UK Chancellor of the Exchequer Alistair Darling on Tuesday launched a review of the competitiveness of the UK’s tax system in response to a threatened exodus of British companies to low tax Ireland.

The move follows decisions by Shire, the UK’s third-biggest pharmaceutical company, and United Business Media, the publisher, to relocate headquarters to Ireland for tax reasons.

British businesses and the Government will form a new working group to look at the long-term challenges facing the UK tax system and ensure competitiveness remains at the heart of any future reforms.

In his speech to a Chatham House conference on “New Financial Frontiers” Darling set out plans for a new working group, to be chaired by Financial Secretary Jane Kennedy with business representatives.

The group will discuss ways in which the tax system can provide the long-term certainty that multinational companies need in the face of increased competitiveness and other global challenges facing both business and government.

In his speech the Chancellor said:

“We need to anticipate a growing problem for all governments – how to protect revenues in an increasingly global market place for goods and services while promoting the competitiveness of our businesses so that they can take advantage of open markets.

“Tax is one element of the strong business environment which makes the UK competitive at a global level. The UK corporation tax rate is one of the lowest in the G7.

“I am determined that we do what is necessary to remain one of the world’s best places to do business – and critically to ensure that we maintain our strong and resilient economy and our position as the world’s leading financial centre.

“I am therefore bringing together a group with industry representatives to discuss ways in which the tax system can provide the long-term certainty multinational companies need, considering the competitiveness and other challenges facing both businesses and government.”

UK media giant WPP has warned that the UK’s complex corporate taxation could force it to relocate. The advertising group headed by Sir Martin Sorrell has said that it would decide after examining Treasury proposals on taxing foreign profits due out this summer. AstraZeneca, the drugs group, also would not rule out relocating.

The key issue for companies are plans to change the tax treatment of UK companies with overseas subsidiaries to stop them reducing their bills by diverting profits to low-tax jurisdictions.

Hilary Benn, the environment secretary, on Tuesday announced he would be selling his shares in UBM because he “does not wish to be drawn into this matter”.

The CBI employers’ organisation said it recognised the government had “little room for manoeuvre” to offer tax cuts in the short-term. But Richard Lambert, the CBI director-general who is expected be a member of the new working party, said he wanted to see “certainty and clarity and a sense of direction” on taxation in the medium-term. “I don’t want this to be a talking shop,” he told the FT. “There is a real problem for the UK here.”

The Treasury said the working group would not be a “substitute” for consultation but was an overhaul of the way foreign profits were taxed. The government estimates that it could lose £1bn in tax revenues if it caves into industry pressure to relax the proposed anti-avoidance regime.