Gordon Brown has been criticised by a committee of MPs for a decision that cost taxpayers £670 million over two years.

The Treasury committee censured the chancellor for the controversial moves on the zero rate of corporation tax.

"We are puzzled that, unlike other commentators, the tax authorities and the Treasury did not anticipate the likely effect of introducing the zero rate," said the report.

The Treasury has now accepted that the loophole needs to be closed, and in his Budget last month the chancellor announced that he will impose a 19 per cent tax on the distributed profits of small companies.

The report also raised doubts about whether the government will achieve its target of saving £20 billion a year across the public services.