Helping high-technology firms and cutting red tape for small companies were the focus of Chancellor Gordon Brown's tax measures targeted at businesses.

And he planned to consult on how to extend a tax credit for research and development to large companies.

Once again, the productivity gap between the UK and its main competitors was the Chancellor's main theme when describing the state of the country's industry.

Compared to the United States, the UK is about 30% behind.

According to the Treasury, the UK trails "in nearly every sector... other major industrialised countries in business [Research and Development]".

Calling it his "first ambition" to improve the situation, the Chancellor promised that his budget policies would help to "secure the fastest productivity growth of our competitors over the next decade... to promote competition, innovation and entrepreneurship".

But Mr Brown had praise for UK industry as well, highlighting the overall growth of investment levels in UK industries, currently running at 2%.

According to the Treasury, business investment is set to grow by up to 3%, and investment as a share of the UK economy is now running at 14%, "higher than at any time in 40 years", the Chancellor said.

However, these figures are somewhat below forecasts issued by the Treasury a year ago.

Mr Brown now hopes that a number of targeted tax measures will boost high-growth industries further:

• Long-term investment: To promote investment and protect investors, the Chancellor accepted the recommendations of the Myners report, that will make it easier for life insurers and pension funds to invest in venture capital funds and other investments that promise higher returns to their investors.
• Innovation: To boost the "knowledge based economy" - innovative and fast growing high-tech firms - the Treasury will introduce a new tax relief for intellectual property and goodwill.
• Research and development: Larger firms will be consulted over an extension of the research and development tax credit.
• Capital gains tax rate: The tax rate will be cut for all employees from 40% to 10%. Until now the lower rate was applied to people holding a controlling interest.
• Attracting staff: UK firms have complained that they cannot attract enough staff with share options, which are taxed in the UK. Mr Brown promised to extend the Enterprise Management Incentive, doubling the share options that can benefit from tax relief to �3m. Qualifying companies will also be allowed to offer such options to all staff.

According to John Whiting, tax partner at accountancy firm PricewaterhouseCoopers, the announcements on research and development allowances are "significant".

But there are two "snags", he said. Big firms have to wait for further consultation before the measures come into force, and "much research and development investment has already fled the UK to more attractive tax regimes".

However, the consulation into "Increasing Innovation" should result in a dramatic reduction of taxes for UK industry.

Red tape The biggest complaint from UK firms, though, has been over "red tape", the costs of coping with rules and regulations coming from government departments.

The Chancellor did not promise big changes, but announced a number of measures targeted at smaller firms.

VAT

• Small firms with a turnover of up to �54,000 will not be charged VAT at all.
• Companies with a turnover of up to �100,000 can look forward to a "simpler and lower flat rate", to be implemented in 2002.
• Firms with a turnover of up to �600,000 will be consulted on a simplified VAT payments scheme.

The VAT changes were trailed in last year's pre-Budget report.

Corporate Taxes

Mr Brown also promised to cut red tape by making the annual company accounts the basis for calculating tax, a move that would cut "business costs once again". Mr Brown coupled this with a reminder that he has abolished the credit requirement for small companies.

According to Mr Whiting, it "will be interesting to note whether small companies will have to put extra effort into their accounts in order to satisfy the Inland Revenue".

Mr Brown also promised to extend the tax credit for pharmaceutical companies who invest in research in Third World diseases.