Sir Menzies has just marked 100 days as Lib Dem leader

The Lib Dem leader stressed the need to "balance economic liberalism" with a concern for the environment and for a "fair distribution of rewards".

He said red tape must be cut and argued the case for a reformed EU in a call for "liberal common sense".

On Friday, he unveiled plans to cut the basic rate of income tax by 2p, partly by taxing the "very wealthy".

In Tuesday's speech, he told business leaders he wanted to make tax on enterprise simpler by stripping out "complex reliefs" and "hand the money back to business in lower corporation tax rates".

Sir Menzies, who celebrated 100 days as Lib Dem leader last weekend, reiterated his party's support for abolishing the Department of Trade and Industry, called for an overhaul of the way regulation is monitored and urged sunset clauses on legislation to kill off red tape after a period of time.

Energy 'security'

He argued EU directives were a "major source of unwanted complexity" for business but insisted "the positive effects of the European Union and the single market are substantial".

On Tony Blair's enthusiasm for considering new nuclear power stations in Britain, Sir Menzies committed his party to delivering energy "security" through a mixture of investing in renewables, energy efficiency, and carbon capture technologies.

"There is little doubt in my mind that a decision to go nuclear will crowd out investment in renewable energy sources to the detriment of the country," he argued.

Sir Menzies also made the case for scrapping mass means testing and introducing instead a citizen's pension which would be based on residency and not contributions.

"We want to see as many people as possible with an additional, personal pension which is not controlled by the state," he said.

'Fundamentally flawed

Sir Menzies acknowledged Labour's success in producing a "measure of economic stability" but he argued there had been too much regulation.

"Underlying the government's growing problems is a fundamentally flawed approach to management which rests on controlling everything from the centre and on obsession with multiple targets that are insensitive to local conditions," he said.

Under plans unveiled last Friday, the Lib Dems want to introduce income tax cuts for everybody - 2p off the basic rate, and two million of the lowest paid will be lifted out of income tax altogether.

Sir Menzies said then: "My aim is to cut the burden of direct taxes on the low paid and Middle Britain and pay for it by raising taxes on those who pollute the environment and on the very wealthy."

Responding to the plans last week Mr Blair said: "The idea that you can have some sort of nice cuddly environmental tax that is going to yield you gains on basic rate of income tax, I mean forget it.

"Not unless you are going to squeeze people pretty hard."