Tony Blair has hinted at tax rises in this week's Budget, while reassuring businesses that he will "take no risks" with the economy.

Writing in the Observer newspaper, the prime minister says the public realise they cannot have world class services if they are not prepared to pay for them.

But Mr Blair pledged that he and Chancellor Gordon Brown would not throw away Labour's hard-won reputation for economic prudence.

He said the Budget would make Britain "the most competitive and entrepreneurial economy in Europe."

"We take no risks with the economy," he wrote.

Warned off

Mr Blair's article follows warnings against further increases in the corporate tax burden from business lobbies, which argue that companies have borne the brunt of a £29bn tax increase since Labour came to power.

The Confederation of British Industry, the UK's main employers' lobby, last week called for a £2bn cut in the corporate tax bill in order to help British businesses compete in global markets.

CBI Director General Digby Jones said Mr Brown should not "come after just business" to fund public services.

Any increase in public spending should be accompanied by internal reforms aimed at improving cost efficiency, he added.

Concessions

The Treasury has already unveiled a handful business-friendly measures in this year's Budget, due to be formally unveiled on Wednesday.

They include tax credits aimed at boosting research and development among larger companies, and tax exemptions on profits generated through the sale of some shareholdings.

There is speculation that Mr Brown will also announce an increase in individual taxation worth up to £7.5bn a year to pay for extra health spending.

It is thought that this will be largely achieved through phased increases in National Insurance contributions.

Interest rate impact

City investors favour higher personal taxation as a means of curbing inflationary increases in consumer spending without putting up interest rates.

This week, closely-watched figures from the British Retail Consortium are expected to show another surge in activity at the tills last month.

The Bank of England, which cut rates to a 37-year low of 4% last year in an effort to stave off recession, is widely tipped to raise the cost of borrowing later this year if consumer spending does not moderate.

Analysts fear that higher interest rates would kill off a tentative recovery in the embattled manufacturing sector, which has been in recession for most of the last year.