VALUE for money from public services will be the defining issue of the next general election, a senior boss has predicted.

Speaking about rises in corporate and other taxation, John Cridland, deputy director-general of the CBI, said business was prepared to pay its fair whack but only if it could see taxes spent effectively.

Mr Cridland told bosses at the inaugural CBI/Brachers Business Briefing in Maidstone, chaired by the law firm's managing partner Geoffrey Dearing, that increased taxes had not produced performance gains in the public sector.

On the contrary, the situation had gone backwards in the past year. The Government's bridge was not connected to the engine room, he claimed.

"They are pulling levers on the bridge and pumping money down the pipe but it is not being spent effectively because they are not being innovative enough in the way in which expenditure is being put forward."

For example, targeted expenditure could create a world class supply chain for the NHS by linking industrial policy with public expenditure. "That link isn't there," he said.

The "Old Left" had been allowed to "hijack" the agenda.

"The Government, has under pressure from the Old Left and the trade union movement, lost its nerve on innovation in public services, it's lost its nerve on PFI and PPP, and lost its way on the development of new contestable markets."

He added: "This is going to be not only the defining issue for the Government and the Opposition at the next election, it's the defining issue in the relationship between the business community and the Government."

Mr Cridland's remarks came during a discussion on the relentless rise in the council tax.

Kent County Council leader Sir Sandy Bruce-Lockhart defended annual above-inflation increases on rising demand for council services and redistribution of Government help from the south to the north.

Taxpayers in Kent were now paying 35 per cent of the council budget compared to 25 per cent in 1997, he said.

Alan McKendrick, chief executive of Aylesford Newsprint, spoke about the challenges for manufacturing. He said that job numbers had nearly halved from seven million 20 years ago to 3.8m today.

The past year had been "one of the most challenging business years" he had ever known, he said.

However, despite signs of a fragile recovery, he urged the Government to take more interest in manufacturing.

"Since 9/11, manufacturing has probably been the hardest-hit sector in the UK and this uncertainty continues. However, I believe that those that are managing to survive should now be in a very good position to prosper in the future."