The Liberal Democrats have called on the government to cut the burden of red tape on small businesses.

Party leader Charles Kennedy urged ministers to introduce more "sunset clauses" into regulations to end a problem that had reached "epidemic proportions".

In a speech to the Federation of Small Businesses, Kennedy said there should be a full assessment of the impact legislation will have before it reaches the statute book.

"Under new Labour, new regulation has reached epidemic proportions. In one single year - 1999 - the government introduced 3438 new pieces of primary and secondary legislation. Most of it had a disproportionate effect on small business," he said.

"Of course, some regulation is needed. But many of the burdens which the government loads onto small businesses are totally unjustified. It's a scandal that government so often makes hard-pressed businesspeople take on tasks which civil servants should be doing. Businessmen shouldn't be expected to act as immigration controllers - checking the rights of residence of their employees."

Kennedy also called for a single small business inspectorate to be set up to avoid conflicting advice and compensation for time lost filling in tax returns.

He also claimed Britain was less able than our EU partners at negotiating opt-outs from EU directives and Whitehall was adding to the confusion by complicating the procedures for carrying them out.

"Most other EU states are vigilant on behalf of their small business sector. They've become very accomplished at negotiating derogations and exemptions. The British government has proved strangely reluctant to do this. It's time that Whitehall got rid of its delusion that the EU operates according to the rules of cricket," he said.

He suggested that the climate change levy should be replaced with a carbon tax as it was "a thoroughly unfair and clumsy tax".

"It has created a whole new layer of administrative burdens for businesses. In addition to VAT, you have to give endless extra details to the revenue on invoices and returns."

Kennedy used the occasion to re-state his support for Britain's entry into the euro saying a fixed exchange rate would be a huge benefit to UK firms that trade in Europe.

"Let's not forget that over half Britain's overseas trade is with other EU countries. If you know how much your raw materials are going to cost and you know how much you're going to get for your finished product and you know those rates aren't going to fluctuate, it makes it an awful lot easier to do business," he said.