Alistair Darling has announced a £200m concession on his plans to change the rules on capital gains tax.

The chancellor told MPs on Thursday that he would go ahead with plans to impose a flat rate of 18 per cent, ending the 10 per cent rate for business assets held for at least two years.

But he announced new concessions designed to win the support of small business owners, who had reacted with anger to the sudden increase in their tax bills announced in Darling's pre-Budget report last autumn.

The Commons was told that the earlier proposal for an 18 per cent rate would be cut to 10 per cent on the first £1m of lifetime capital gains made by entrepreneurs and business investors.

The "entrepreneurs' relief" will apply when the owners of small businesses sell their firms, and will be available to all employees and company directors who invest a "material stake" in a qualifying company.

Critics had claimed that under the original plans small businesses faced an almost doubling of the their tax bill when they came to sell up on retirement.

But Darling insisted his new plans would strike the right balance for entrepreneurs.

"The UK business environment remains one of the best in the world and I am determined to keep it that way," he said.

However shadow chancellor George Osborne attacked Darling's "short and inglorious" time in the Treasury.

He said the capital gains tax plan had attracted "the universal opposition of British business".

Darling had "announced a retreat on his one big idea", providing a "textbook example of how not to write tax law in this country", he added.

The shadow chancellor also claimed that the package as a whole remained a £700m "tax on enterprise".

Liberal Democrat Treasury spokesman Vincent Cable warned that the proposals could lead to greater tax avoidance.

The Federation of Small Businesses welcomed the changes to the government plans, but added that faith in Labour had been damaged by the original proposals.

John Wright, FSB national chairman, said: "The chancellor said specifically today that he wanted to help small businesses facing big tax rises from April and that is very good news indeed.

"The entrepreneurs' relief he announced today is close to the proposals we put forward at the end of last year.

"They will go some way to protecting entrepreneurship in the UK as well as benefiting small business owners planning to pay for their retirement with the sale of their businesses.

"We welcome these plans, but the way in which the whole issue has been handled has seriously eroded small businesses' trust in the government."