CBI President Martin Broughton warned Darling that "we now have a tax system which makes it harder for both British and foreign firms to justify investing in Britain".

Several high profile UK companies, such as Shire Pharmaceuticals and United Business Media, have said they will move their operations to Ireland to pay less tax.

With Labour on the ropes after a drubbing in regional government elections and well behind in opinion polls to the Conservatives, business has sensed now is the time to demand better tax terms.

AWKWARD COMBINATION

However, the government’s hands are tied in what can be done to cut taxes.

It is already increasing borrowing at a time when the economy is slowing down and recently had to announce a 2.7 billion pound package to help low income earners hit by the controversial abolition of the lower 10 percent income tax band.

Darling told the CBI he expects the economy to keeping growing but said rising inflation remains a risk to stability.

Britain’s policymakers, struggling to deal with that awkward combination, have largely blamed external forces.

Darling said he will ask the powerful G8 group of industrialised nations to work with oil producers to help bring down the cost of oil -- which has soared to record levels around $130 a barrel this year.

He also criticised the European Union for continuing to apply agricultural import tariffs to protect its farmers at a time when food costs were surging higher.

"It is unacceptable," he said. "The European Union ... has a responsibility to its own citizens to ensure that its policies do not unnecessarily inflate the cost of food."

After Labour brokered a deal with unions and business to give agency workers the same pay and conditions as full-time staff after 12 weeks, Darling said he would hold a tough line with the EU on how many hours workers can put in each week.

Britain has opted out of an EU directive calling for a minimum of 48 hours per week for employees. It is hoped that by giving temporary staff more rights, Britain will be able to appease its critics on the continent over working times.

"We shall continue to argue for the opt out, so that we can balance fairness at work with the ability to remain competitive at all times," Darling said.