The CBI reacted with fury yesterday as the realisation sank in that hundreds of thousands of business owners would be worse off from next April as a result of the Pre-Budget Report.

Richard Lambert, the business group’s Director-General, said that Alistair Darling had put the economy’s health at risk by scrapping taper relief on capital gains tax.

He called on the Chancellor to “take urgent action to get the enterprise agenda back on track” in a hard-hit-ting letter co-signed by the chairman of the CBI’s small and medium-sized enterprises council and nine company leaders.

The letter said: “By removing taper relief you have deployed an extremely blunt instrument that will deeply damage a much wider community, and in so doing, risk the medium-term health of our economy.”

Yesterday’s letter shows that the Government’s relationship with the CBI, which Gordon Brown has worked hard to nurture in recent years, is under serious pressure.

Relations between the CBI and Labour were already under strain after Mr Brown’s last Budget as Chancellor in March.

That included an increase in corporation tax for small firms, which led the CBI to complain that its members would be left at least £600 million worse off by 2011.

Before that the Government’s relationship with the CBI has varied, but easily surpassed that of all previous Labour administrations.

Tony Blair has addressed the CBI annual conference and the former CBI Director-General, Lord Jones of Birmingham, was offered and accepted a ministerial role in the current Government.

Tax experts say that the plans are the biggest shake-up of capital gains tax in a decade, and some say that while the plan creates many winners and losers, it represents a welcome simplification.

However, Mr Lambert said that the proposal “offers little in the way of real simplification, but hits a number of groups who are taking significant risks in investing in and building the businesses that generate so much of our employment and wealth.”

The Government’s plans mean that all capital gains will be subject to a flat 18 per cent charge, replacing a complex arrangement whereby the rate could vary between 10 per cent and 40 per cent depending on the type of asset and the length of time it had been held.

The owners of some small firms are angry that the tax rate they will have to pay for selling up will rise from 10 per cent to 18 per cent in April 2008.

One founder of a software company told The Times: “The taper relief helped us focus on the long-term value of our equity and not on our short-term income in past years.

“We’ve rolled back the clock and undone a tax structure that helps encourage entrepreneurship. Instead of getting support and incentive to keep going and build a bigger business, we’ve been handed a big carrot to try and sell out by April.”

Because the Pre-Budget Report was more than a month earlier than usual, the CBI was left in the dark over the size of the changes to the business tax burden.

The CBI was inundated with phone-calls from members furious at their loss of tax relief, who compelled Mr Lambert to take action.

The letter said: “In addition to those small-business owners who have expended a good deal of ‘sweat equity’ — forgoing income and putting their homes on the line in order to build up their business — these changes will hit other investors, from external venture capital to employees who take a stake in their company’s future.”

Treasury sources said last night that the taper relief regime had been designed to boost innovation and enterprise but was always regarded as a measure with a limited shelf life.

But Chris Sanger, head of tax policy at Ernst & Young, who was a Treasury adviser at the time the policy was implemented, poured cold water on that suggestion.

He said: “I don’t remember it being a policy with a limited time frame. I have never seen anything published on that basis.”

Taper relief was introduced in 1998 and was designed to offer the deepest discounts to those who held assets for ten years or more. As a result, he said, it was implausible to suggest that the Government had always planned to abolish it on its tenth birthday.

Richard Lambert

— Studied history at Balliol College, Oxford

— Joined Financial Times in 1966, working as financial editor and New York bureau chief

— Editor of the FT, 1991 to 2001

— Member of the Bank of England’s Monetary Policy Committee from 2003 to 2006

— Director-General of the CBI since July 2006. Seen as less confrontational than Lord Jones of Birmingham, his predecessor

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