SMALL firms reacted positively to many of the measures announced in the Chancellor's recent Pre-Budget Report, particularly on lowering Capital Gains Tax, payroll support and tax credits for training, but urged that the Government remain fully on course to meeting planned investment in education and transport.

Reacting to the report, Anthony Goldstone, President of the British Chambers of Commerce said: "While the UK economy remains better placed than before to withstand external shocks, the sting in the tail may come in next year's Budget and Spending Review.

"It is critical, both in terms of productivity and credibility, that this Government delivers on its existing spending pledges, before making any new promises. With many firms now, and in the short term, struggling to survive, the Chancellor has provided some respite, and this will support business confidence.

"However, in the medium and longer term, what business needs most is the promised investment in education and skills, and in transport.

"Whilst simplification in the area of VAT and payroll is welcome, more needs to be done to alter radically the cumulative burden of regulation on business. Government is in danger of creating a whole new industry in red tape reviews, when what business wants is action."

Commenting on the specific detailed measures announced, David Lennan, Director General of the British Chambers of Commerce said on investment in skills: "Business will welcome that the Chancellor has left the door open on the training tax credit. This could make a real difference for small businesses, which make much use of external training facilities, and must bear the additional costs of time off or overtime for staff that are training off-site."

On Capital Gains Tax: "At last a Government has realised that penal rates of Capital Gains Tax (CGT) stifle business investment and actually lead to a lower tax take. Lowering rates of CGT below US levels is an excellent achievement, which the Chancellor deserves fulsome praise for."

On promoting innovation "Promoting innovation is the fast-track route to higher productivity in the UK and we welcome the package of measures on R&D and science announced today. The extension of the R&D tax credit to large businesses makes sense and it is about time the UK fell into line with other countries' practices on the taxation of intellectual property.

It is imperative, however, that R&D and science are not seen as the preserves of large businesses and that there is more encouragement and help for small businesses to link up with our universities.

On tourism "The effects of foot and mouth, the general global slowdown and events of The 11th September have hit tourism hard. It is a pity that the Chancellor did not use this occasion to bolster our tourism sector with some much needed help, for example providing more funding for the Rural Task Force Report, or temporarily suspending air passenger duty."

In their pre-Budget submission A Blueprint for Prosperity, the Chambers of Commerce called for measures to sustain survival and build recovery in the UK's small firms sector.

A package of recommendations targeting aid to struggling manufacturers, supporting business compliance with government regulation, and offering technology investment and training incentives to small firms.

Interest Restraint

oREACTING to the Bank of England's December decision to hold interest rates at 4.0 per cent, Ian Fletcher, Chief Economist at the British Chambers of Commerce, said: "Business will welcome the MPC's restraint in keeping rates on hold. Output growth remains strong despite the downturn abroad, and the consumer-side of the economy appears to be bearing up well. There is no reason why we should not avoid recession with appropriate support and it is much better that the Bank pauses and takes stock of the economy. The Bank's surprise half-point cut last month was a strong vote of support for British firms, and the domestic news since does not warrant another cut. Today's decision will be seen as prudent but the Bank should continue to monitor events closely and make further cuts if necessary to boost confidence and spending."

At its meeting last month, the Monetary Policy Committee (MPC) of the Bank of England cut interest rates by 0.5% last month to 4.0%.