Prime Minister Tony Blair has tried to fend off criticism from business leaders over the Budget tax rises aimed at improving public services.

In a speech to the Confederation of British Industry (CBI) dinner, Mr Blair defended the decision to put an extra penny on National Insurance contributions.

You cannot keep digging your hand into the business till without squandering the UK's advantage Sir Iain Vallance CBI president

CBI President Sir Iain Vallance said the Budget had left a "sour taste" in the mouths of Britain's business community.

Company bosses argue extra tax will make their firms less competitive and foreign banks have said the move could drive them abroad.

'Enough is enough'

Sir Iain echoed those fears in his speech, saying the strength of reaction to the Budget stems from anger at five years of "stealth" tax hikes coming to a head.

He said: "Enough is enough. You cannot keep digging your hand into the business till without squandering the UK's advantage as a country in which to do business."

I was elected to fix our public services, schools and hospitals first, and that is what I intend to do Tony Blair

Mr Blair said he was taking such fears "head-on".

He said: "Nobody likes paying taxes.

"Even after the Budget we remain a relatively low taxed economy and one of the best of the world to do business.

Need for extra cash

"But I was elected to fix our public services, schools and hospitals first, and that is what I intend to do."

The need for extra investment in the National Health Service was now "beyond doubt", he argued.

Using other methods apart from general taxation would hit business harder, Mr Blair told City leaders at the black tie event.

"Social insurance, as in Germany and France, imposes huge costs on employers, as much as �60 per week per employee on top of other costs," he continued.

Private medical insurance is also expensive, he said, pointing to reports that employees' medical insurance is set to rise by 25% in some US states.

'No wastage'

General taxes are the fairest way of getting new money into healthcare, Mr Blair said.

The prime minister said "immense" reforms in the NHS would ensure that extra cash is not wasted.

Better public services, including schools and universities, are needed by business more than anybody, he said.

Mr Blair pointed to real progress in education, saying a new international study to be published in coming days put Britain in the world's top eight for the "critical subjects".

Economic tests

Aside from the tax debate, British entry to the euro remains a key issue in the business world.

After his enthusiastic comments on the single currency last week, Mr Blair took a more routine approach at the CBI, which is reported to be going lukewarm on the issue.

Labour's policy of joining the euro if its economic tests were met and if voters agree in a referendum would stay, he said.

"If these economic conditions are met, then the British people will make a pragmatic hard-headed assessment of what is the right thing for British jobs, British industry, the standard of British families," he added.

Mr Blair pointed at key strengths in the British economy but stressed there were still challenges that government and business together could tackle.