The Committee criticised the Government for failing to consult with businesses, in particular small firms, on the impact of its tax policies. It echoed the views of the FPB, which responded to the Budget by arguing that most small and medium-sized enterprises would feel "betrayed and disillusioned" by the Government's tax measures.

"Research carried out by the FPB consistently shows that the burden of tax is, along with red tape, the priority concern of our members," said the FPB's Research Projects Manager, Thomas Parry. "This report reiterates what the FPB has been saying for some time – that the Government's disproportionate tax policies do not encourage growth and entrepreneurship, particularly in this time of economic instability."

In particular, the Committee targeted the sudden removal of indexation relief, by which Capital Gains Tax (CGT) calculations were adjusted favourably to take account of inflation. The report observed that "the feeling that the system is unstable and subject to severe shock cannot be good for competitiveness of the UK economy".

The FPB believes that the increase in the lower rate of corporation tax from 19% to 21% over the past 12 months, rising to 22% in April 2009, is unfair. The higher rate, paid by bigger businesses, is being cut from 30% to 28%.

There have also been accusations of widespread tax avoidance amongst big businesses, and the FPB is concerned about the Government's plans to impose supplementary business rates, and clamp down on ‘income shifting', which is a long-standing tax incentive whereby many small, particularly family firms ease their tax burden by distributing income to employees as dividends.

Despite its defeat in the Arctic Systems case in 2007, where the House of Lords deemed the practice to be lawful, and although it delayed the clampdown in the Budget, the Government remains intent on changing the law, hoping to raise an additional £200 million per year.

Lord Vallance, Chairman of the Committee, remarked that "our general impression from the evidence was that this year the formulation of the tax policy has been marked by uncertainty of direction". However, the FPB is concerned that the Government's recent policies on tax specifically target smaller businesses and their owners, and not larger companies.

Research, which was carried out at the end of 2007 as part of Referendum, the FPB's quarterly poll of members, revealed that a massive 97% of respondents believed that the Government's tax changes had made the UK a worse place in which to do business.

Following a further survey of the FPB's members ahead of the 2007 Comprehensive Spending Review, 67% of respondents said that reversing the decision to increase small firms' corporation tax would encourage them to reinvest in their businesses. Further, 49% indicated they would have extra funds to invest in skills and training, and 47% said they would be more likely to seek to grow their businesses.

FPB member Tim Rhodes, Managing Director of Skypark Freight in Liverpool, called the Government's tax regime "abysmal".

"They don't seem to be thinking of tomorrow. Small businesses are quite resilient and tend to bounce back, but all of these additional taxes are very trying," he said. "Often, it comes to the point where you ask if it's worth carrying on. We can hold on only for so long, after that, unfortunately, the result will be job losses."

According to the Committee's report, the Government failed to make a compelling case as to why the tax changes would benefit the UK. It suggested that a code of practice be formulated for future consultation on tax policy.