Chancellor Gordon Brown blamed pesky foreigners for the increased tax burden imposed on small businesses in the Budget, when speaking to the House of Commons Treasury Committee yesterday.

Brown was asked about the benefits of immigration by the committee, which was meeting to discuss the Budget. Brown quoted Alan Greenspan, former chairman of the Federal Reserve, who said immigration contributed 0.25 per cent of US economic growth.

Asked why the tax burden for small businesses had increased, Brown claimed that large numbers of immigrants from eastern Europe were being encouraged to register as managed services companies in order to reduce tax. He said people were registering before even arriving in the UK.

"It is a problem we are determined to solve without penalising the company which is investing in the future."

Brown said the UK has 4.4 million businesses of which 3.2 million are not incorporated so pay income tax and national insurance in the normal way. Of the 1.3 million* which are incorporated, 400,000 pay no tax so will not be effected by the changes. Some of the remaining 900,000 firms are registered only for purposes of tax avoidance.

Her Majesty's Customs and Excise issued a pre-Budget report on tackling managed services companies.

There's video footage of the committee meeting on this page of parliamentlive.tv. ®

* We know these numbers don't add up. Blame Gordon.