Tories propose aid for small firms

He accused ministers of putting vital interest rate cuts at risk with a spending "splurge" as he set out plans for a VAT holiday and National Insurance reductions for small firms.

Chancellor Alistair Darling said on Sunday that he was ready to pour billions of pounds into major public works in an attempt to fend off the worst of the economic downturn.

"In politics you only have a certain amount of time and capital to expend; spend it on the things that will make a difference and that is where helping the cashflow of small businesses would actually be a lot more powerful than what (Alistair Darling) was talking about at the weekend," Mr Cameron told the BBC Radio 4 Today programme.

"If you have a big deficit, as we do, if you then go on a further splurge and make it larger, everybody knows that means taxes are going to go up in the future so they behave accordingly, and also the Bank of England will be more reluctant to reduce interest rates.

"And if we are actually looking at what puts money back in people's pockets, it is actually those interest rate reductions that feed through into lower mortgage payments and that's what people desperately want. If the Government behaves stupidly they won't get them."

Mr Cameron will hold a summit with small business leaders in the House of Commons to discuss his proposals, which also include calling on local authorities to pay small businesses for their services within 20 days, rather than 30.

Under the Tory proposals, businesses with fewer than five employees would have the rate of employers' National Insurance that they pay cut by 1p for at least six months.

The party said a firm with four workers and an annual wage bill of £150,000 would save more than £100 a month or the equivalent of 15% interest on an £8,000 overdraft.

It would be paid for, alongside a cut in corporation tax rates for small firms to 20p, by abolishing reliefs and allowances introduced by Labour.