The Chancellor's move to cut corporation tax again by 2p in the pound to 28p was given a rousing welcome on the stock market sending the FTSE up some 54 points during his speech.

But the move was foreseen to some extent, with the Conservatives pre-announcing that they too would introduce a corporation tax cut and some experts claimed Mr Brown was funding the cut by reducing capital spending allowances to corporations.

Mr Brown said the cut would make Britain's business tax lower than the US, Germany, France and Japan "lower than all our major competitors, lower than every major economy".

He has faced fierce criticism over the mounting costs of doing business in Britain, not just in corporation taxes but in red tape and employment measures and the CBI had been threatening that some businesses would be forced to relocate overseas.

The cut still leaves Britain's corporation tax rate higher than that of Ireland, at 12.5 per cent, Sweden and central Europe and Mr Brown also said he was changing the system of capital allowances, the amount of expenditure by companies that is free from tax, in a move that would mean extra tax for many companies.

He said allowances for expenditure on plant and machinery would be aligned with the economic rate of depreciation at 20 per cent, which is a cut in the allowance for many businesses.

And, in a move condemned the Federation of Small Businesses, the tax on smaller companies will rise from 20 per cent to 22 per cent in 2009.

Mr Brown also increased the value of the main Research and Development (R&D) tax credit by an extra £100 million and from April 2008 he is allowing all businesses a new annual100 per cent investment allowance of £50,000.

Allowances for companies spending capital on environmental measures will also be expanded by an extra £40 million. Mr Brown said he would leave the overall tax rate for North Sea companies unchanged.

David Woodward, head of capital allowances at KPMG, said: "The reduction in corporate tax rate is essentially being funded by the reduction in capital allowances.”

He added: “Many businesses especially those in the more capital intensive sectors such as hotel, leisure, retail and others with large property portfolios are potentially going to be worse off."

For example, he said, retailers' allowances on new store expenditure will be cut from the current 25 per cent to 20 per cent.

Chris Sanger of Ernst & Young said the corporation tax cut was important as a signal that the Government had realised that "you need to have a competitive tax rate and that will help to keep companies considering to stay in the UK rather than looking for ways of exiting.”

However, Stephen Herring of accountancy firm BDO Stoy Hayward, said that the size of the cut - just 2 per cent to 28 per cent "was a little disappointing. It means the UK is playing catch-up with countries like Sweden and central Europe at between 15 and 20 per cent and Ireland at 12.5 per cent.”

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