With the economy on the rocks and poll ratings at historic lows, the last thing the Government needs is business in revolt. But that is exactly what it has got — and the rebels are voting with their feet.

Offices giant Regus, asset manager Henderson and engineering group Charter last week joined the growing list of firms to quit the UK for more competitive countries.

Fears are rising that Britain is now at a tipping point and what has so far been a drip-drip-drip of companies heading overseas could soon turn into a mass exodus.

The Government should dismiss this at its peril. Just ask Sir Martin Sorrell, head of advertising and communications giant WPP, who is also considering his firm's position. “This isn't an idle threat,” he told the Evening Standard.
Britain and London are losing the competitive edge. And it's largely down to tax.

The Government cut corporation tax to 28% from 30% in April — a far better rate than in the likes of Germany, France and the US but still higher than Ireland, where it is just 12.5%. The Tories are urging the Chancellor to cut corporation tax to 25% in the autumn Budget as an initial step, arguing that Britain had the fourth-lowest rate of tax in the European Union in 1997 but now has only the 19th lowest.

In the World Economic Forum Global Competitiveness Index, the UK slipped from fourth place in 1998 to 15th place in 2003 and has since been hovering around ninth or 10th. While the index measures everything from infrastructure to education and crime, it says tax rates and tax regulations are the most problematic factors for doing business here.

The Treasury insists the UK offers one of the most competitive business tax regimes of any major economy — and it does — but the City wants more, and whichever way you look at it, Britain is not as competitive as it once was.

It is not just the rate of corporation tax which is an issue. The Government is looking at the way UK-based companies pay tax on foreign earnings. Currently they pay twice, overseas and in the UK, but the plan is for dividends paid by overseas subsidiaries to be exempt.

Good news, you would think, but the plans have been delayed, are light on substance and as ever with Gordon, the money will be clawed back somehow. The review continues, but some firms are jumping ship now rather than waiting for the outcome. That business does not trust the Government to deliver the goods is hardly surprising given the last 12 months or so. Botched tax reforms involving non-domiciles, capital gains tax and the 10p rate have left the Government's reputation in tatters.

They have also given the City the impression that Brown and Alistair Darling are anti-business. While cities around the world are bending over backwards to attract business, Labour seems intent on pushing it away.

While tax is the main issue, there are other factors at work, including:

Transport
Heathrow, the ageing Tube, traffic congestion, commuting times, delays to Crossrail — the list of complaints from business about the state of London's transport system is mammoth. Baroness Valentine, chief executive of City lobby group London First, warns Heathrow has been “turned from a silk purse to a sow's ear”. The upside, of course, is it is a unique transport hub, ideally located for both America and Asia.

Commuting was singled out by Kraft foods for its departure to Switzerland. Similarly, Regus chief executive Mark Dixon says of his firm's move: “Luxembourg is a very easy place to do business. It is a lot smaller than London for a start.”

Office costs
The West End is the most expensive place in the world to rent an office, with prime sites charging more than £100 a square foot and some as much as £140. Although the City costs far less, around £60, this still towers over New York, Tokyo, Paris and Frankfurt. Indeed, property firm NB Real Estate reckons only Moscow and the West End are more expensive than the City.

Technology
In the era of email and broadband, it's no longer as vital to be located in a major global city. “You can be based almost anywhere these days,” says Dixon of Regus. And despite the size of big firms, the executive team is often small and mobile. Sorrell has only a tiny head office in Farm Street, Mayfair. As he travels the globe, his email is manned 24 hours a day by two assistants.

Lifestyle
There may be many perks about living in London but value for money isn't one of them. For big companies, the problem is not just about paying their own corporate bills — staff are finding it harder to live in and around capital. In the 2008 Mercer Worldwide Cost of Living Index, London is the third most expensive city; in Europe only Moscow costs more. Cities such as Geneva, Zurich and Dublin are around 12%-15% cheaper than London, and Luxembourg is more than 30% cheaper.

Some companies may be starting to flee, but let's not forget the many pluses about living here: culture, entertainment, food, people. For those working in finance, London remains a hot-bed of talent and money, home to the world's best bankers, lawyers, accountants and marketeers.

Meanwhile, the City is still the biggest global source of capital. London massively outstrips Wall Street in luring foreign company stock-market flotations such as Kazakhmys, ENRC and Vedanta.

Few other cities can compare, whatever the beancounters and tax avoidance experts may say.

Where would you rather live — Luxembourg or here?