Page last updated at 09:26 GMT, Monday, 20 October 2008 10:26 UK

Cameron proposes 1p cut for firms

Small businesses are the life blood of our economy and they need help says David Cameron.

Conservative leader David Cameron is calling for a 1p cut in national insurance to help small businesses during the economic downturn.

He said the reduction should last six months for companies which employ four staff or fewer.

Mr Cameron told the BBC many small businesses would "be going to the wall unless they get help".

Meanwhile, Labour is considering delaying a planned expansion of flexible working to help businesses.

The Ernst & Young Item Club think-tank said the economy had "deteriorated dramatically" in the last three months, and predicted a decline in investment and rising unemployment.

'Tough time'

It predicted that economic growth would decline by 1% next year before recovering in 2010, when it would see 1% growth.

The Conservatives said the 1p national insurance cut could save a small business as much as 600, which, for example, could help pay the interest on an outstanding loan.

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The change would cost the Treasury 225m and could be paid for out of an existing Tory commitment to cut complex tax reliefs and allowances, the party added.

Mr Cameron told BBC Radio 4's Today programme: "Good small business will be going to the wall unless they get help."

The national insurance reduction would "help with what's going to be an extraordinarily tough time".

Mr Cameron said it was a "real tragedy" that Labour had built up the "biggest budget deficit in the industrialised world", reducing scope for more tax cuts to stimulate the economy.

'No magic wand'

He added: "To stop a downturn turning not just into a recession but a slump, we must save small businesses...

"We would like it if there was a magic wand. If we were like Sweden and had a budget surplus we could do much more."

Mr Cameron also said he wanted a six-month VAT holiday for small and medium-sized firms and called on local authorities to pay small businesses within 20 days for their services, rather than 30.

For Labour, Chief Secretary to the Treasury Yvette Cooper said she was confused over how the Tories planned to pay for the national insurance cut.

She told BBC Radio's Five Live increasing tax elsewhere in the business system "seems to me like putting taxes up".

Liberal Democrat Treasury spokesman Vince Cable said: "My own preference would be that, if there's room for tax cuts, to give ordinary people their own money back.

"Then they will spend more on services and goods that small business provides."

Spending priorities

Meanwhile, Labour is considering delaying its plans to give flexible working rights to all parents with children under 16, in a move that will help businesses but anger many Labour MPs.

According to the Independent newspaper, a review has been ordered by Business Secretary Lord Mandelson of plans including an expansion of flexible working for those with children and an extension of maternity leave from 39 to 52 weeks.

Chancellor Alastair Darling has said the government plans to use public spending to boost the economy.

"You will see us switching our spending priorities to areas that make a difference - housing and energy are classic cases where people are feeling squeezed," he said.

But Mr Cameron criticised the government's plan to bring forward several major public service projects to help stimulate the economy.

"If the government goes on a spending splurge, paid for by another borrowing splurge, everyone knows that would mean not only higher taxes, but it might also mean that the Bank of England wouldn't be able to cut interest rates as fast as everyone would like," he said.

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