BUSINESS leaders have warned that tax and red tape are holding back UK companies trying to face the challenge of globalisation.

Heads of companies including drugs firm GlaxoSmithKline and spirits group Diageo told an international conference in London on advancing enterprise that the UK was in danger of losing its competitive edge if it did not reform.

Tesco chief executive Sir Terry Leahy said the level of taxes on UK business "seemed to be forever rising". Corporate taxes, including national insurance contributions, accounted for more than half of profits at a time when the supermarket was striving to expand abroad, he said.

Tesco, which expanded to Turkey in November and may be setting up shop in China, needed a strong UK base if it was to compete effectively abroad, he said.

He repeated the view of GlaxoSmithKline chief executive Jean-Pierre Garnier that the volume of red tape from Brussels was in danger of "paralysing" companies.

Mr Garnier warned Western governments had to reduce the burden on companies or "suffer the consequences" of seeing jobs taken offshore.

He gave examples, including a US hospital sending its x-rays to India for diagnosis using the Internet, saying the sub-continent offered a reservoir of highly educated professionals and a very low cost base.

Mr Garnier said: "You cannot stop progress, but you can get ahead of it. Western economies will have to reinvent themselves or suffer the consequences - there is no other solution."

Paul Walsh, chief executive of Diageo, called for the nation to foster a US-style culture, where enterprise was celebrated.

Entrepreneurs were being held back by a fear of fai- lure and the stigma associated with bankruptcy, he said.