Page last updated at 02:58 GMT, Monday, 24 November 2008

CBI details 10-step economy plan

Richard Lambert
There is a risk healthy firms will collapse, warns Mr Lambert

The CBI has set out a 10-point plan to help boost the economy and prevent small firms from collapsing in the face of the downturn.

In a letter to the prime minister, the CBI is asking the government to help struggling firms with their cash-flow.

CBI boss Richard Lambert warned that without help "there is a real risk we could see healthy firms going under".

He said a temporary cut in employer National Insurance contributions would be the best way to keep people in jobs.

But he added: "Given the poor state of public finances any stimulus package will need to go hand-in-hand with a credible framework for getting back on track."

Pre-Budget report

The letter comes as the government is to announce its pre-Budget report on Monday, which is being seen as Labour's most crucial test given the recent financial turmoil and economic slowdown.

The risk in the current circumstances is that viable companies will go under... companies are cutting costs because their backs are up against the wall
Richard Lambert, CBI director general

In the letter to Gordon Brown, Mr Lambert said: "Given the particular characteristics of this downturn - with its severe squeeze on corporate cash-flow and associated threat to jobs - the main focus of the fiscal stimulus should be to underpin the aggregate level of employment."

He said the alternative, of seeking to encourage spending through cuts on income tax or Value Added Tax (VAT), was "likely to be less effective" given that there was an increasing chance people would save any money gained given ongoing financial uncertainty.

Newspaper reports have said the government is likely to cut VAT by 2.5% when it sets out its pre-Budget report.

Talking to the BBC, Prime Minister Gordon Brown refused to comment on such speculation but said the report would include "substantial" measures to inject money into the economy.

'Quick and painless'

The CBI said there were some "relatively quick and painless things the government could do that would provide an immediate boost to business, such as scrapping empty property rates, a temporary freeze on business rates and bringing forward some elements of planned capital spending."

As well as finding ways to improve the flow of capital for firms, the CBI's 10-point plan includes saying the Bank of England should act as insurer of last resort on a temporary basis for firms.

This is because insurers are more reluctant to support small suppliers against a larger customer going bust, said the CBI.

It also called for "modest" business tax cuts and urged the speeding-up of planned capital spending projects, such as for the building and refurbishment of schools and for social housing.

The group also wants to see incentives for small and medium-sized firms to employ apprentices to boost their skills as well as support for export firms.

Also on Monday, the CBI is launching a survey of UK-based firms which looks at how the financial crisis is spreading across the economy.

The survey showed that half of the firms affected had seen a worsening in the availability of working capital.

The survey, conducted by Ipsos Mori, looked at 204 firms of different sizes and industries.

A third of those surveyed said lines of credit had been reduced or withdrawn, while another third said new credit applications had been refused.

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