Business leaders today welcomed Budget plans to protect firms against a reduction of vital trade credit ­insurance.

Chancellor Alistair Darling is ­tomorrow expected to announce a ­temporary scheme to provide top-up insurance cover worth up to £5 billion alongside the same figure from private insurers.

Retailers and small businesses have been hit by the reduction or total ­withdrawal of credit insurance ,which protects suppliers against a customer failing to pay for goods.

Many insurers have raised premiums or withdrawn from high-risk markets altogether, leaving firms facing demands for upfront payments from suppliers. Such a situation can lead to the sort of cashflow problems that helped to trigger the collapse of Woolworths and MFI.

Darling has agreed to offer guarantees to firms that have seen their cover reduced but not cancelled.

Bill Grimsey, chief executive of Focus DIY and a critic of credit insurers, said this would still leave some firms strand­ed. “Companies that have had their cover completely withdrawn will find themselves out in the cold still if a top-up measure is introduced,” he said.

But others welcomed the move which comes after months of negotiations between the Government and Atradius, Euler Hermes and Coface, which have 85% of the global market for credit insurance.

The temporary scheme will run from 1 May to New Year's Eve and be available to firms that have seen their cover changed since 1 April this year.

The British Retail Consortium said it was vital for the survival of many firms on the High Street and added that the Government was right not to provide cover in high-risk cases where insurance has been withdrawn.

“We didn't want the Government to take on unnecessary risks,” said spokesman Krishan Rama.

“If the ­private sector didn't want to provide insurance, we didn't want the Government to take on that risk. We were asking for the Government to match what the private sector was willing to provide, so this is a welcome move.

“Credit insurance is very important because it protects suppliers and if it is withdrawn then suppliers will ask for this money to be paid upfront which leaves retailers with cashflow problems and undermines their ability to trade.”

Steve Radley, chief economist at manufacturing group EEF, said: “This is a package that ticks many of the right boxes and business will broadly welcome it. It is unfortunate that it can't be done retrospectively.”