Trade minister Lord Jones has said the chancellor's tax policies will undermine London's international competitiveness.

Alistair Darling announced in his pre-Budget report that foreigners living in Britain for more than seven years could be charged £30,000 a year to avoid paying UK tax rates.

It is thought the scheme could raise an extra £650m a year.

But Lord Jones told the FT that there was serious concern in the City about the plans.

"I can give you five reasons as to why you should invest in Britain before you go and invest anywhere else in Europe," he told the newspaper.

"But maybe there were seven and now there are five."

And the minister said the policy had "caused people to say 'Does this mean you don’t want us?'".

"I don't want to be in the position where one morning we wake up and people are saying 'Digby, no matter how good you are at doing what you do, the product isn't as good as it was'".