A trickle of multi-national companies is relocating from the UK because of the high level of corporation tax - but it could turn into a flood, the Government was warned yesterday.

The head of the CBI said the UK had become less competitive because other European countries had lower business taxes and were attracting big companies.

Richard Lambert said the level of corporation tax - 30 per cent in the UK compared with 12.5 per cent in the Republic of Ireland - was a "serious problem" for industry.

The director-general said the level of corporation tax was "unsustainable" and warned: "Either companies will generate more revenue outside the UK or corporation tax has to come down.

"A trickle of companies are relocating and our anxiety is that it does not turn into a flood".

The problem was compounded by a "more aggressive" approach to collecting business taxes since the Customs and Inland Revenue departments merged last year.

The issue was highlighted by Mr Lambert in a briefing to mark his first 100 days as head of the country's biggest business group.

Tax was one of the main concerns raised by the hundreds of firms he had visited in the past three months.

"Compared to the rest of Europe the burden of taxation is rising in the UK at the same time as tax collection has become noticeably more aggressive."

Mr Lambert also published a new report calling for a big shake up in the purchase of goods and services in the public sector, arguing that the Government could get better value for money for the £150 billion it spends every year.

The CBI said that too often civil servants with insufficient skills or experience were unclear about what they wanted to buy, causing projects to be delayed and costing money for tax payers and suppliers.

The CBI called for a new body to be set up which would take the lead in sponsoring research by universities and businesses to help convert ideas into commercial success.

Mr Lambert said "a major gap" existed in public support between the early stage of research and final purchasing by the public sector.

More government sponsored innovation could lead to "massive breakthroughs" for public services ranging from healthcare to waste recycling.

Kevin Beeston, chairman of the CBI's public services board revealed that one government contract had been cancelled after six years of delays costing the taxpayer £20 million.

"Taxpayers pay dearly when procurement is bureaucratic and categorised by delays and changing specifications."