Business leaders tonight reacted with fury to plans to increase national insurance by even more than first planned.

"This is madness," said Stephen Robertson, director general of the British Retail Consortium.

Alistair Darling said that the rate for employees will go up by 1% in April 2011 rather than the 0.5% initially planned.

For earnings below £43,875 it rises from 11% to 12% and above that level doubles from 1% to 2%.

The rate at which national insurance starts to be paid was raised from £5715 to £6285 - meaning no one earning less than £20,000 will be affected.

Employers' national insurance will also go up from 12.8% to 13.8% across the board at the same time.

Colin Stanbridge, chief executive of the London Chamber of Commerce and Industry, said: "Increasing national insurance is a tax hike for both employers and employees that will hit Londoners hardest because typical salaries are higher in the capital."

John Wright, national chairman of the Federation of Small Businesses, said: "Raising national insurance is an attack on jobs and shows a real lack of vision from the Government on tackling the key challenge of rising unemployment.

"This report should have encouraged and rewarded job creation in 2010, rather than imposed this tax."

CBI director general Richard Lambert said: "The Chancellor has made a serious mistake imposing an extra jobs tax at a time when the economic recovery will still be fragile.

"Increasing the national insurance contribution will hold back job creation and growth."