Research undertaken by the accountancy information provider CCH indicates that tax professionals believe the Government should focus on small and medium-sized enterprises (SMEs), rather than large multi-nationals. However, the reverse seems to be happening. When accountants and tax specialists were asked which of 24 taxes should be cut to improve the long-term performance of the economy, 53% chose corporation tax paid by small businesses, compared to 11% who thought that corporation tax should be reduced for larger companies, despite the high profile relocation of multinationals such as WPP and Alliance Boots.

The FPB's tax adviser, Pat Cobham of Cobham Day Ltd, in Liverpool, said: "Considering this Government stated in its manifesto that it is trying to encourage entrepreneurs, it is now sending out completely the opposite message. The increase in corporation tax to 22% by 2009 will have a significant short term and long term impact on the economy as it is a disincentive to entrepreneurs."

Anecdotal evidence uncovered by the FPB suggests that this has already happened. Owner-managers are becoming tired of the consistent erosion of profits because of the tax burden, and the consistent increase in time and effort spent on red tape.

One FPB member, who is the proprietor of a health services business, said: "We seem to have lost track of what capitalism is for. We want to work to benefit our nearest and dearest but the current system does not seem to reward the people who pay their taxes."

SMEs employ just under half of the UK workforce. Professor Phil Whyman, of the University of Central Lancashire, who recently backed the FPB's ‘Think Smallest First' campaign, insisted: "What happens in this sector matters greatly to the future of UK PLC." Recent research released by financial specialist Begbies showed a significant increase in businesses on their ‘critical' list. Yet small businesses have borne the brunt of tax increases at a time when economic conditions are increasingly harsh.

The consensus from the FPB and tax specialists is that the Government needs to start thinking smallest first. If it continues to neglect SMEs then its own income from this sector will go into freefall. This will have devastating political as well as economic consequences.

The research from CCH did suggest alternative solutions. Increases in cigarette and alcohol duty were considered as the least likely to damage to the UK's economy, with an increase in the controversial tax on non-domiciled UK residents being the third most popular.