Business will pay extra £4.2bn in tax over next three years as economic outlook worsens

The net increase comes despite the 2p cut in headline corporation tax and undermines the government's claim to be boosting the UK's international tax competitiveness.

At a time of economic slowdown and uncertainty, the government should be helping business keep the economy growing, not raising taxes, the CBI said. However, its analysis of this month's new tax rules shows that UK businesses will pay a net total of £4.21bn in taxes by 2010/11 on top of existing financial demands.

Breaking this down, companies will pay an extra £1.84bn in tax in 2008/9, £1.24bn in 2009/10, and £1.13bn in 20010/11.

The majority of this comes from the loss of plant and machinery investment allowances and the abolition of empty property relief.

The penny in the pound increases to the small business tax rate (from 19% to 20% last year, rising to 22% in 2009/10) will also deal smaller companies a heavy financial blow.

Today (Sunday) John Cridland, deputy director-general of the CBI, said: "When the economy is slowing, the last thing a government should do is raise taxes on the part of society which creates jobs and wealth, but that's whats happening. "The consequence will be that hard-pressed companies, which are already paying high rates of tax, will find life getting even tougher. "Despite enjoying a decade of strong growth and stable economic conditions, the government has little room to manoeuvre to give the economy a booster shot in the arm when most needed - instead it is leaning on the business community to shore up its finances."

Mr Cridland continued: "The UK has been slipping down the league table for international tax competitiveness for years and has become increasingly less attractive to overseas investors, and today's changes will make this even worse.

"This has been exacerbated by the abrupt changes to capital gains tax and the poorly handled reforms of non-domicile taxation - personal issues rather than business tax but ones that heavily influence the general business climate."

Last month an independent taskforce commissioned by the CBI published its analysis of the UK tax regime and argued that the system was in need of a radical overhaul.

It used dynamic analysis to show that cutting the headline rate of corporation tax to 18% over eight years was not only affordable but would boost tax receipts over the long term.

According to the World Economic Forum, the UK has slipped from 4th place in 1998 to 15th in 2003 on the Global Competitiveness Index.

While the UK's corporation tax rate was third lowest in the EU in 1997, it is now the sixth highest and the effective average corporation tax rate is the eighth highest in the OECD.

In addition to the tax changes, several new employment regulations also come into force on Sunday, including new rules on consulting employees in small firms and amendments to discrimination law. These changes will add £303m to business costs and bring the total cost of the 42 new employment regulations introduced since 1998 to over £49bn.