Findings from the report from the European School of Management, due to be published next month, says the number of companies reaching an annual turnover of £1 million, five years after their creation, has halved under the Labour Government.

The number of businesses with a turnover of more than £7 million, five years after they were set up, is at 6.8 per cent, much lower than the European average of 16 per cent.

Speaking to the Independent, Professor David Sola, author of the report, says that the tax system for SMEs in the UK is becoming less competitive.

‘The changes to capital gains tax in the 2007 pre-Budget report will further undermine the attractiveness of the UK as a place to grow a business. The implications for investment and job creation could be very damaging,’ he adds.