Chancellor Gordon Brown warned yesterday against the danger of protectionism in Europe, saying the playing field is far from even in the EU and that British companies suffer.

Appearing before the Treasury Select Committee, Mr Brown said lack of competition is costing the United Kingdom "some £10 billion more than it should" in gas prices alone.

"The failure to complete the single market and the lack of liberalisation in some of the key industries is damaging not just industries across Europe, but is obviously hitting consumers as well," he added.

"The most obvious example is gas prices and the fact that it has probably cost us £10 billion more for gas than it should."

While Britain plays by the rules many other countries in Europe do not, the Chancellor declared.

"British companies play by the rules, others don't play by the rules. Beggar thy neighbour policies are both damaging to the consumer and industrial growth," he said.

To address this issue, the European Union will have to go beyond just setting political timetables, the Chancellor insisted. He called for an independent body to make investigations into the various sectors and to act on the findings.

He said he would raise the issue at the next Ecofin meeting in Vienna.

Mr Brown also expressed satisfaction that his projections for economic growth are mostly in line with those of the Bank of England.

Looking ahead, he said the biggest threats to the British economy are likely to come from outside the country - as the large current account deficits borne by countries like the US are unwound. He identified the high price of oil as another key risk.

At home, he cited the possibility of wages rising too steeply as a risk to the overall economy, echoing the views of some members of the Bank of England Monetary Policy Committee.

The Chancellor refused to discuss the low level of business investment in the UK at present, hinting only that the figure might look more favourable if the official numbers were better at capturing company spending on software.

He stressed that business investment has been stronger since Labour came into power in 1997.

Welcome news for Mr Brown came yesterday from a Department of Trade and Industry report that Britain's once patchy record on productivity is improving.

In terms of output per worker, Britain has halved the productivity gap with France since the mid-1990s and closed it with Germany, the DTI said. Britain is also the country in the G7 group of developed nations to have kept pace with US productivity over the decade.

The report lists Britain's strengths as economic stability, the science base, high-level skills, entrepreneurial activity, a light regulatory framework, competitive market and high levels of foreign investment and trade.

Areas needing improvement included business investment, research and development spending and "basic and intermediate" skills.

Separately, National Statistics published a new index to track the development of the service economy. It has been doing this internally since 1992, but did not publish its findings because it considered the statistics "experimental".

Most of the 27 component indices still are, but NS is now confident enough of 12 of them - accounting for 60 per cent of service activity - to issue the new Index of Services as a mainstream monthly release.

It shows the sector's output rose 0.9 per cent in the three months to January, with business services and finance setting the pace.