The CBI says the government needs to follow business's example

The group said relatively generous wage growth in the public sector and poor improvements in productivity had eaten into Government investment in services.

The CBI pointed to figures which showed the cost of public service provision had risen by 7.6% in the past year.

"Improvements in public sector productivity are failing to match the increase in investment," the CBI said.

Wages in the public sector grew by 5.1% during the year to the end of June, compared with 3% in the private sector.

Too generous?

"The private sector is busting a gut to be both productive and competitive," CBI director general Digby Jones said.

"Surely tax payers - businesses and individuals - are entitled to see the public sector do the same?"

Mr Jones said the Government urgently needed to "improve the efficiency of public spending or face the painful choice between scaling back investment or increasing taxes further".

The CBI's comments came in its submission ahead of the Government's pre-budget report.

The business group called for a halt to rises in business tax, claiming the Government had tarnished Britain's "reputation as a tax competitive business location".