The Prime Minister yesterday called for a renewed partnership with business after admitting that industry was ''profoundly concerned'' about the state of the transport system and had other worries over red tape and the direction of Europe.

In a candid speech to the national conference of the CBI, in Birmingham, Tony Blair said there was still a "vast amount" of work to do to improve the UK, which meant pressing ahead with public sector reforms.

Most business people who met the Prime Minister told him they welcomed the UK's economic stability but worried about a new European Constitution, were not persuaded that investment in public services was producing results and had concerns about regulation and transport, he said.

Mr Blair said that inflation, interest rates and unemployment were at their lowest levels for a generation and argued that investment in schools and hospitals was making a difference.

But he said the economy needed to be taken to a higher level in the future and admitted he "desperately" wanted business to help find solutions.

The Prime Minister, received politely by the 600 delegates at the conference, pledged to tackle George Bush on US steel tariffs when the President visits the UK today.

UK firms have complained of protectionist policies in the US, including tariffs on foreign steel products.

The CBI also revealed that a number of US companies based in Scotland were coming under pressure to switch production from this country because of a "buy America" campaign launched by the US Congress.

Trade and Industry Secretary Patricia Hewitt told the conference that the steel tariffs were damaging and should be abandoned in a return to free and fair trade.

The Prime Minister faced a series of questions from businessmen after his speech and listened to complaints about red tape as well as claims that the Government was not providing enough support for manufacturing.

Mr Blair said he could not shield manufacturers from growing international competition and went on: ''There is a limit to what Government can do. We are operating in a highly competitive world market and the bad news is that I think it will carry on intensifying.''

Mr Blair said he understood business concerns about red tape and gave an assurance that better guidelines were now in place to examine regulations before they were introduced.

He told a businessman who questioned the success of secondary schools that the Government was trying to change the way the sector operated by developing more specialist schools which would have greater freedom to hire staff.

The Prime Minister said there was a ''large agenda'' for business and Government to work on and believed the partnership between the two should be renewed.

He had lunch with business leaders following his speech, which was well received by the CBI.

Director General Digby Jones said: ''The Prime Minister has certainly reassured us that he understands the concerns of business on tax and red tape. What we now need is action.''

Comments by the Prime Minister about steering Europe away from more regulation were warmly received by Mr Jones.

He said: ''There are too many EU politicians who reach for the regulatory stick before considering the damage it will do.''

Ms Hewitt gave tacit support to firms moving work to India, despite controversy over the export of British jobs.

Chancellor Gordon Brown and new Tory leader Michael Howard will both address the conference today.