Everyone will understand Alastair Darling’s focus on avoiding new initiatives which inevitably carry with them the risk of backfiring such as his attempts in the PBR to simplify capital gains tax and increase the UK tax take from non-domiciles.

The aggregate effect of the policy decisions in the Budget 2008 is less than £150 million in 2008/09, less than £800 million in 2009/10 and £1,900 million in 2010/11. These are microscopic changes in the context of total tax receipts in 2007/08 in excess of £500 billion. Both the Government and the Opposition appear to agree that there is no scope for tax cuts in the short to medium term. Accordingly, perhaps all we can look forward to (or fear!) are adjustments both within and between existing taxes which have no net effect on the total tax take.

Set against these parameters, what could the Chancellor have done?

Firstly, we should hope that the Chancellor has not abandoned his inclination for tax simplification following the very mixed response to his CGT reforms. There were losers from these measures and, not surprisingly, lobbyists for these groups made much more noise than other taxpayers who gained from this simplification. I am convinced the UK tax system for both businesses and individuals is excessively complex and must be simplified.

Secondly, governments must accept that it is inevitable (and, indeed, mandatory from the fiduciary perspective of directors to their shareholders) that business taxation levels will be compared between jurisdictions. The clearest manifestation of this comparison is the headline rate of corporation tax. The UK used to have one of the lowest rates in the OECD and now is merely in the middle of the pack and its position is steadily eroding following recent corporation tax cuts in, for example, Germany, the Netherlands and across Central Europe.

This is not a party political matter. Gordon Brown recognised the need for a competitive corporation tax rate when, in the early years of his Chancellorship, he cut the corporation tax rate from 33 per cent to 30 per cent. It was 30 per cent in 1999/2000 and is to be 28 per cent in 2008/09. This 2 per cent reduction in nine years is simply not enough to maintain the UK’s competitive tax position and Corporation Tax now collects £50 billion per annum in comparison with £30 billion in 2001/02.

How can the Chancellor both simplify individual and business taxation and cut the increasingly less competitive corporation tax rate whilst he is not able to cut tax revenues in aggregate? I believe that he should avoid taxes which increase businesses’ fixed costs, which operate as a disincentive for individuals and which discourage entrepreneurs.

Fortunately, however, this still leaves the Chancellor with some options available. For example, relatively small increases in VAT and Customs Duties could have financed both tax simplification and a measured cut in the Corporation Tax rate to, say, 24 per cent over a four year period.

Any increase in indirect taxation would not of course be popular in the tabloid press but surely this is a price worth paying in the short term for a simpler and more competitive business taxation system?

Stephen Herring is a tax partner at BDO Stoy Hayward