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Business leaders have broadly welcomed Alistair Darling’s first Budget, but said the government still has a way to go to rebuild trust after last year's CGT debacle.

Employers’ organisation the Confederation of British Industry (CBI), which earlier this week called for an overhaul to the tax system, described Chancellor Darling's Budget as “a credible first step” by the government to “win back its enterprise credentials”.

However, he reckoned the Chancellor’s forecast that growth would slow from three per cent in 2007 to 1¾ to 2¼ per cent in 2008, before picking up to 2¼ to 2¾ per cent in 2009, was somewhat “optimistic”.

Lambert also warned that the impact of this Budget could lead to a tax hike that could total nearly £2bn by 2010/2011.

The Institute of Directors (IoD) agreed that: “Fiscally the Budget made a small step in the right direction”, but reckoned that the government will be forced to jack up tax revenues down the line to cover the shortfall it predicts will be left from this year’s reductions.

It also cautioned that “The Chancellor is gambling that the economy will weather the credit crunch more easily than many expect”.

The Federation for Small Businesses (FSB) said it welcomed the Budget which it described as containing “few alarms and surprises for the UK’s 4.5 million-strong small business community”.

The FSB said that the government’s decision to defer plans to change its capital gains tax, or income-shifting rules, to October this year was “welcome news”, and added that the “plans should now be abandoned permanently”.

The Institute for Fiscal Studies (IFS) echoed the CBI’s warnings about Darling’s somewhat upbeat reaction to the credit crunch crisis.

“On a number of counts, Mr Darling delivered the Budget with fingers crossed," it said.

"If the downturn is deeper than expected, if he is overoptimistic about the underlying strength of tax revenues, or if political pressure requires further giveaways, then Mr Darling or his successor may have to inflict more pain than he did yesterday.”

Relations between UK business leaders and the government have been under considerable strain in recent months.

In January Darling was forced to make a humiliating U-turn over the Treasury’s single rate CGT plans, following pressure from small business lobby groups that deeply opposed the reform. ®

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