A worsening national business environment and a heavy burden from tax and tax-related red tape are conspiring to make Britain lose ground in the global race for economic competitiveness, the World Economic Forum (WEF) said yesterday.

The UK slipped from second to ninth place among 131 states in yesterday’s annual league table from the Geneva-based forum, which ranks the world’s most competitive countries on a diverse series of factors that affect national economic dynamism.

Tax and a deteriorating climate for business were the main factors blamed for Britain’s tumble down the rankings, which came only a day after a ferocious business backlash forced Alistair Darling, the Chancellor, to make concessions over controversial proposed changes to the capital gains tax regime.

The highly regarded WEF report also criticised Britain over threats to the overall stability of the economy from persistently high government borrowing, alongside high levels of debt and low saving among households. These factors were described by the forum as the “greatest weakness” in Britain’s global competitive standing and meant that Britain was graded 46th out of the 131 countries covered for “macroeconomic stability”.

The UK’s diminished ranking in the new league table left it outstripped by the United States, which regained its top position, having been pipped last year by Switzerland, which fell back to second place. Also ahead of Britain were Germany, Japan, Singapore and Scandinavian nations.

The forum’s critique of Britain’s competitive weakness echoed a series of warnings from other influential think-tanks over its tax burden and business environment and their impact on national competitiveness.

In May a rival annual scoreboard from the Lausanne-based International Institute for Management Development one of the world’s leading business schools, placed Britain twentieth in a league of 55 key economies, and said that the UK was in danger of losing ground, citing similar concerns.

Last November a study by the World Bank also found that Britain’s tax system was the second-most complex among 20 of the world’s largest economies, despite a relatively low overall level of corporate taxation.

Yesterday the WEF report was seized on by the Conservatives, who called it “grim reading”. However, the Treasury attacked the forum’s findings, criticising changes in methodology of the annual study. Before those revisions, Britain was graded last year as the world’s tenth most competitive nation, rather than the second — a comparison that drew the sting from yesterday’s relegation, according to a Treasury spokesman. The Treasury also cited an influential recent World Bank analysis that placed Britain sixth among the 20 best places worldwide for doing business.

Nevertheless, George Osborne, the Shadow Chancellor, insisted: “In this fiercely competitive global economy, we should be heading up the league table, not falling down it. Gordon Brown has been running the economy for the last decade and he should take the blame.”

The rankings are constructed from a combination of publicly available data on economies along with the verdicts of 11,000 business leaders worldwide given in a WEF poll.

The top rank for the US came despite nagging concerns over America’s huge budget and trade deficits and the faltering dollar. The forum said that the status of the US as a global economic leader was bolstered by the efficiency of its markets, the sophistication of its business community and the “impressive capacity for technological innovation that exists within a first-rate system of universities and research centres”.

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