Brown's 'business' tag slips

Gordon Brown's credentials as a chancellor who supports business have been "tarnished", according to businesses leaders.

Their accusations come at the end of a week when the Government has been seen to cave in to union pressure over pay and conditions for workers in private sector firms dealing with the public sector. The deal, announced on Thursday, ensures that private firms taking over public services give workers the same pay and conditions as public sector workers.

The move was attacked by the Confederation of British Industry, which is now lobbying for the Government to take a softer stand when it reviews the Employment Rights Act, covering union recognition in the workplace. The Government has said it may extend the ERA, but business will try to secure concessions.

Digby Jones, director-general of the CBI, was particularly unhappy, having met with Mr Brown earlier to discuss what business wanted in next month's Budget. He said the credentials of the Government as supportive of business were "increasingly tarnished".

"We are seeing ... a welcome increase in dialogue," said the CBI chief. "But firms are more interested in what the Government does, not what it says. The truth is, we are bearing witness to a continual erosion of our competitive position. If the Government wants a low-tax, flexible economy, we are not heading in the right direction."

The decision on union rights is being seen at Westminster as a quid pro quo for unions agreeing to increase their funding to the Labour Party and to ease off on their objections to Tony Blair's stance on war with Iraq.