Brown's Finance Bill criticised

The result has been that the country has lost international competitiveness and foreign companies have been put off basing themselves in the UK, according to a House of Lords report.

Peers argue that the complexity of Britain's tax system combined with the uncertainty this causes have been at the root of the problem.

The Lords Select Committee on Economic Affairs urged the Government to consult widely with industry in moving forward with simplification of the tax system.

It argued that small businesses need certainty and simplicity from the tax system as much as big business and should be widely consulted on proposed tax changes.

There is also criticism of the frequent changes in small companies' rate of corporation tax over recent years.

This has led to small businesses making commercial decisions, such as whether to incorporate, for tax rather than business reasons.

Peers see this as a significant weakness in the way the Treasury and HMRC have dealt with small firms.

The inquiry also looked in detail at other aspects of the Finance Bill, the provisions to deal with Managed Service Companies (MSCs) and new criminal investigation powers and civil penalties for errors in tax returns.

The Lords also considered measures dealing with online filing and electronic payment. They warned that the Government proposals on MSCs are a "sticking plaster".