Vince Cable’s attempt to whittle away at the regulatory burden on business is being frustrated by the Treasury’s unwillingness to take part in his “red tape challenge” according to business department insiders.

Officials in the two departments are at loggerheads over the Treasury’s refusal to allow the business department to pore over the regulatory burden being caused by tax regulation. Treasury mandarins say they are more than capable of dealing with tax issues through the Office of Tax Simplification .

“The Treasury is not in the red tape challenge because it is too important,” said one business department official. “But the department is a big barrier to cutting regulation because there are quite a lot of tax regulations.

“The Treasury thinks the OTS should do this, but you have to see red tape holistically. The Cabinet Office is pushing other departments to take part and the Treasury should be doing it too.”

The red tape challenge was launched as an attempt to begin whittling down the 21,000 regulations on the statute books for Britain’s businesses by asking the public to tell the government which red tape they wanted to see dropped.

Adam Marshall, policy director at the British Chambers of Commerce, said businesses had long expressed concerns about excessive regulation in the UK.

“Companies do want to see concrete changes on the ground in coming weeks. Many ministers are keen to deregulate and many businesses are keen to see them do so quickly,” he said.

Treasury officials acknowledged that the department was not taking part in the red tape challenge, which to date has centred around employment law, pensions, health and safety rules, environmental and equalities legislation and company law.

But they stressed that the Treasury was already implementing change, noting that HMRC had cut the administrative burden on business, saving companies more than £580m a year.

One Treasury official said this week that colleagues had been “surprised” by the grumbling from the business department. “It is fair to say our two departments have not always seen eye to eye but we have actually been working together well on the growth review,” said the official.

George Osborne, the chancellor, will announce the second phase of the plan to kick-start the economy on November 29. The main thrust is expected to be around plans for credit easing, flagged by the chancellor at party conference this month, to help small businesses access finance.

Last week, ministers put employment law in focus by asking businesses to help whittle away more than 160 employment regulations. Rules under review include those on collective redundancies, employment agencies, immigration checks, the minimum wage and statutory sick pay.

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