George Osborne sought to wrap himself in the mantle of small businesses yesterday as he vowed that the Conservatives would fight the abolition of taper relief on capital gains tax and gave a pledge to replace it if necessary.

The Shadow Chancellor invited business leaders to Westminster as anger continued to mount over the Government’s surprise changes to capital gains tax in the PreBudget Report.

Mr Osborne said there was a “good prospect” that Alistair Darling would have to make a U-turn after an unprecedented intervention earlier this week from the main four business lobby groups, which signed a joint letter condemning the plans.

Mr Osborne said that the Conservatives would lead the campaign to force the Government to back down. “The focus of our efforts is to get the Government to change its mind,” he said. “If it doesn’t, we will vote against the provisions in the Finance Bill.

“Then the question is, what would a Conservative Government do? We’re going to do an enormous amount of work on [proposals for] a capital gains tax regime that genuinely encourages enterprise . . . If necessary, we will come forward with proposals for a replacement.”

A report commissioned by the Tories from the European School of Management found that small businesses were increasingly struggling to grow in the UK because of the barriers of red tape, tax and poor skills.

The report said: “The tax system for small businesses in the UK is becoming significantly less competitive. The changes to capital gains tax announced in the 2007 PreBudget Report will further undermine the attractiveness of the UK as a place to create and grow a business. The long-term implications for investment and job creation could be very damaging.”

The proportion of businesses that had achieved annual turnover of more than £1 million within five years of their creation has fallen dramatically from 29 per cent in 1998 to 16 per cent in 2006, the report found.

Senior Conservatives argue that the Government has scored a massive own-goal by planning to scrap taper relief, which allows entrepreneurs to pay only 10 per cent tax when they sell their businesses. They believe introduction of taper relief in 1998 was the single most effective step Labour took to win the business community’s support. Stephen Timms, the Competitiveness Minister, said: “British businesses have thrived thanks to the strong and stable economy Labour has delivered and next year we will continue our commitment to enterprise by cutting corporation tax to 28p – the lowest in the G7.

“But business can’t trust the Tories when the black hole in David Cameron’s tax-and-spend plans would make the economy unstable and put businesses and jobs under threat.”