Gordon Brown's first Budget in 1997 changed investment for pension funds, charities and anyone saving in a personal equity plan (Pep).

Peps, the foreunner of Isas, no longer received dividends free of tax. Quoted dividend yields plunged overnight, undermining the advantage of saving in a supposedly tax-free equity vehicle. But at least there was some compensation. Rates of corporation tax began to fall, making them among Europe’s most competitive.

But as Peps fade into history, this is no longer true. Corporation tax rates, particularly the main 30 per cent rate, are now high by international standards. Small states, such as Ireland and Slovakia, have attracted waves of investment with rates below 20 per cent.

Reform is needed to sustain the listed sector and to help company profits. Private equity buyers can offset tax against interest their on debt- financed balance sheets. Gains are tax-favoured or offshore. Hedge funds are offshore, too, and foreign companies that buy UK stocks usually arrange for the minimum taxable profits to be reported in the UK.

The more that tax is fairly avoided, the higher the rate that mainstream investors must pay to raise the same revenue. Reform will not be as easy as in the 1980s, when reliefs could be exchanged for a lower rate. UK corporate tax reliefs are now relatively low.

Nor can the present or the next Chancellor afford a big loss of corporation tax revenue. It brought in £42 billion in 2005-06 and is forecast to raise £47 billion in the current year and £53 billion in 2007-08. Over that period, according to this week’s Pre-Budget Report (PBR), the corporation tax take will rise from 2.8 per cent to 3.3 per cent of national income, drifting up to 3.4 per cent thereafter.

The PBR also showed, as usual, that projections of future budget deficits and borrowing requirements have risen, requiring higher taxes to meet financial targets and to finance higher than budgeted government spending.

Stamp duty on share transactions remains, although it has become obsolete, is not used in other financial markets and is easily avoided by spivs and speculators. The duty simply raises too much money to abolish. It would be too painful to replace the revenue from other sources.

Equally, the Chancellor’s financial need may take precedence over the interests of the economy, competitiveness and mobile investors when it comes to corporation tax. He is even having to fight a rearguard action against expensive rulings by the European Court of Justice. The Government is to take desperate retrospective measures to stop companies reclaiming tax that is later ruled to have been illegally imposed.

Tax rates, therefore, may have to stay damagingly high. No wonder the subject was as conspicuously absent from the Chancellor’s statement as any reference to the NHS.

For one group, however, this silence provided immense relief. The most practical way to cut company tax rates is to spread the burden more widely and fairly by limiting the greatest relief of all: interest on borrowings. That would have been bad news for the private equity industry and for infrastructure groups.

They are gearing up more tightly to exploit low interest rates, unusually low-risk premiums and tax relief. Any limitation of interest relief would have to be brought in gradually to avoid horrible disruption. Full relief would need to remain for small and medium-sized firms and utilities would need compensation by way of depreciation allowances.

Limiting interest relief on high borrowing would allow a competitive rate of corporation tax and level the playing field between ordinary stock market investors and privileged private equity. A start could still be made in the spring Budget. If it is not, that may be because no Chancellor can now afford to offend such important City interests.

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