"There should have been a third runway at Heathrow in the 1940s and only two got built," Branson told Reuters in an interview. "Meanwhile, in France, Germany and Italy about 24 new runways have been built and, as a result, Britain is being held back."

BAA's Heathrow is operating at full capacity after Britain's Conservative-led coalition government blocked development of a third runway when it came to power in 2010 as further expansion of the west London site would mean a huge increase in the number of planes flying directly over the capital.

There were 476,197 flights at Heathrow in 2011, representing 99.2 percent of the airport's limit.

Heathrow is falling behind rival European airports in Paris, Frankfurt and Amsterdam in the battle for lucrative routes to the Far East because of the constraints on growth.

Branson said a lack of space at the London hub was stopping Virgin Atlantic competing with IAG's (ICAG.L) British Airways domestically and on routes to emerging markets.

"We can't fly to Beijing or most of the Far Eastern or African routes in competition with British Airways and we also can't fly to most of the emerging south American destinations," said Branson. "Because Virgin Atlantic is being held back it means we can't fly in hundreds of thousands of people who will go elsewhere in Europe instead."

The billionaire tycoon also called on the British government to abolish the UK's tax on flying - Air Passenger Duty APD.L - and take action to improve immigration services at UK airports.

"Britain should make arriving at the airport in immigration the most magical, wonderful thing. It should be 'welcome to Great Britain' not 'we suspect every single one of you of being terrorists'," he said.

Virgin Atlantic plans to bid for slots at Heathrow to start daily flights to Moscow next year after IAG was forced to sell 12 landing slots at the airport following its takeover of bmi, said Branson. (Editing by Mark Potter)

• A Permanent Economic Emergency