Administrative red tape within the EU will be cut by 25 per cent in the next five years, the European council announced today.

The initiative, which is estimated to offer €150 billion (£100 billion) of savings for European businesses, was agreed upon by EU heads of government at a meeting in Brussels.

A total of 13 policy areas have been targeted for an administrative overhaul, including company law, financial services and transport.

Minister for the cabinet office Hilary Armstrong stressed that eliminating bureaucracy would help firms remain competitive, saying: "Red tape is both costly and irritating for business, particularly SMEs [small to medium-sized enterprises].

"This EU agreement will reduce some of the biggest burdens, so that businesses can spend less time filling in forms and more time concentrating on improving their competitive position," she added.

After evaluating the administrative burden within the chosen policy areas, the commission will make specific proposals at the March 2009 council meeting.

The initiative is supported by the UK's Better Regulation Commission, established in 2005 to help reduce red tape in Britain.