IT beggars belief that when all the economic forecasts are pointing to a marked slowdown in economic activity, the Government has decided to lumber business with record tax increases.

A staggering tax hike of more than £4 billion came into effect at the beginning of this month. And this was despite a reduction of 2p in the headline rate of corporation tax.

At a time of increasing uncertainty and with an economic slowdown on the cards, government should be helping that part of the economy which creates jobs and wealth, not shackling it with crushing tax rises.

Hard-pressed companies, which are already paying high rates of tax, will find life getting even tougher. And the 1p in the pound increase to the small firms' tax rate will deal those companies a heavy financial blow.

The problem is that the Government has got us into this mess by failing to manage the public finances in a responsible fashion. Despite enjoying a decade of strong growth and stable economic conditions, it has little room for manoeuvre to give the economy a shot in the arm when it's most needed.

The UK has been slipping down the league table for international tax competitiveness for years and has become increasingly less attractive to overseas investors.

According to the World Economic Forum, the UK has dropped from fourth place in 1998 to 15th in 2003 on the Global Competitiveness Index. The latest tax changes will make this decline even worse. And they certainly undermine any claim the Government might make that it has the interests of British business at heart.

The situation has also been exacerbated by the abrupt changes to capital gains tax and the reforms of non-domicile taxation. These are personal issues rather than business tax matters, but they have a major impact on the overall business climate.

A recent report by an independent task force commissioned by the CBI argued that the UK business tax regime needed a radical overhaul and that a reduction in the headline rate of corporation tax to 18 per cent would actually increase tax receipts over the longer term.

And the problems don't stop with tax increases. Several new employment regulations also came into force at the start of the month, including new rules on consulting employees in small firms and amendments to discrimination law.

These changes will add £303 million to business costs and bring the total cost of the 42 employment regulations introduced since 1998 to £49 billion.

  • Contact Steve Rankin at the CBI on 01252 360420