GORDON Brown's budget was last night given a cautious welcome by the region's business leaders amid suggestions it was "thin" on substance.

Despite announcing a range of measures aimed at slashing red tape, cutting taxes and improving business start-ups, the Chancellor failed to fully capture people's imaginations.

Mr Brown announced a range of incentives aimed at helping companies become more competitive and to promote research and development.

The Inland Revenue is to investigate ways of expanding research and development tax credits, introduced last year.

Mr Brown said the Government would publish proposals to encourage US-style small business investment companies in Britain - private sector vehicles designed to inject new capital into small and medium-sized firms.

The Government would also share the bill for business creations with local authorities when legislation is implemented in April 2005.

In a further effort to cut red tape, Mr Brown said Home Secretary David Blunkett would next month designate 40 regulations and procedures for reform or abolition.

The move meant 500 separate pieces of red tape introduced by previous governments were earmarked for change or disposal, he said.

But despite widespread calls to cut business taxes, Mr Brown instead proposed to freeze rates of Corporation Tax, Small Business Corporation Tax and Capital Gains Tax.

John Wright, Federation of Small Businesses' North-East regional policy chairman, said: "Freezing taxes is not good enough. It does not freeze the tax take, it simply means that inflation does the Chancellor's job for him.

"The Chancellor has acknowledged that the odds are stacking up against small firms, but has done nothing to address tax inequalities, rising business costs and escalating liability insurance premiums - the three key issues facing small firms."

Mr Brown did, however, announce the end of VAT for firms with turnovers of £56,000 or less.

John Irwin, president of North East Chamber of Commerce, said: "The Chancellor's measures to encourage enterprise and business start ups sounded encouraging but were short on detail, as were his references to incentivise research and development and support manufacturing.

"Simplification of VAT is welcome but its impact will be limited and there was little else to untie the red tape choking business competitiveness."

From tomorrow, automatic fines for late payment of VAT for 200,000 more small businesses would also be abolished. Thousands more could be exempt subject to a consultative review this summer.

The Chancellor also raised the threshold for qualifying for small business tax to £20m, the maximum allowed under EU law.

The move means an extra 3.7 million businesses will be able to obtain the 40 per cent investment allowance.

The gloom for manufacturers was not lifted by any specific measures in the budget.

The Chancellor has left a heavy reliance on world affairs and the UK economy rectifying its current problems in time.

Alan Hall, regional director of Engineering Employers Federation Northern, said: "Manufacturers had low expectations from this Budget and were not at all surprised by the result.

"Whilst we welcome the extension to the research and development tax credit, the chancellor has missed his opportunity to give a much-needed boost to manufacturing investment."