While the chancellor announced various measures to help small businesses and encourage enterprise, he was criticised by the Conservative leader, William Hague, and by small business representatives over one particularly hot potato.

�475m tax on our future.

William Hague

This is the imminent introduction of changes in the way people who set themselves up as companies to offer their services on a self-employed basis are treated over tax and National Insurance.

Known as IR35 (after its Inland Revenue reference number), the measure was designed to stop people who would normally be employees of the company they work for abusing the tax system.

It takes effect on 6 April and means, in effect, that someone supplying a service to a company in this way must be treated as an employee for tax and NIC purposes.

Angry response

The issue has provoked a storm of protest because many independent contractors - particularly in IT - say they need to work in this way because of the nature of the industry and that it is nonsense to suggest they are doing so to avoid paying tax and NIC.

The government softened slightly its original proposals but has since stuck to its guns, despite predictions from protesters that thousands of key IT workers would leave the country.

Responding to the Budget speech, the Conservative leader, William Hague, picked up on this point, saying the tax changes were driving abroad the very high-tech businesses the chancellor claimed to be helping.

"Stealth tax"

He said: "Your new stealth tax on self-employed contractors is destroying all of that.

"That tax never appeared in this Budget or indeed in the last Budget - it is known as IR35 because it only ever appeared as Inland Revenue press release number 35."

Mr Hague said IR35 equalled a "�475m tax on our future", and he told Mr Brown: "You are the first man since Lord Healey to create a brain drain in this country.

"You talk about e-commerce and the internet but you tax those businesses and drive them out of Britain."

Brendan Burns, chairman of the Federation of Small Businesses policy unit, said: "We are also dismayed that the chancellor did not take the opportunity to climb down on IR35."