CHANCELLOR Alistair Darling's Budget was met with scepticism from the business community yesterday, amid deepening concern over the state of the public finances and the outlook for taxes.

CHANCELLOR Alistair Darling's Budget was met with scepticism from the business community yesterday, amid deepening concern over the state of the public finances and the outlook for taxes.

Despite being forced into an embarrassing downgrade in his forecasts for economic growth this year - from minus 1% in his pre-Budget report last autumn to minus 3.5% yesterday - Mr Darling clung to hopes of a return to growth towards the end of the year.

But business groups dismissed his optimism as misplaced, and said the Chancellor's failure to tackle soaring borrowing and debt figures more decisively was storing up greater problems for the future.

“As a nation we have to face up to some very difficult choices,” said Miles Templeman, director general of the Institute of Directors “We either squeeze public spending or higher taxation squeezes the life out of the economy.

“Whilst today's Budget does reduce the rate of growth of public spending the scale of the fiscal deterioration in the UK means that extraordinary measures are required. The IoD has called for a real terms freeze in spending which extends for more than one Parliament - once the recovery is underway.”

Mr Templeman added that the Chancellor's plan to the increase in the top rate of Income Tax to 50% also sent out “all the wrong signals” and would undermine the UK's attractiveness as a place to invest.

“We are also worried about the 'slippery slope' whereby the 50% per cent rate becomes payable on successively lower incomes in the future,” he added. “Likewise, the tightening up on personal allowances will send the wrong signals, as well as imposing very high tax rates at some income levels.”

Richard Lambert director-general, said: “The key question for this Budget was whether it set out a credible and rigorous path for restoring the public finances to health. The CBI's preliminary judgement must be that it does not.

“The Chancellor's economic forecasts, with a rapid end to the recession and well above trend growth from 2011-2014, look optimistic. Even so, the horizon for balancing the books has been extended to 2018, two years later than previously targeted.”

He added: “If these projections are to be realised, a lot will depend on how far the Government can deliver on its plans to reduce public expenditure growth. We need to take a serious look at the size and role of the state and embark on radical reform of the way we deliver public services through greater private sector involvement and contracting out of services.”

And Mr Lambert warned: “This is the only realistic way of getting back to fiscal balance without having to resort to further hefty tax rises.”

John Dugmore, chief executive of Suffolk Chamber of Commerce, said: “The Chancellor appears to have understood that it will be business driving the economy out of recession, and there are some good measures that reflect this.

“However a major concern has been raised over the Income Tax hike for the highest earners. The strength of the UK has been as a low tax economy giving us a competitive advantage and able to attract the most highly skilled workers.

“The top tax rate in France and Germany is 40% and 45% respectively, giving us the highest top rate of our major European competitors. If the Government was serious about the UK remaining a global player they would not be throwing away such an important advantage for a relatively small return.”

Keith Brown, the Federation of Small Businesses' regional organiser in Essex, said the FSB was disappointed at the Chancellor's decision not to announce automatic rate relief, which could have boosted small businesses to the tune of �400million, while the further increase in fuel duty represented a major increase in costs for businesses.

However, measures to assist businesses in the transition to a low-carbon economy were broadly welcomed.

Martin Myerscough, chairman of Suffolk-based GreenBottle, which is pioneering an environmentally-friendly alternative to the plastic milk bottle, said: “The Government has done well to recognise industries such as ours, and specifically the funding for green manufacturing is a very positive step.

“What the Government must do now is to ensure this is not just a paper exercise, by delivering the money quickly to business,” he added. “The public will get a much greater return on the investment if the money goes to companies with high growth potential.”