a “more flexible approach” to Britain’s public finances, with significant spending on infrastructure projects and cuts to business taxes, follows growing concerns inside the Treasury that tax revenues are falling and growth is slowing, limiting Hammond’s room for manoeuvre as he plans the next five years of government spending.
A report from the Resolution Foundation on Wednesday forecast an £84bn shortfall in the Treasury’s finances against the projections to 2020-21 made by the then chancellor George Osborne in March.
Hammond said he would “reset” the public finances in response to the Brexit vote, and an expected shortfall in tax revenues and lower GDP growth, fuelling expectations that spending will be increased in the autumn statement next month.
But he has ruled out a spending “splurge” and emphasised the limits on the Treasury’s capacity to increase borrowing while Britain’s relationship with the EU remains uncertain.
The CBI said the chancellor could spend more than £11bn and remain on track to meet his goal of balancing the books over the business cycle, particularly because its proposals were designed to increase productivity and growth.
Carolyn Fairbairn, the CBI director general, said: “The chancellor should capitalise on the UK’s core strengths, setting out a pro-enterprise agenda that instils confidence and kickstarts investment.
“With huge variations in productivity between different parts of the country, the top priority must be to set out a programme that will get our regions firing on all cylinders and supports businesses to innovate, invest and create jobs in the years ahead.”
She said Hammond should reverse, at a cost of £6bn, cuts that took public investment below 2% of GDP, and fast-track £425bn of planned infrastructure investment, switching the emphasis from London and the south-east of England to the west, Midlands and north.
The CBI has long campaigned for the Treasury to support road-widening schemes and rail upgrades in order to improve the UK’s infrastructure, while backing projects such as the third runway at Heathrow and the HS2 high-speed rail line.
Hammond was urged to spend £2.1bn on extending maternity leave to encourage more women to return to work, An increase in maternity leave from nine months to a year would bridge the gap with the earliest date from which parents can claim childcare support. The government’s childcare voucher scheme, which subsidises a nursery place or childminder, takes effect at 52 weeks.
Rain Newton-Smith, the CBI’s chief economist, said small changes to business rates could also encourage investment. Under current rules, spending on solar panels and machinery can be counted as improvements to business premises, triggering extra business rates.
She said the £200,000 annual investment allowance should be raised to £1m until the end of 2018 “to increase the attractiveness of near-term investment”.
Fairbairn said: “With interest rates at rock bottom, now is the time for the UK to put serious effort into improving our creaking infrastructure.
“We would like to see £6bn more spent each year on public investment: improving our transport and digital network, building more homes and extending regional funding.”
