Over-regulation by the FSA and some of the highest income tax in the world is deterring business from investing in the UK, and putting the country's recovery at risk, according to a CBI report.
The report - Making the UK the best place to invest - brings together the testimony of around 400 CBI members through first-hand interviews and opinion polls.
It suggests the UK’s attractiveness as a place to invest has declined over the last decade, in the face of increased competition from overseas.
Regulatory burden is a key 'investment blocker', according to the report, which cites the World Economic Forum as ranking the UK 89th out of 139 for having the biggest regulatory burden on business, on a par with Nigeria.
Amid continued contraction in consumer and public sector spending, the government’s outlook for economic recovery relies heavily on a sustained increase in business investment.
But on bank taxes, Basel III and Solvency II, the UK has acted out of sync with competitor countries, risking its competitive advantage as a world leader in the banking and insurance sectors, according to the report.
International firms, which are heavily influenced by a country's tax regime when deciding to invest in it, are also deterred from the UK by high corporation tax and top rate income tax of 50%, according to the CBI.
The CBI wants a phased reduction in corporation tax from 26% to 23%, with extra cuts for SMEs, and a longer-term objective to slash the main rate to 18%.
On income tax, the report said: "The 50p rate sends a message that high earners are not appreciated in the UK - and if businesses cannot attract and retain staff, investment will go elsewhere."
Potential damage is particularly high in financial services, where key staff are highly mobile and other countries are aggressively trying to get companies to relocate, it warned.
Higginbotham said: "A marginal tax rate of 62%, including NI, for our most mobile employees does nothing to encourage work and enterprise or to retain skills and expertise in London."
Elsewhere the report blamed "ill-informed attacks" on financial services by the government and the public in the wake of the crisis for damaging the UK's image to foreign investors.
Europe provided the main source of inward investment to the UK in 2009, most importantly France which invested £19.5bn, according to the report. The USA, the second biggest investor in the UK, brought £19.1bn the same year.
Industry Voice: Scottish Widows pension expert Robert Cochran and economist Andrew Scott discuss the future of employment and income, in episode three of Scottish Widows' podcast series.
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