Red tape hope - and tax rise fear

Britain already has one of the biggest and most complex business tax systems in the world, with much of the extra strain piled on since Labour came to power. Darling has said he plans to hack back and simplify scores of taxes and regulations, but experts warn his predecessor Gordon Brown made similar pledges while generally making the situation worse.

PricewaterhouseCoopers tax partner John Whiting said: "The amount of legislation has grown enormously, without a doubt. This is understandable on one level: life is more complex, businesses are more complex, but the tax system is widely seen as too complex and burdensome on businesses."

At a time when most of Darling's potential financial moves have already been kiboshed by Brown's previously announced spending commitments, red tape is one of the few areas where he still has the room for impressive soundbites.

Whiting said: "All he has to do to make a good impression is say in this first Pre-Budget Report that he is really committed to simplification for businesses. A good start would be for him to say 'I am here, I want to address this problem, send me your ideas'."

Ernst & Young partner Patrick Stevens agrees that his most likely move will be to announce a number of reviews into unnecessary legislation.

Reviews will be launched particularly into big companies that are seen as "low risk". Revenue & Customs has for three years been adopting a more risk-based approach, where companies who are clearly not making a big effort to cut their tax bills with excessive offshoring or complex financial structures.

"The risk-based approach has had a certain amount of success, so it would be entirely reasonable for the Chancellor to say he will push the system further. Darling can at least pin any further announcements on something that has visibly been done already," Stevens said.

However, E&Y warned the Chancellor not to make "simplifications" that actually create extra hassle for businesses.

"The challenge is to simplify it enough that the effort of learning the new rules does not outweigh the alleged benefits. Simply tinkering with the system will lead to more complexity."

The CBI today urged Darling not to put more taxes on the shoulders of smaller businesses, which suffered under the March Budget. Brown cut corporation tax but increased the rate paid by smaller businesses, steadily rising from 19% to 22% by 2009.

The CBI pointed out that, while the reduction in corporation tax was welcomed, announcements in that Budget meant business would be paying £1.6 billion extra in taxes next year.

But Grant Thornton reckons business will be hit with further taxes in areas like the environment. A raft of "polluter pays"-style initiatives are expected to add many millions to the tax bill and boxticking costs of the private sector.