A growing digital divide between town and country is hampering the development of rural businesses, a report warned today.

The study said that 95% of urban households have access to affordable broadband internet services but only 26% of market towns, 7% of rural villages and 1% of more remote areas can receive similar services.

The Countryside Agency's 2003 State of the Countryside report warns that such restrictions could put rural businesses at a disadvantage, leaving them unable to compete fairly with urban businesses with high speed internet access.

The agency's chairman, Sir Ewen Cameron, said a lack of broadband access would deny new rural businesses a "market for their products and services."

The report also suggested that the use of video conferencing via affordable high speed internet connections - used by 6% of surveyed rural firms compared with 17% of their urban counterparts - could overcome the geographical barriers that rural businesses sometimes face. It added that broadband access could encourage them to make more of the opportunities offered by new technology.

However, the report accepted that what it described as "lower sophistication by rural firms" -which it said accounted for a lower take up of external email or online sales - may also help explain the lower number of broadband connections.

Sir Ewen said new technologies would also offer residents access to essential services that no longer have a local physical presence and urged the government to set a "realistic target" for reaching the whole rural population with broadband.

"In particular, young people living in remoter areas need the same access to the latest entertainment, education and training, delivered through broadband, if they are not to feel disadvantaged compared to their urban counterparts," he told the BBC Radio 4 Today programme.

The report also complains there has been no improvement in the shortage of affordable housing in the countryside and observes that rural post offices are continuing to close.

"While it shows that life in the countryside is generally good for many people who enjoy better standards of health, less fear of crime, higher education qualifications, and get on better with their neighbours, too often problems lie behind this overall favourable picture," Sir Ewen said.