Alistair Darling has been summoned to appear before the Association of British Insurers tomorrow for a carpeting over the Government's tax plans. Well, not exactly. It was the Chancellor who offered to meet the ABI board. But the fact that he is going to the ABI rather than the other way around does rather reinforce the impression that business now has the whip hand.

The Government has been so alarmed at the prospect of some of Britain's biggest companies moving offshore that Mr Darling will today row back on proposed changes to the taxation of overseas profits. This follows the U-turns on capital gains tax, non-domiciled workers and the 10p starting rates.

No wonder other lobby groups think its worth trying it on to see if Mr Darling will blink again. Yesterday it was the turn of the computer games industry to warn that the playing field was being tilted away from Britain.

To suggest that new tax breaks being offered by the US state of Georgia represent a big threat to the British games industry may be a bit over the top. But the industry can argue that it is not treated fairly, particularly in relation to the film industry. The more glamorous movie makers have been very generously assisted by the Government. Indeed, when the Prime Minister was at the Treasury he took a personal interest in measures to encourage film production in Britain.

Yet, the British computer games industry is arguably more successful than the film industry. Just look at the British-developed Grand Theft Auto IV, the biggest grossing computer game ever. And computer games development is one of the most footloose industries around. A few smart lads with some computer kit can skip off to a more welcoming regime even more easily than an insurance company.

In response to the Government's review of the taxation of overseas profits, several insurers have threatened to move their tax domicile.

The ABI will press Mr Darling for reassurance that companies will be able to bring their genuine offshore earnings back into the UK without being taxed again.

The review has rather backfired on companies. It was originally prompted by their request for the Government to simplify the rules applying when subsidiaries pay dividends into the UK.

The proposal was to exempt these profits altogether but officials were concerned that this might lead to more profits being diverted from the UK. Some companies believe that what was a good-faith proposal at a senior level in government was then hijacked by more junior officials under pressure to increase the tax take as the public finances tighten.

Some British multinationals have huge tax bills but pay very little of it to the UK authorities, making them a very tempting target. As Chris Sanger, the head of tax policy at Ernst & Young, explains, some companies fear that the Government was seeking to change the rules so they would be taxed on profits they “could” have made in the UK if they had structured their business differently.

All the signs are that Mr Darling is now in full climbdown mode. Yesterday he announced the members of a new multinational forum, including CBI chief Richard Lambert, that will discuss ways that the tax system “can provide the long-term certainty” companies need.

The problem is that, however comprehensive the U-turn, the affair will reinforce a lingering suspicion left by the non-dom debacle. It is another chip out the Government's pro-business reputation.

david.wighton@thetimes.co.uk

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