Iain Duncan Smith has called on the prime minister to "give business a break" during exchanges in the House of Commons.

Mounting a challenge to Tony Blair on a day when new data showed a rise in unemployment - particularly in the manufacturing sector - the Conservative leader said a combination of "red tape and stealth taxes" were destroying British jobs.

Duncan Smith quoted CBI director general, Digby Jones, in support of his argument that the government was introducing an excessive number of regulations.

He said Labour had imposed over £10 billion in new costs on British industry. "Britain needs a government that realises red tape and stealth taxes are costing people their jobs," said Duncan Smith.

In a partisan series of exchanges, Blair hit back saying Britain had the lowest interest rates for 40 years, the lowest inflation in the European Union and the highest employment rates of any major country.

Blair said Britain's current economic woes were "not to do with tax or regulation". He described the rise in unemployment as "deeply regrettable".

The PM also dismissed claims that his government had introduced more red tape, saying most new regulation orders are on local matters and nothing at all to do with industry.

He added that the £10 billion cost figure was largely due to the introduction of the minimum wage and the European working time directive, which was agreed by the last Conservative administration.

And he contrasted the current downturn with that of the early 1990s in which one million jobs were lost, output fell and interest rates rose to 15 per cent. Blair said that as a result of Labour's economic policies Britain was "more prepared to weather the storms we have".

Liberal Democrat leader Charles Kennedy pressed the prime minister on legislation to detain suspected terrorists operating in the UK, saying it was important to protect the freedoms that Britain has traditionally enjoyed.

"In sharing the Prime Minister's desire to fight terrorism in Britain would he concur that we do not wish to do so by unduly undermining our existing human and democratic rights here? In that context, therefore, would he reconsider the proposed parts of the new anti-terrorism legislation which seeks to remove the right to judicial review where Special Immigration Appeal cases are concerned? Doesn't that run the risk of sending quite the wrong signal?" asked Kennedy.

Blair replied that the decision to introduce emergency powers had been taken "reluctantly" but there were omissions in the current legislation that needed to be dealt with.

In his second series of questions, Duncan Smith challenged Tony Blair to say that in-patient waiting lists had risen under his stewardship.

The Tory leader said that in some circumstances the number of patients waiting for in-patient treatment were five times higher than under the Tories.

Blair conceded that some people were waiting longer, but said overall waiting times were down.

"The BMA can criticise us although the only group of people who can't are a Conservative Party who are opposed to our moves to make the health service better," said Blair.