The Treasury is set to see lower revenues as business gets to grips with a £160 billion fiscal black hole, the CBI has warned.

Gordon Brown's hopes for an economic recovery will be undermined as businesses are forced to double their pension contributions over coming years.

The CBI claims the additional contributions will lead to sluggish investment and could result in a 0.4 per cent reduction in company's profits.

The business chiefs warn that corporate investment could drop by over two per cent as a result of the pensions crisis.

Ian McCafferty, an economic adviser at the CBI, said: "The magnitude of the pensions deficit has become a serious concern. It leaves companies caught between a rock and a hard place.

"It is not the only explanation for low investment but it is a huge part of the problem. The economy will suffer, with the effects rebounding on the government through lower tax receipts."